Ken Watterworth stated surprising facts around 90% of all startups fail in a recent article published.
- 21.5% of Startups fail within the first year
- 30% fail the second year
- 50% fail the fifth year
- 70% fail within the tenth anniversary
It doesn’t matter if the startup is well-known like MoviePass or WeWork, or if it is so small that nobody outside of a niche would have ever heard about it. In general, startups are more likely to fail.
We know why these businesses fail and can learn from startup failures. In this article, we asked Kenneth Watterworth, Westport, Connecticut entrepreneur his top reason why startups fail.
Here are the top reasons startups fail:
1. Market conditions changing
Sometimes, those involved in startups have a clear view of the market but market conditions change before they can adapt.
“An example of market conditions changing that led to many businesses failing or struggling was the coronavirus pandemic. Many Westport retail shops saw their volumes drop dramatically due to capacity restrictions and shutdowns. Some customers were not able to return for months.” Ken Watterworth stated. “In order to survive, you need to be able to pivot. This includes adding delivery, cutting back on expenses, and using reserve cash.” Watterworth added.
In their initial days, many startups didn’t have much to fall back on or a customer base. The market changes proved too overwhelming for some and the venture ended up being nothing more than a series of false starts.
Small businesses are now being faced with labor shortages, which have caused some to reduce their hours and make do with fewer staff members to manage vital business aspects. These problems will undoubtedly lead to long-lasting failures, especially for brands that were already in trouble before the pandemic.
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2. Flawed business plans
The basic fundamental of starting a business is having a business plan. Most people know that you should have one during the initial stages of any startup. However, just because you have a plan does not mean that it is a good one.
“An ineffective business plan can lead to startup failure or minimal success. Common business plan mistakes include being too vague, miscalculating cost, underestimating production timelines or marketing timeframes, and missing key facts when researching the market. We have seen many businesses in Westport, Connecticut fail because they miscalculated in their business plan.” Ken Watterworth stated.
Although you don’t need to attend Harvard Business School in order to create a business plan that is successful, it helps to have the support of people with real-world experience.
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3. A weak foundational partnership
Startup success is often made difficult or impossible by co-founders who don’t get along well. Partnerships that don’t share a common vision or set of values can have a difficult time communicating.
“It doesn’t mean that partners have to be identical. In fact, it is often better for startups if they have complementary strengths and weaknesses. They must be on the same page, and want the same things for their company. We have many resources for Westport entrepreneurs to network and meet like-minded people. If you are networking, you have a better chance of finding an ideal business partner.” Ken Watterworth stated.
Partnering doesn’t always go well from the beginning. However, as time passes, partners realize that their goals and interests for the startup are not aligned well. Startups can then be at risk of failure unless the leadership finds a common path.
4. Loss of passion/burnout for the startup
Many founders of startups have a problem with attention span: they fall in love and then get bored. They want to move on to something better.
Ken Watterworth states “Startups that lose passion for their product or founders will fail. Sometimes founders have the option to sell their startup to another person who is able to take it and make it their own or merge it with their existing concept. You can find many Westport businesses for sale in the marketplace but there are always factors to consider before purchasing an existing business.”
Few business owners who lose their passion or burn out are able to regain it. The creative and restless nature of many startup founders has been a significant factor in startup failures for a long period.
5. Failing to learn from your mistakes and make adjustments
There will be mistakes, miscalculations, and failures in any startup. Many startups are not able to see a straight path to success. They experience many ups as well as downs.
“Startup failures are often caused by failure to learn from mistakes made and to make improvements to be more successful. There will always be adjustments that need to be made along the way. In order for a business to scale, you will always need to make adjustments.” Ken Watterworth stated.
“Some businesses close due to economic reasons. Others close due to not finding a suitable buyer. An example is the Westport Pizzeria. The owners closed after 50 years in business to retire comfortably. This is an option if you don’t find a suitable buyer for your businesses.” Watterworth added.
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Startups need to be persistent. However, if there aren’t adjustments made to better ways of doing things, the startup could go out of business. Only a solid business model and the right decisions will make persistence work.
6. Poor recruitment practices
Startups must be able to hire the right people to make entrepreneurship work. Although some of the characteristics that make good employees are universal, such qualities as perseverance, people skills, and problem-solving ability, others may require more specialized skills to succeed in certain positions.
