Failed Startup? There’s Always Something To Learn.

Failed startup? There s always something to learn.

Despite the impact of the pandemic, over 800,000 businesses started in the UK in 2020-21, a 21.7% increase on the previous year. Whilst these are encouraging numbers, according to the Office for National Statistics, on average only 60% of these new businesses survive for three years and only 44% survive for five. So why is it so difficult for new businesses to survive?

Common reasons a business can fail include poor cash flow management, lack of market demand, competition and issues with management or leadership. However, it is important to note that failure can also provide valuable learning opportunities and many successful entrepreneurs and business owners have experienced setbacks and failures before achieving success:

Steve Jobs, co-founder of Apple was famously fired from his own company in 1985, but returned to lead Apple to even greater success after founding NeXT and Pixar. lt;/p>

Elon Musk, CEO of SpaceX, Tesla and Twitter has had his share of business failures, including the collapse of his first start-up, Zip2, and the bankruptcy of his second venture, X.com. However, he has gone on to become one of the world s most successful entrepreneurs. lt;/p>

Richard Branson, the founder of the Virgin Group has had numerous business failures throughout his career, including the collapse of his music company, Virgin Records. lt;/p>

Even Colonel Sanders, the founder of Kentucky Fried Chicken (KFC) didn`t find success until he was in his sixties, and his famous chicken recipe was rejected over 1,000 times before he found a restaurant willing to try it.

There are valuable lessons to be learned from failed businesses that can be used to help new businesses survive and thrive, whether the entrepreneurs are experienced or not. lt;/p>

Here s our Top 5:

STRATEGIC DIRECTION

First and foremost for a business to have any chance of succeeding, it needs to know what its product is and which markets its targeting. Getting this right from the start is a difficult task, especially if the business is creating a new or innovative product or trying to understand, or even create a new market.

Ansoff s Matrix can help a business make this decision but often at the early stages of a startup, without clear strategic direction, a business can fail before it even gets started. If it`s trying to sell the wrong product in the wrong market, this will ultimately lead to low demand, resulting in little sales and without money coming in from revenue, the business will not survive long.

STRATEGIC POSITIONING

The next challenge for a new business is to make sure it positions itself correctly in the market. Known as Strategic Positioning and using models such as Porter s Generic Strategies, it is important for a business to decide how it is going to differentiate itself - this is usually based on price or added value, but could also be a focus on a niche area of a market, an innovative product (creating first-mover advantage) or a unique brand. This differentiation can be defined as the business s competitive advantage. lt;/p>

Many small businesses do not focus enough from the outset on creating a competitive advantage and face an uphill battle to survive as they re trying to compete in a market with no discernible differentiation from their competitors.

DECISION MAKING

Every decision counts in a startup business, with limited resources, financial, personnel and time, each decision a business makes could impact its very survival. Decision making is often complicated by the dynamic and fast-paced environment where changes can happen quickly and unexpectedly. lt;/p>

Often there is limited potential for scientific (data backed) decision making as the business, the product and often the industry are new. In light of this, entrepreneurs and managers will have to base decisions on prior experiences and potentially just their intuition, with this type of decision making holding much more risk for the business.

CASH FLOW MANAGEMENT

Cash flow is critical to the success of any business and a lack of cash can quickly lead to failure. This could be due to a failure to accurately forecast expenses and revenue, slow-paying customers, or unexpected expenses. It is imperative that businesses budget very carefully and ensure that they always have enough cash in the business to keep the business alive. lt;/p>

According to research by the Institute of Directors, 57% of small businesses in the UK experience late payments from customers, and according to Xero, the accounting software company, 46% of small business owners in the UK have been forced to take a pay cut due to cash flow issues.

Many businesses fail despite having lots of potential sales and plenty of inventory, but do not manage their payables and receivables effectively and end up running out of cold hard cash.

SOURCES OF FINANCE

Intrinsically linked to cash flow is funding and sources of finance. Starting and growing a business requires capital, and a lack of funding can quickly derail a company`s growth and success. One of the biggest challenges when starting a business is finding the funds to start and where you source those funds is very much dependent on how much money you need to start and run your business. lt;/p>

If you are creating a product that requires a lot of research and development, you will need to find a large sum of money at the outset potentially requiring a loan, selling shares to investors (shareholders) or even venture capital firms. If you are starting a business that requires ongoing funding you may find a bank overdraft suitable as you grow the business as your funds will be supplemented by your revenue.

The major lesson most failed entrepreneurs learn is not to underestimate the importance of managing their finances effectively. It`s important for business owners to develop strategies for making their funds last as long as possible (known as a runway ) or at least until the business starts to generate sufficient revenue to survive without external funding. This can include invoicing promptly, offering discounts for early payment, and establishing lines of credit or working capital facilities with lenders.

CONCLUSION

Failure is a common experience for entrepreneurs but it does not have to be such a negative & or scary outcome as it used to be. Failure can be reframed as a learning opportunity, a necessary step towards success rather than a setback. Entrepreneurs should view failure as a chance to learn, grow and improve. lt;/p>

It is important to take time to reflect on what went wrong and why& to identify areas where they need to improve and develop strategies for avoiding similar mistakes in the future. Any feedback they can get, from customers, investors or any other stakeholders who will help them can be key to understanding why their product or service did not meet expectations. This in turn can be used to improve the product or service and prevent future failures. lt;/p>

Ultimately persistence is key in business, if their initial approach did not work, they should be open to trying new strategies and approaches. They should continue to pursue their goals and not give up on their vision. By persevering, entrepreneurs can turn failure into success.

Elliott

Teacher of Business

TOPIC LINKS

Entrepreneurs

Leaders

Strategic Direction

Ansoff s Matrix

Strategic Positioning

Porter s Generic Strategies

Decision Making

Cashflow

Sources of Finance

This resource was uploaded by: Elliott

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