Top 3 Reasons Why Startups Fail

Insights January 15, 2021

When you start a business, in your mind, it is going to be the next Uber or Airbnb. However, the harsh reality of business is that most startups fail. There are many reasons that startups fail but we have mentioned below three of the most common ones. You can read below to understand how you can avoid these pit falls.

Let us check the Top 3 reasons why startups fail:

1.  Not ensuring legal and IP compliance

Having the legal aspects of your business strong right from the start is very important. Right from registering your business and patenting your product and process to ensuring you have all the required documentation for starting your business, each aspect is important.

Most startups ignore the legal aspects of their business and it affects them adversely in terms of higher taxes, fines and even a lawsuit if they have infringed on the IP of other businesses by mistake. You can check the Top IP mistakes startups make here.

2. Lack of Funds

Not having enough funds is one of the most common reasons that a startup fails. When you start a business, you don’t anticipate a lot of costs that you need to incur. In addition to the product manufacturing cost and inventory, you also need to pay for utilities, rent, etc. If your business does not become cash flow positive fast and you don’t have avenues to get more funds, there is a high possibility that you will have to shut down your business. Even if you are making a profit on paper, due to a time lag of delivering the products and actually getting the payment (in some industries up to 30 days), your cash flow position can get strained.

3. No Marketing Plan

To solve the above two issues, you need to have a well planned marketing plan. At the start, you need to include low cost sales and marketing strategies like selling and branding building via your website, Search Engine Optimization and Content Marketing on social media. These marketing avenues are low cost and high impact. If you are a local business, you can host your website on a local server so that it responds faster when people search for your site. For example, if your business is based in Australia, you compare the best website hosts in Australia and can buy the most appropriate one. If you have a tight business, you can also opt for a free website on Google Sites. Once you have your website in place, you can get started on promoting your brand on social media.


As you can see, starting a business is not easy but if you can avoid the pitfalls and persevere, you can make it into a success. Having a proper marketing plan in place and all your legal issues handled will give you the confidence to focus on running your business and making sales. Also, make sure that you have enough funds or access to funds if you get cash flow negative, especially in the first couple years of business.

Attorney Advertising. This document is not intended to be and is not considered to be legal advice. Transmission of this document is not intended to create, and receipt does not establish an attorney-client relationship. Prior results do not guarantee a similar outcome.