“Successful startups often credit their team with much of their success. This is because creative people are more likely to find the right way to make things work. In many ways, the personality and character of your top employees are often reflected in your organization.” Ken Watterworth explains.
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Similar to the previous point, key staff with serious flaws are likely to reflect in the organization, often contributing significantly to its failures.
7. Bad market timing
Sometimes, a startup may have a great idea but not the right timing to launch a product or market it well. If investors notice the poor timing and make a decision to bail, it could be as simple as one bad move that causes a startup to fail.
“Some ideas are just ahead of their time. For example, Google’s Ask Jeeves (precursor to Google) or WebVan, a grocery delivery service. Although the concepts were brilliant, not enough people realized the need for them. Or it seemed too outlandish, as no other service like it existed.” Ken Watterworth explains.
Another example is Likeminder. A social network startup that allows users to have private, emotional, and supportive conversations with other like-minded people. It was founded by Shu Eliovson and Curt Cimei in December 2013 and is based out of Westport, Connecticut. The idea was great but they were unable to find proper funding due to bad market timing.
Some ideas were not well-marketed, either because they were launched after the holidays or because there was no buzz about the product.
8. Inability to comprehend/gauge market
Entrepreneurs often enter a startup with grand visions of a new idea and a lack of understanding of the market. Without a complete understanding of the market, it is impossible to drive meaningful innovation.
“Startup founders know that everyone wants the latest gadget or gizmo, so if they can attract enough investors, they may be able to stay in business for some time before realizing they won’t make as much profit as they thought.” Ken Watterworth explains.
Markets are complex and many startups struggle to predict their success. There are many tools and models that can give insight into entrepreneurial success. However, it is often impossible to predict the outcome of a product’s success until it has been launched.
9. Unforeseen market crisis
Market changes are one thing… but how about a market crisis no one could see coming?
“Although no business was prepared for a global shutdown all businesses were able to manage the crisis and even thrive. This includes startups that soared during the pandemic. Because they had invested in tech stacks which allowed them to operate and communicate 100% remotely.” Ken Watterworth explains.
The impact of COVID-19 on the global economy was a classic example of a Black Swan event. It was completely unexpected and devastating for many small businesses and startups.
10. Cash flow problems
Running out of money is the most common reason startups fail. Venture capitalists and investors are the main sources of funding for startups. If their product or service doesn’t make money quickly enough, investors may balk at continuing to invest for a longer period.
“Startups that fail to make enough efforts to raise capital when the existing capital runs out will soon be unable to meet their operating expenses as per the business model.” Ken Watterworth stated.
Startups are often plagued by cash flow problems, which is why they are so common. Even if investors aren’t backing out, startups can still fail if they don’t satisfy customers’ needs or their pricing is too high.
About Ken Watterworth
Kenneth Watterworth, an experienced business owner, is the founder of Pro-Tect Inc., a Fireproofing Contractor in Waterbury, Connecticut. Ken has experience in managing large teams and multimillion-dollar projects and has sold many companies.
In 1975, Ken graduated from Boston College. His major was in business administration, with a minor focusing on finance. He earned his Bachelor of Science degree in Business Administration. In 1977, he founded his first company Ken Watterworth Inc. because of his hunger for knowledge and ability to translate information into action.
From 1977 to 2015, Ken Watterworth Inc. was an established commercial painting business. Ken Watterworth Inc. was a commercial contractor that served Waterford and the surrounding area. Ken discovered a new problem while visiting new construction sites.
Ken founded Pro-Tect Inc. in 1991 as a commercial fireproofing contractor for structural steel buildings. Kenneth Watterworth Inc was pleased to have this company as a partner in new construction projects. They are licensed fireproofing professionals for Cafco and Monokote as well as Albi. Ken implemented strategic project management techniques and ensured a work-life balance in his department, greatly increasing productivity.
After 38 years of business, Ken Watterworth Inc. ceased to exist in 2015 and refocused its efforts on fireproofing. Pro-Tech Inc. grew to be the largest Connecticut fireproofing contractor thanks to this extra attention. Ken believes that a healthy work-life balance is a key to success. This mentality has enabled him to create multiple successful businesses over his career.
To learn more about Kenneth Watterworth, please visit his featured profile.