I normally write about the more positive aspects of startups, such as how to succeed and grow your business. One of my inspirations to write this article comes from the fact that startups which fail are rarely a cause for feeling like a fun entrepreneur. Sometimes entrepreneurs feel like they have little choice which business to start. The entrepreneur’s experience might be limited or the family is all connected in the same line of business. Notwithstanding, if you are thinking of setting up any of the following businesses, especially if this is your first business, you might want to rethink your decision. These are the top five most common startups which fail.
5. Restaurant or coffee shop apps
With the growing ease of creating and marketing apps these days, it seems that everyone wants a bite of the action. The most common type of app is the one where users get a list of restaurants, bars, and coffee shops that are closest to their current location, such as Yelp or LocalEats. Other Apps, such as OpenTable, make the online reservation process simpler.
Whilst these are examples of Apps that have possibly made it, hundreds of other startups which failed to get repetitive customers, disappeared. These Apps offer great flexibility and a positive experience to the customer. However, for the restaurant owner who is paying for their development, they do not result in a direct increase in revenue. Many Apps which let you rate your waiting staff or let you order and pay from the table just don’t increase the sales of the restaurant. As a result, they are quickly discarded.
Such Apps are a great example of a person starting a business, assuming that it will solve a problem, but not having checked it beforehand. This is why market research is so important. The creators of these Apps are probably great at coding but are then not capable of selling their product to the restaurant owners.
4. Retail stores
Retail stores require a considerable investment from entrepreneurs and many start-ups fail because of insufficient capital. Irrespective of whether the store is selling clothing, white goods, or lighting, the start-up requires significant investment. Whilst entrepreneurs might succeed to secure a certain amount of investment, they often overlook the marketing costs and the running costs until the business takes off.
A staggering 80% of retail shops do not make it past 5 years. Retail shops also tend to tie down the business owner who would take out a business loan to fund the company. This means if an opportunity for growth appeared, getting more funding would be very difficult.
One of the main reasons for the failure of retail stores is their location. Unless a huge ongoing marketing campaign is launched by the retail shop, the only chance for survival is based on having sufficient walking traffic outside. Understandably, however, this increases the rental cost so again it would require a higher initial investment. Retail stores selling common goods face huge competition from the larger stores. They often lose a lot of potential customers due to ineffective marketing.
3. First-time restaurants
Restaurants are one of the oldest businesses in existence. Whilst successful ones can generate a substantial profit, many are end up being classed as startups which fail. Very often it is the inexperience of first-time restaurateurs that causes their failure. Those who succeed with their first restaurant tend to open successful second and third ones.
Very often restaurant owners are also the cooks. They love food and they love preparing it. Their aim is to provide an exquisite experience in the hope that customers keep coming time and time again. This causes a problem; good quality food costs money and if you are not careful there could be a lot of waste. The challenge which main fail at is creating a large enough audience who like the food and are ready to pay the right price for it.
The restaurant business is indeed a fierce one. The number of startups which fail in this industry is estimated at around 60%. Competition in main cities and hubs is one of the highest causes of failure. The owner’s lack of marketing is often one of the main causes of such failure. In a market where the competition is constantly shouting at your audience, you need to shout better and louder.
2. Utilities service businesses
Whilst such businesses are in great demand and generally offer a good profit to the skilled providers, they do have an Achilles heel. In order to keep up with demand, business owners often employ new staff. Following a certain period of training and experience, the newly skilled staff move on to set up their own businesses. In the end, they normally start actively competing with their former employers. This risk often stops business owners from employing other people which means that the business growth is finite. In such cases, if the business owner is unavailable due to sickness or leave, or because of a high workload, then potential profit is lost.
The competition that succeeds in having a reliable team targets such small businesses. It seeks to slowly siphon off competitor’s business by offering a faster or cheaper service. They also run marketing campaigns and special offers that small business owners do not, thus becoming startups which fail.
1. Most startups which fail are information portals
People who start a business based on offering generic information tend to fail after a short period of time. This is simply because there are just so many others doing the same out there. Information portals include news providers, blogs, Apps, tabloids, and so on. The list is almost never-ending. The exact rate of failure of such businesses is hard to even estimate since so many open and close on an almost daily basis.
Startups which fail in this category do so for many reasons. As with the previous businesses on this list, marketing, and fierce competition lead to a very small audience. This is often insufficient to turn a profit. By not outlining the targeted audience the business owner hopes to have a greater potential reach, but this often dilutes the marketing efforts to no effect.
If the business is a one-person gig, it is common that the owner does not have enough time to do all that is needed to run the business successfully. Sometimes information is shared from other sources without any added value or checks. This leads the audience to seek the information directly from the initial sources. More established information providers have journalists or bloggers on staff and this allows them to offer news before the competition. Others offer debates or opinions which readers use to better understand a story. Such people normally cost money and often such costs are overlooked when such a business is started.
What to do next
I hope that if you are still determined to start your business, even if it appears on this list, you remember to learn from other’s mistakes. There are things you can do to improve your chances of success. No business is guaranteed to fail or succeed and it depends mostly on the character and attitude of the business owner.