Why So Many Startups With Huge Investment Fail

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Many startups fail, some of them after they've secured huge investment. In this article, we'll go through five reasons why.

Let’s imagine your startup gets funded … beyond your wildest dreams. You’ve got angel investors behind you, giving you a huge amount of cash to get your business off the ground.

You’re ready to fly, but you could be setting yourself up for a huge fall.

Many startups fail and it might surprise you that many startups that have been heavily invested in also fail. Here are five reasons why:

#1 They Spend The Money Too Fast

If you launch your startup on a bootstrapping budget, pouring in your own savings plus perhaps a loan from family, you’re going to be careful with every penny. You’ll work out of a back bedroom or your garage, rather than renting office space – and you certainly won’t be splashing out on fancy company swag, or hiring a bunch of employees on day one.

With investment in place, though, it’s very easy to imagine that the money is never going to run out. But if you’re not yet bringing in any money, or not bringing in enough, a high “burn rate” (how fast you’re getting through your initial capital) could easily spell the end for your business.

#2 They Make Serious Accounting Mistakes

Another reason startups with lots of initial cash fail is because something goes wrong – badly wrong – in the accounting department. This could be anything from an innocent mistake (where your accountant doesn’t think it’s their job to chase late invoices, leading to a cash flow disaster) to outright malpractice.

Avoiding accounting issues starts, of course, with hiring the right person or team to handle your accounts. You want someone proactive who can explain things to you in plain English – and someone who knows exactly how all the rules work. If you’re not sure what to look for when hiring an accountant, check out this guide on the best accounting certifications.

#3 They Don’t Attract Customers Quickly Enough

Even if your product is amazing, you could quickly run out of money if you can’t bring in customers fast enough. Customers are the lifeblood of every business – you simply can’t survive without them for long.

When it comes to attracting customers, you might think it’s enough to create an online presence for your startup, but just launching a website or setting up a Facebook page isn’t going to magically get people to show up. You also need to market your website and/or social media accounts, so people know you exist.

#4 They’re Poorly Managed

One particular danger of having a huge amount of investment early on is that you’ll be tempted to grow your team really quickly. This can lead to management issues if you make the wrong hires – and particularly if you yourself aren’t used to being in a management role.

Poor management can lead to a huge range of issues, from a lack of vision and direction at the top to a lack of productivity from your teams. Hiring the wrong people, too, can prove a very expensive mistake – as you may well invest time (or other resources) in training up employees who turn out not to be a good fit at all.

#5 They’ve Created A Product No-One Wants

Finally, some companies fail because – sadly – they were doomed from the start. Their founder had a vision for a product that they thought would be amazing but no-one actually wants to buy it.

This is a very easy trap to fall into, especially if you’ve done little or no market research. A product that sounds great (and that even attracts investors) might not turn out to sell well, or even at all, in the real world.

Huge investment might well be the answer to your dreams – but if you want to avoid it turning into a complete nightmare, you’ll need to keep a careful eye on how you’re using the money. Spend wisely, stay on top of what’s happening with your accounts, bring in customers quickly, hire and manage staff well, and – above all – make sure your product is actually something people want.

If you can do all that, you’ll likely find yourself well on the path to success.




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