What to do if your startup fails: insight from entrepreneurs who’ve started again

Every entrepreneur believes they have a big idea that’s going to change the world. They pour their heart and soul into their startup, working long into the night to make their dream venture a reality.

But the fact is, that 1 in 5 (20%) of the UK’s startups fail in the first year. This increases to 60% within the first three years.

This may not look like a significant number, but when you consider over 340,000 new UK businesses were registered in the first half of 2021 alone, this equates to 48,000 startups that have gone into liquidation in just six months.

So how do you avoid becoming part of these stats, particularly if you’re planning to launch a new company over the coming months?

What is important is identifying the common trends around:

• Why past startups have failed?
• How did entrepreneurs deal with the setback?
• What did they learn from the experience?

We’ve spoken to business owners who’ve experienced the heartbreak of liquidation, to find out their answers to those questions.

Gaining insight into these factors could prove invaluable as you begin your new business venture, helping you to avoid pitfalls, and support you on your way to success.

Why startups fail: the common mistakes

Let’s be real. Out of five entrepreneurs reading this article, one is destined to fail within the next year. That is a sobering thought, particularly if you’ve already invested much of your money and time into an idea.

It is important to learn from others’ mistakes in order to avoid them, which is why we’ve highlighted the most common reasons businesses have faltered. Based on the experiences of seasoned entrepreneurs.

There is little to no demand for your product

For Ivo Kalburdzhiev, founder of the startup community support and education platform CreatorClub, his business downfall came as a result of a lack of market research.

Ten years ago, Kalburdzhiev began working on a steering wheel that would fit onto your tablet device. The idea was that it would help an individual physically steer whilst playing a driving game on their iPad.

However, once he finally released the product, he found that the demand simply wasn’t there.

“I spent over $50,000 of my own money, as well as three years of my own time building the product. Then launch day came and nobody bought it. It’s the worst thing that can happen to a startup founder.

“I thought I was a genius that came up with a foolproof idea. But I wasn’t. The reason I failed was that I never bothered to actually validate my product. I never asked the vital question – do people actually need this?”

The reason I failed was that I never bothered to actually validate my product. I never asked the vital question - do people actually need this?

After years of blood sweat and tears, building prototypes, working with manufacturers, and putting together a business plan, Ivo’s business venture came to a painful end. The product didn’t fly off the shelf, investors weren’t interested, and he ran out of funds.

“At the end of the day, I never bothered to talk to my target customer about the product I was investing everything into. I didn’t do my research. I didn’t ask ‘is this something that you actually want and are willing to pay for?’”.

Poor marketing

Another common error that frequently leads to startups collapsing is underestimating the importance of marketing.

Business consultant Peter Boolkah, who has over 20 years of experience helping SMEs grow, believes this is the number one reason businesses fail.

“It is not enough to have a great product/service. You have to let the market know about it and be visible to your target customer or client base. The problem is that founders pour all of their money into the product. But don’t spend anything on marketing, which is an essential part of any business plan.”

It is not enough to have a great product/service. You have to let the market know about it and be visible to your target customer or client base.

Boolkah believes an efficient marketing strategy is almost as important as the original idea. The clear trend is that of all the startups he has supported over the years, those with a great marketing plan are the ones that have succeeded and grown.

Want to get support in setting up a winning digital marketing strategy? Why not check out our review of the best digital marketing agencies in the UK for more information?

Overcomplicating your product/service

Sometimes less is more, particularly when it comes to launching a business.

One of Prelaunch founder Narek Vardanyan’s clients, learned this the hard way. They launched a state-of-the-art motorcycle helmet, that didn’t hit the mark.

“My client built the helmet originally with AI blind spot detection, but began adding additional features. In the end, the helmet had around 20 features, which was too many. The product became so complex, like the swiss army knife of helmets!”

Vardanyan believes that if the product wasn’t so overcomplicated, it may have attracted more customers.

“You need to start simple. People don’t need swiss army knife type products all the time! Validate and focus on your basic idea first, and then add features afterwards if it’s something that would add value to the customer.”

