7 Top Causes of Startup Failure

As much as we know many businesses are struggling to survive in these difficult times, there are some factors that have been common causes of startup failure even without a pandemic. These include both internal and external factors in a business. These are factors that are not known by the entrepreneurs, or known but neglected by them, resulting in startup failures.

Startup failure is something that not only disables a business from getting off the ground but also kills the morale of young and enthusiastic business owners. That’s why it is vital to educate people about the reasons startups fail, so that they can be avoided by all means, and the resources invested in startups can be saved.

The economic downturn and mental health disruption of many passionate entrepreneurs are caused by startup failure. Thus, if we know why startups fail and can do something about it, we can also protect the mental health of all those who start different businesses passionately.

Startup failures do not happen within the first month of starting a business. Sometimes, a business takes months to get its first few clients or make its first few sales. In these circumstances, it is still considered a startup during all those months. After investing a lot of time and money into a business when it's not able to break even and start making a profit, there is something wrong with the business infrastructure and its marketing plan. The marketing plan, however, can be rectified.

Since startup failure is a sensitive issue, we will only talk about the common reasons startups fail. Sometimes, besides these reasons, there are personal matters of the stakeholders involved that contribute to the causes of startup failure, but we wouldn’t be discussing those here.

7 Most Common Reasons of Startup Failures

Here are the 7 most common factors that cause startup failures.

1. Focus on Only Short-Term Goals

It can be very tempting for a new business to keep its focus on only short-term goals. For instance, a business not only needs a strategy to get its first 100 customers but also to retain those customers and make them loyal to the brand. If a business cannot maintain its customer base and tempt its customers to keep buying from them, it is bound to incur losses in the long run.

A smart business owner knows that a business must have high customer lifetime value. This means every time a business, or a brand, gets a new customer, it must put in efforts to build a long-lasting relationship with the customer. It costs more for a business to get a new customer than to keep an existing one. So the long-term goal of retaining customers, which brings in repeat purchases, is always fruitful for a business. Focusing on only short-term goals benefits a business for the short term only, whereas targeting for long-term streams of revenues helps avoid startup failure and enables the business to continuously grow.

2. Inadequate Advertising Strategies

Advertising strategies must always be well-planned and carefully implemented. If your advertisements are not appealing enough, or are targeted to a general audience rather than to a niche target market, they cause nothing but a waste of resources, leading to startup failure.

Startup failures that occur because of inadequate advertising strategies can be avoided by carefully choosing the channels of advertising, and then designing ads that maximize their reach, relevance, and conversion rate.

3. Poor Location of Business Premises

This particularly applies if a business is running through brick-and-mortar outlets. The location of the outlets of a business play a major role in determining whether or not it is going to be a success. A retail outlet, such as a boutique, should always be opened at a location where there is high traffic. An excellent location enhances the visibility of a brand and makes it convenient for customers to walk in. A poor location is one that is difficult for customers to spot and provides them with no extra incentive to enter and explore the shop.


Startup failure occurs when a business does not put in enough planning into choosing the location of its premises. This can also apply to the location of its offices. The office of a business should clearly mention the brand name. Signages should mention contact information that’s easily readable by those walking or driving by. Failure to put proper thought into the location of business premises is a receipt for startup failure.

4. Lack of Variety

Customers need variety. They like it when they are given different options to choose from, or when a product keeps getting available in updated versions and diversified features. Therefore, companies making electronic gadgets are always announcing version upgrades and product line extensions. These companies know well that if they do not offer variety, that might become the reason for their startup failure.

This also applies to consumer products, and particularly to the food industry. Restaurants and catering services need to monitor their customers getting bored with the taste of their food dishes. Nobody wants to eat the same sauce on the same crust at a pizza place for years. If a pizza maker wants to avoid startup failure and continue making sales, it needs to add variety to the taste it offers in its pizzas.

5. Poor Budgeting or Sales Forecasting Skills

In order to prevent startup failure, a business must be able to allocate its financial resources efficiently. For instance, keeping too much budget for a shop’s renovation and running out of budget for putting up billboard ads for it can lead to startup failure.

If a business runs online, allocating a very high budget for its website development, and showing miserly behavior in making digital marketing efforts to drive traffic to the website, is a clear-cut recipe for startup failure.

6. Inefficient Order Management

A business needs to have enough expertise and tools to handle the orders it gets from customers. This particularly applies when the number of orders grows. Many businesses start off well when they have only one or two customers, but when growth begins, the staff starts panicking and they either run out of resources or do not use them efficiently. This is often the reason startups fail. As soon as they scale up, their orders go chaotic and that results in customer complaints, and ultimately leads to startup failure.

Good order management is the key to business success. It keeps customers well informed and satisfied with your delivery and service. Managing your orders well is a part of providing good customer service, and preventing startup failure.

Screenshot of Strikingly editor showing a record of the online store's orders

Image taken from Strikingly

7. Inability to Define Buyer Persona

The buyer persona of a business defines the characteristics of the ideal customer that the business needs to target. Businesses that can define buyer persona well are better equipped in their marketing strategies because they know exactly who they need to target and which markets they have to penetrate.

On the other hand, businesses that do not put in effort in defining their buyer persona end up wasting resources and increasing the chances of startup failure. If only you know who you are designing your marketing messages for, you might come up with the right marketing content.

10 Tips to Avoid Startup Failure

Now that we know the possible causes of startup failure, here are 10 tips or actions you can take to avoid all such situations.

  1. Carry out thorough market research before starting your business. This includes conducting SWOT analysis, testing different pricing schemes, interacting with your potential customers, and discovering new ways of digital marketing.
  2. Focus on establishing a proper online presence for your brand. Since we are living in a digital age, your brand’s visibility on the internet is even more important than its discoverability offline.
  3. Learn to manage your finances well right off the bat. If you cannot do this yourself, hire staff that’s skilled in financial management, and can recommend efficient budget allocation schemes.
  4. Manage your risks well. Keeping a healthy balance between taking risks and avoiding losses helps to avoid startup failure.
  5. Prepare a solid business plan. Without a well sketched-out business plan, you are simply setting yourself up for startup failure.
  6. Market and promote your brand, products, or services continuously. In these digital times, running ads for your products and services is relatively cheaper than before. If you don't market your business, your target audience will not find out about it. That could lead to startup failure.
  7. Hire a good team of people to run your business operations. Even if you want to save costs by carrying most of the business operations yourself in the beginning, you would ultimately need to hire staff to avoid work overload and startup failure.
  8. Build a website for your business. Keep it user-friendly, responsive, easy to navigate, and cheap to maintain.
  9. Keep track of your website’s audience list to know who signed up on your site, either through membership, contact/sign-up forms, store buyers, chats, etc.

Audience List

Image taken from Strikingly

  1. Integrate your marketing efforts by linking your website with your social media pages.

Showing social media icons on a Strikingly user's landing pag

A business can fail at any stage of its growth, but startup failure is the most hurtful. Startup failure can make you lose your confidence because it’s like you invested all your resources into something, and it failed before you could even begin to reap the benefits of your efforts.

If you are looking for an easy and cost-effective way to build a website for your business, try out Strikingly.

Screenshot of Strikingly landing page

Image taken from Strikingly

We provide tools and solutions for you to build a website yourself, without the help of a web developer and without requiring you to have any coding skills. Our support team is available to assist you 24 hours a day. All you need to do is sign up for your free Strikingly account, choose a suitable template, and start keying in and arranging your website content using our drag-and-drop feature.