The 3 top reasons why startups failed in 2022: study

Knowing the biggest risks that often cause new startups to fail can make the difference between your own business or swimming.

Whether it’s bad luck, bad timing or an outdated business model, there are many ways a startup can go wrong. And about 20% of new businesses fail in the first year, according to data from the US Bureau of Labor Statistics.

Fortunately, some new research can shed light on the biggest recent hurdles that have been holding back startups.

Skynova, which makes invoicing software for small businesses, surveyed 492 startup founders in November 2022 and analyzed startup data from CB Insights for a new study that looks at the most common reasons behind the failure to start in 2022.

  1. Lack of funding or investors. The study notes that 47% of startup failures by 2022 will be due to lack of funding, nearly double the percentage of startups that fail for the same reason in 2021, based on CB Insight data.
  2. The cost of money was behind 44% of the failures. While this may be the result of poor financial planning, it may also indicate a lack of funding.

    The problem of capital is not surprising, given that fears of a possible recession, among other factors, caused investment in North American startups to fall 63% in 2022 compared to the year previously, as recently reported by Crunchbase.

    Anyone looking to start a new business in 2023 may face similar hurdles in securing funding, as economic uncertainty continues.

  3. The impact of the Covid-19 pandemic. While 33% of startup failures are a result of the pandemic’s impact on business and the wider economy, CB Insights data shows that number is down from 59% a year earlier. This is a sign that many small businesses have recovered from the end of the epidemic. in 2022, although some continued to struggle to get back to normal.
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Startup success tips from founders

Although no entrepreneur can guarantee success, the founders who interviewed Skynova had a lot of advice to offer to anyone who wants to take the plunge and start their own business.

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When asked what they wish they had done differently when starting their own business, 58% of founders surveyed said they would have done more market research before starting. The same percentage said they wished they had put together a stronger business plan.

This is in line with the advice of the US Small Business Administration, which notes on its website that a strong business plan is central to the success of your startup and can act “like a GPS in how to plan, run and grow your new business.”

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It’s also very important to be able to think on your feet and make necessary changes if your plans don’t work out as expected. When asked their top advice for aspiring founders, 79% of those surveyed by Skynova told aspiring entrepreneurs to “learn from your mistakes.”

They seem to come from experience, as 40% of the founders in the survey said that they had turned their startup around in the past to avoid failure. And 75% of them said that pivoting helped them succeed.

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The most common type of pivoting noted by founders is changing their business plan and either launching a new product or improving an existing one.

Knowing your startup is on the path to failure and pivoting effectively to avoid disaster are skills that successful entrepreneurs can use. Indeed, failure to pivot is one of the most common reasons startups fail, according to CB Insights.

“Shark Tank” investor Kevin O’Leary previously told CNBC Make It that his losing investments often have something in common: startup founders who can’t or won’t make changes. when necessary. In many cases, these founders simply do not accept that the original business plan needs to be revised in order to survive.

“They can’t get out of their way,” O’Leary said. “They won’t listen to anyone else.”

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