It’s always exciting when you come up with a new business idea and you feel ready to take the plunge. You’ve done your research, thought about the pros and cons, set out a plan for how it will all work, and you’re convinced that this is going to work for you. So, what could possibly go wrong?

Well, quite a lot actually. Almost half of new businesses don’t last past the first year, and some fail within just a few months. In fact, a study by the SBA (Small Business Administration) found that 90% of startups failed in 2019 and 21.5% were complete failures within the period of 12 months.

So why do businesses fail? Is there something inherent about startups that makes them destined to fail? And what can you do as a new business owner to protect yourself and ensure that your company has the best possible chances of success?

Today Mitchel Zelman is sharing his knowledge with us, helping to answer the question of why so many startups fail in the first year and offering tips on how to avoid failures in your own company.

1) Run Out of Cash

Running out of cash is one of the biggest problems new companies face, and it’s often at the root of why so many small businesses fail within their first year. If you don’t have enough money to keep your company running until it begins generating revenue, there is no way for it to survive.

This isn’t just about being able to pay the bills and keep a roof over your head while you’re waiting for the business to pick up. It’s also about having money available when the time comes to expand your operations, market your products, hire employees, or make capital improvements.

So, how can you avoid running out of cash?

Build a Financial Model

It’s essential that you have a solid understanding of your startup’s financial situation and how it will develop once the business is up and running. You need to understand what it costs for your business to maintain its current levels of operation, as well as what will happen if expansion or other opportunities arise that require large amounts of capital to take advantage of.

Mitch Zelman says not to rely on outside funding; if you’re planning to apply for startup business loans or venture capital, don’t plan on this being your only source of income. There are many people who fail to gain the support they need from investors because their budgets rely entirely upon external sources of money.

Even if you succeed in raising enough funds to keep your business running, the next round of investments may not come until much later, or it may never come at all. If you plan to secure investment money, you need to know how your company will support itself even if that source of revenue isn’t available.

Make Cash Flow Management a Priority

Cash flow is the lifeblood of any business because it represents actual money coming in from your operations. If you have a negative cash flow, it means that money is going out faster than its coming in.

This shortfall can be caused by a number of things, including poor planning for how much revenue or funding will be available and when, or prioritizing short-term expenses instead of focusing on the long-term.


You need to know exactly how much money your business is generating and spending, so you can predict whether or not there will be enough cash on hand for the company to meet its expenses.

You also need to understand the costs involved with any changes in production levels, expansions of capital, hiring new employees, etc. What happens if you hire someone, and they don’t work out? What kind of expenses will you incur if you decide to expand your business after a year or two, or move to a different location?

You need an accurate understanding of your cash flow management in order to make sure that you have enough money on hand to meet your needs at all times.

A lot of entrepreneurs jump into their businesses without having a full understanding of how to manage money properly. In order to get wealthy from your company, you need to be fiscally responsible and always keep an eye on your bottom line. You need to know how much money you have and where it’s going.

2) Lack of Knowledge and Experience

An entrepreneur with a good idea and the passion to see it through can still fail if he or she lacks the business acumen and knowledge needed to run their company. You can have a great startup business plan, but without proper guidance and advice, you’ll fail.

This is why it’s important not to go it alone when you start a business. You need to surround yourself with people who know more than you about certain aspects of the business world, such as advertising and marketing, finance, production, and management.

3) No Realistic Business Plan or Aim for the Company

Having a workable business plan is essential if your startup wants to have any chance of prospering. A great business plan is even more important if you don’t have the money or support needed to get your company off the ground.

Many people think they can make it big without thoroughly planning their businesses, but this is rarely successful. Without a business plan, you risk not meeting your financial goals, failing to develop the company properly and strategically, or faltering because you don’t know where you’re headed.

It’s just like a bird that has to keep moving forward until it falls out of the sky. If you don’t know where that bird is headed, then you can bet it’s going to crash and burn.

4) Bad Partnerships

This is one of the main causes of a massive failure in business. If you don’t have a good relationship with the people you’re working with, it can be disastrous for your company because trust and respect are key factors in running a successful business.

It’s very difficult to maintain success and progress when there’s friction between partners, especially if everyone involved doesn’t see eye-to-eye on the main business goals. This is why it’s important to choose your partners carefully and assess everything they bring to the table before jumping in with both feet.

As a business owner, it’s very important that you know what you’re getting into ahead of time. You’ll be spending a lot of time with your partners, so it’s crucial that you feel comfortable with them and believe they have the skills needed to help your company flourish.

 5) No Significant Marketing Plan

Your marketing plan isn’t just about advertising your goods or services; it also includes things like knowing how many customers will be interested in what you have to offer and how they would hear about your company.

A marketing plan is also important for finding out some of the costs involved with running the business, including things like product development, production levels, hiring more employees, etc. You need to know exactly who your customers are so you can adjust your marketing strategy accordingly.

If you don’t have a marketing plan or don’t make one, there’s a good chance you’ll lose control of your business and watch it go down the drain.


Mitchel Zelman believes that passion alone is not enough; you need to understand the basic principles of business and how money works before starting your own business. If you don’t, then you’ll be overwhelmed, and it won’t take long before you go out of business.

Mitchel Zelman Image provided by Mitchel Zelman

The main thing to do is educate yourself as much as possible about running your own startup business. Read books, attend seminars and network with other entrepreneurs who can give you advice and support you during the early years of your company’s growth.

Once you’ve got a leg-up on some of these lessons, start thinking about who you want to work with and how much experience they have. Then get working! You can use the help of your advisors to get your business off the ground.

After that, concentrate on developing a strong marketing plan for conducting some market research and reaching new customers. If you’re able to reach certain goals and milestones over time, then you’ll have more opportunities to expand your business. Then just keep building!

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