How entrepreneurs deal with failure

For Kalburdzhiev at CreatorClub, the key for him to move on was remembering to never give up as an entrepreneur, but always be willing to sacrifice an idea.

He points out that “we fail more times than we succeed. But remember that every successful startup founder began with a failed business. And if by some chance their first business did take off, you can be certain that their second business didn’t.”

Mohammed Ibrahim, who founded one of the first influencer marketing agencies before the idea caught fire, admits it is far from easy to pick yourself up after your business fails.

“It’s extremely difficult to reset your mind and forget everything that has happened. But, if you’re a true entrepreneur at heart, this will just be another Friday at the office.

“You take the next two days off and when Monday rolls around, you get back out there and begin problem solving your way out of the hole you’re in.”

You take the next two days off and when Monday rolls around, you get back out there and begin problem solving your way out of the hole you’re in.

For Ibrahim, who now runs the successful non-surgical business The Clinic Room, he was £50k in debt after his marketing agency failed. But that didn’t stop him from persevering and launching The Clinic Room, which has proved a massive success.

“The best entrepreneurs won’t care about debt, mortgages, or shame, because deep down they know it’s all temporary and success is in the next idea, should they decide to build it!”

What the experience taught them

CreatorClub’s Kalburdzhiev says the experience taught him to never underestimate the power of market validation when you come up with a product/service.

“Don’t spend time and money on a product that nobody wants. Do your market research first so you can understand your customers. As the sooner you find out that your idea is trash, the sooner you can just move on.”

He learned the hard way that although you may fall in love with your idea, it doesn’t mean others will.

For Ibrahim, the experience taught him that being glued to the idea of wanting to be the first business to uncover a new idea, is extremely difficult.

“Failing with Panache Media really caused some heartbreak, even though I knew how difficult it was going to be.

“But as we all know, failure isn’t always a bad thing. You learn more lessons through failure than success.”

How to avoid failure through market validation

Although it is inevitable that some startups will fail, there are sure-fire ways to improve your chances of success.

One of these is through market validation, which is a term that has been highlighted throughout this article.

By validating a product or service, you are able to determine whether there is demand for it through quantifiable measures, and if so whether there is enough demand to make a profit before it actually goes to market.

One such software that has been created to help new startups calculate this, is Prelaunch. Designed by Narek Vardanyan and his team, the platform works out a product’s potential by analysing behavioural customer data.

Prelaunch was born out of frustration with the lack of accuracy and predictability in deciding what product to market, back when Vardanyan ran his own digital marketing agency.

“We sometimes had 200 products in a room at one time, and we were essentially betting on which one to work with. Figuring out which item had the biggest potential, spending time and money on marketing it, only to find that it tanked. That was very frustrating.”

As a way to solve this problem, Vardanyan and his team built a platform that could collect critical, quantifiable behavioural data, that wasn’t merely just a guessing game.

The platform sets up a client’s product as a prelaunch, gathering data about its potential demand by requesting customers put down an initial ‘deposit’ for the product before it launches. This is in exchange for an overall discount.

For Vardanyan, gathering this insight is the key to measuring whether a product will be successful.

“If people are pulling out their credit cards and putting down £5, £10 deposits, then that tells us there is purchase intent. If there is purchase intent, there is demand for the product.”

If people are pulling out their credit cards and putting down £5, £10 deposits, then that tells us there is purchase intent. If there is purchase intent, there is demand for the product.

Vardanyan is adamant the software will save hundreds of businesses thousands of pounds they would have otherwise lost if they launched a product with zero demand.

“Prelaunch is the perfect way to meet your customer in the early stages, without having to put all your investment and time into your idea. This is what startups have been lacking, that early stage access to customers, to find out what they really want.”.

Conclusion: be prepared to try and try again

It is clear from talking to entrepreneurs and business consultants, that failure is simply part of the package of launching a business.

However, there are ways to mitigate the chances of failure, including:

• Invest in marketing your brand
• Research your market and ensure there is demand for your product
• Use a market validation platform such as prelaunch
• Don’t overcomplicate your product

If you are still unsure about what type of business you want to start and are in need of some inspiration, why not check out our business ideas 2022 guide?