According to the Small Business Administration (SBA), only about half of SMEs survive beyond the first five years. One of the key reasons for this is a lack of funding. Indeed, research reveals that 38% of start-ups fail due to funding problems. Failing to secure funding for your venture can slow down progress and reduce your chances of growing your business. However, you can adopt some measures to help make the process easier. Before that, it will help to know some reasons that could cause you to fail in securing funding, such as those below.
Lack of a Clear Business Plan
A business plan is a roadmap for your company’s future. It outlines your goals, strategies, and projections for growth. Without it, investors may not understand the potential of your business and will be less likely to invest. If that happens, the chance of securing their funding is significantly reduced. Admittedly, not everyone can put together a document explaining the economic viability of a business idea. That is why you will find a business plan service most useful. Without such expert help, it is almost impossible to remain on the market. In 2015, the founder of a start-up called “Juicero” secured $120 million in funding but failed to turn a profit. Part of this failure was because the company did not have a clear plan for how it would make money. The product, a high-end juicer, could not justify its $700 price tag and ultimately failed to gain traction in the market. This example clearly shows what the lack of a clear business plan can result in, making it essential for you to make it a priority.
No Proof of Concept
How can you prove to an investor that your business has a solid track record of success? They would like to see this to be convinced that your business venture is worth the financial commitment. Without proof of concept, investors may be apprehensive about your business’s success and sustenance. About ten years ago, the founders of the gaming company, “OMGPOP,” secured $17 million in funding for their business product. Investors with high hopes for positive returns were disappointed when the business failed to profit. According to research, OMGPOP experienced a challenge because of market saturation. The gaming industry has been highly competitive for years, dating back to the early prototypes in the 1960s. Therefore, to secure funding and break into the industry, you must show irrefutable proof of concept and what new solutions your business brings.
Inadequate Understanding of Your Market
Investors want to know that there is a market for your product or service. Without a clear understanding of your target market, it won’t be easy to convince them about the viability of your business idea. Remember that their financial investment is based on the premise that your business has an identifiable market ready to accept the product. To better understand this point, look at the following example relating to a social media platform, Color Labs. In 2011, the founders of Color Labs secured $41 million in funding but failed to gain users. The problem was that the company had not clearly defined its target market and struggled to find a niche in the crowded social media landscape. Indeed, they had the target market clearly defined on paper. However, people were not interested in reality. The market was already saturated with other competitive social media platforms. This point is a great reminder of the importance of clearly defining your target market to increase your chances of securing funding.