List of Top Reasons Why Small Businesses Fail

List of Top Reasons Why Small Businesses Fail

Causes of Startup Failure

Only 1 out of 12 startup businesses become successful. Due to this statistic, many question what the causes of this mortality rate are. Here are some observations made by the Startup Genome Project after the analysis of 3,200 companies:

The 4 Beginning Steps to Startup Development

1. Discovery
This is where companies verify whether or not they are meeting the needs of a significant problem.

• Average Funds Raised: $0.2
• Average User Growth: 6%
• Average Number of Employees: 1
• Average Months Worked: 7

2. Validation
Confirm that people are genuinely interested in your product.

• Average Funds Raised: $0.8
• Average User Growth: 21%
• Average Number of Employees: 4
• Average Months Worked: 11

3. Efficiency
Improve your business model and the efficiency in which you deal with customers.

• Average Funds Raised: $0.9
• Average User Growth: 29%
• Average Number of Employees: 4
• Average Months Worked: 17

4. Scale
Grow and expand your business aggressively.

• Average Funds Raised: $3
• Average User Growth: 43%
• Average Number of Employees: 17
• Average Months Worked: 25

Statistics of Consistent and Inconsistent Startups

Inconsistent companies scale prematurely, while consistent companies scale at a proper rate.

Inconsistent Companies
• Scale prematurely
• Raise on average $1,100,000 in funds
• Have 50% larger teams before scaling and 50% smaller teams after scaling.
• Report themselves at a value of $12 million before entering the Scale stage.
• Raise 3 times more money in the Efficiency stage.
• Grow 10-12 times more quickly in the Discovery stage
• 99% stay below 100,000 users.
• Write 3.4 times more lines of code in the Discovery stage.
• 77% spend 50% of their time and resources on product development.

Consistent Companies
• Scale at a proper rate
• Raise on average $3,400,000 in funds
• Report themselves at a value of $800,000 before entering the Scale stage.
• Raise 18 times more money in the Scale stage.
• Grow 16-26 times faster in the Scale stage.
• 23% grow to exceed 100,000 users.
• Write 2.25 times less code in the Efficiency stage.
• Spend 45% on developing customer relations.

As you can see, companies that grow inconsistently are less likely to succeed because they are growing too quickly and prematurely. A business needs time and effort in order to grow at its natural rate. This factor is one of the deciding reasons of why startups succeed or fail.