The 3 top reasons why startups failed in 2022: study

Knowing the biggest risks that most often cause new startups to fail could mean the difference between your own business sinking or swimming.

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

Fortunately, new research may shed light on the biggest recent hurdles that have stymied startups.

Skynova, which makes billing software for small businesses, surveyed 492 startup founders in November 2022 and analyzed startup data from CB Insights for the new study that examines the most common reasons for startup failures in 2022.

  1. Lack of funding or investors. The study notes that 47% of startup failures in 2022 were due to lack of funding, nearly double the percentage that failed for the same reason in 2021, based on data from CB Insight.
  2. Lack of money was the cause of 44% of failures. Although this could be the result of poor financial planning, it could also indicate a lack of available funding.

    Capital issues are unsurprising, given that fears of a potential recession, among other factors, caused investment in North American startups to fall 63% in 2022 from a year earlier, according to a report. recent report from Crunchbase.

    Anyone looking to start a new business in 2023 could face similar hurdles in securing funding, as long as economic uncertainty persists.

  3. The impact of the current Covid-19 pandemic. While 33% of startup failures were attributed to the pandemic’s widespread effects on businesses and the wider economy, data from CB Insight shows that number was down from 59% a year earlier – a sign that many small businesses recovered from the worst of the pandemic in 2022, even as some continued to struggle to get back to normal.

Startup success tips from the founders

While no entrepreneur can guarantee success, the founders interviewed by Skynova had plenty of advice for anyone looking to take the plunge and start their own business.

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

This is in line with advice from the US Small Business Administration, which notes on its website that a solid business plan is essential to the success of your startup and can work “like a GPS for how to structure, manage and grow your new business. business”.

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It is also extremely important to know how to reflect and make the necessary changes if your plans do not go as well as you hoped. When asked for their top advice to aspiring founders, 79% of people surveyed by Skynova told these hopeful entrepreneurs to “learn from their mistakes.”

It seems they speak from experience, as 40% of founders surveyed said they had pivoted their startups in some way to avoid failure. And 75% of them said pivoting contributed to success.

The most common types of pivots noted by founders were changing their business plans and launching a new product or improving an existing one.

Realizing your startup is on the road to failure and successfully pivoting to avoid disaster is a skill any successful entrepreneur could use. Indeed, a 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 own money-losing investments often have the same thing in common: startup founders who can’t or won’t bring of changes. when it’s necessary. In many cases, these founders simply refuse to admit that their original business plan needs updating to survive.

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

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