Five reasons why Australian startups fail

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by Magnapath/ on 12 Mar, 2020

Five reasons why Australian startups fail

New businesses are launched every day and the number of business startups in Australia is an indication to this. To put this in a better perspective, Australia ranks 8th out of 38 OECD countries. Based on stats collated by the Australian Bureau of Statistics, the data shows that almost all employment growth is as a result of business startups in the country. But, despite all these, very few of these startups create either permanent jobs or long-lasting business models. It is estimated that almost 97 percent of startups will quit or cease to grow in Australia. Let’s look at five main reasons why Australian startups fail.

Capital

One of the biggest stumbling blocks for startups is the fact that most of them do not raise enough capital to keep it going for the first few years. When planning on launching a startup, the integral part is raising capital because we cannot expect to make huge profits while just beginning to gather clients and sell products or services. 7 out of 10 startups in Australia take a loss for the first couple of years because it takes some time to get their foot in the door and become a business the average Australian would support. Most of these entrepreneurs in Australia get so excited about starting a business and not think about gathering enough capital. Try sourcing for funds when planning on launching a brand as there is no shame in it. So many times, people want to invest in a great idea that they can feel confident in making their investment back!

Lack of Planning

So many Australian entrepreneurs do feel creating a business plan is not an essential part of the business. They want to start making money without having to sit down and plan mission statements and all. However, if we don’t have a business plan set out before the start of the business, we are setting ourselves up for failure. Having a business plan allows business owners to set out goals and know exactly how much income they need to make to break even. To have a business plan as a startup-owner will also serve as a credibility and open the doors to Government Funding and additional grants.

Inconsistent business models

When building a startup, it is essential to have a well laid business model. A business model should consist of:

  • Reason for building the startup
  • Products or services that are planning to sell
  • Ways to sell these
  • How to reach customers

A business model should have a good documented revenue model and how the supply chain will be implemented. Most Australian startups fail at this stage as they think building product is enough and customers will have to flock to their doorsteps. This may work initially but as time goes on, to win more customers will become more expensive. Putting your product out there without a good business model, without establishing the fact that there is indeed a market for the product is a big mistake that may eventually lead to the failure of your business.

Lack of market education

Is the market your startup is targeting aware that your business category exists at all? If your answer is No, then you should know that it is one of your problems. As an entrepreneur, you should consider building a market campaign in your niche to make people aware that you are creating a solution to their problem. When you develop a new product or improve on an existing one, it is your responsibility to let people be educated about the solution you are trying to bring to them.

Expand up too Fast

A startup business may successfully scale through issues most face at the beginning of operating the business. However, when it is time to expand and grow the business, it is very important to take a step back and make sure you understand perfectly the new markets you are trying to reach. Mistakes most entrepreneurs make when expanding their businesses, they fail to understand their new products or services and new customers. Expanding your business without thorough research and planning can lead to a total failure of the business.

While the rate of startup failure in the first few years in Australia is very high, this doesn’t mean your business have to fail. You can learn from the mistakes of others. With thorough planning, appropriate research, positive mindset, you can avoid these common mistakes and make your business successful.

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