Why startup companies fail

Often a business idea is not as good as thought - but many entrepreneurs are unteachable because they are not capable of criticism.

The reasons why young companies have to give up after a few years are manifold. Even though every failed start-up has its own story, recurring causes can be identified. We have compiled for you five reasons why companies can fail:

1. Inadequate capital

Many young start-ups are so intoxicated by their business idea that they underestimate the initial lean period to break-even and have too few of their own funds on hand to tide them over. Even if salaries are low or not yet paid in the early days, there are ongoing costs that need to be covered. A good business plan is worth its weight in gold in order to identify the risks in good time, correctly assess the capital requirements and raise sufficient equity.

2. Overestimating market potential

Another important reason why young companies fail is an unrealistic assessment of market potential. For example, Matti Niebelschütz, the founder of the perfume mail order company myParfum had the right feeling for the market opportunities of his business idea, but completely misjudged the sales potential. With an eye on the important Christmas business, he invested heavily in machinery in 2012 to expand production and increased the number of employees accordingly. After the expected sales did not materialize, myParfum had to file for insolvency in the spring of 2013. However, the founder continued to believe in his idea and bought the company back from the insolvency administrator in August 2013. Since then, he has continued to run the business on a smaller scale. This is a good example of how failure doesn't always have to mean the final end.

3. Lack of demand / market saturation

Many young founders feel the same way. They think they have a brilliant idea and can convince investors of it. But then the demand either doesn't materialize at all or it doesn't develop as quickly as they had hoped. This is often the case when it comes to a product innovation that is still completely new on the market. Here, a lot of lead time is needed to make the business idea known. On the other hand, start-ups can fail because the market has become saturated or competition is too fierce. The best example of this is the boom in tanning salons in the 1980s/90s or fitness studios today. If you want to start with such a business idea, you definitely need a unique selling proposition to stand out from the crowd.

4. Overconfidence

Many founders overestimate their business idea. In 95 percent of the cases, arrogance seems to be behind this behavior, based on the assumption that the business idea is unique. After a short time, however, many founders have to realize that they are not alone with their idea and that there is more competition than they thought. The euphoria is followed by disillusionment, which is accompanied by the realization that the start-up will have more work to do and that additional costs are to be expected. For some founders, this is when the fear of failure strikes for the first time.

5. fending off criticism

However, arrogance is not the cause, but rather an effect that causes projects, startups and businesses to fail. At least, that is how the online magazine „The Enterpreneur Mind“ sees it. With arrogance in the common sense has that besides;erdem also nothing to do. Rather, messenger substances that are released when the motivational system is activated are responsible for this. The founders become intoxicated with their ideas, display an exaggerated self-confidence and become immune to any form of criticism. With third parties, this hubris often comes across as arrogance. The problem is that any criticism from outside is reflexively and mostly emotionally rejected. This is especially bad when an idea is nowhere near as good as one thinks it is.

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About the Author , Founder and CEO of Langmeier Software GmbH
Urs Langmeier Urs Langmeier is founder and CEO of Langmeier Software GmbH and thus responsible for the strategic further development of Langmeier software solutions.
 

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An extensible all-in-one business solution
Reasons Why Businesses Fail
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Start-Ups Business Ideas
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