3 top reasons for startups failure in 2022 — and how to protect yours

Over two years after the COVID-19 pandemic, the rate of startup failures remains elevated. Every year, thousands of startups close up shop. And a full 20% of startups fail within their first 24 months!

Why are so many young businesses closing their doors for good? In 2022, three key reasons stood out: Financing difficulties, post-COVID consequences and team disharmony. 

In this 2022 recap, we’ll dive into the biggest reasons founders fail, and how you can protect your own new business from a similar fate. 

Failure Factor #1: Cash flow concerns

In November 2022, Skynova, an online invoicing software company, surveyed nearly 500 founders across multiple industries to discover what factors caused their venture to fail. 

Their findings? A full 47% reported that the biggest reason their business was not successful was due to a lack of financing and/or investors. And 44% reported running out of cash to be one of the main contributing factors. 

And these surveyed founders aren’t alone. Cash flow issues cause thousands of startups around the world to close every single year, whether due to failed funding rounds or mismanaged funding. Without cash, these founders miss opportunities to grow and push forward. And with every missed opportunity, their competitive edge dulls. 

What’s the solution? Startups can work with a financial services outsourcing company from the very beginning, leveraging the firm’s professional support and expert guidance on financial topics. Or, they can choose to bring in a financial expert once they realize they’re on shaky ground. Regardless of when you partner with your outsourced financial services company, they can help you secure funding, carefully manage cash flow, and create future-proof financial plans. 

Working with a financial services company early on sets your startup up for success from the beginning. But if you’re already facing cash flow roadblocks, it’s not too late to get a recovery plan. 

Failure Factor #2: Poor timing

There’s no question, the COVID-19 pandemic has had a significant impact on the startup ecosystem. Many startups were negatively affected by the pandemic, with some forced to close their doors permanently. Even two years later, in 2022, new startups across several industries felt the consequences of the post-COVID fallout. 

Startups in industries like travel, hospitality, and events are particularly vulnerable to market conditions, trends, and timing. These leisure-based businesses rely on the interest, extra income, health, and availability of their customers. But these factors are easily impacted by everything from bad weather to seasonal sickness. Perhaps that’s why Skynova’s surveyed founders revealed that the pandemic and/or bad timing were the second two largest contributors to their failed ventures — at 33% and 21%, respectively. 

As with cash flow concerns, planning the timing of your growth, acquisitions, and launches is another essential business function easily outsourced to an expert agency. Outsourced financial services for startups can help founders forecast demand, plan for fluctuations, watch their risk, and more. And outsourced Chief Marketing Officer (CMO) services can help your product launches drive valuable business. If you’re worried about running a successful startup in 2023 and beyond, these outsourced services can be just the expert support you need for sustainable growth. 

Failure Factor #3: Disharmony within the startup ecosystem

The third biggest contributor to failed startups in 2022 was tension — among team members, across the leadership group, and between leaders and their investors. 

Disharmony among team members is a significant factor in startup failure because startups often rely on a small team of individuals who work closely together. If there’s a lack of communication or trust between team members, it can lead to decreased productivity and ultimately, failure. No team member wants to give their best to a company where they feel frustrated, ignored, or overworked. But in order to be successful, every new startup needs a committed team willing to put their greatest effort into the venture.

Outsourced HR services for startups are one way to build a strong, cohesive team from the very beginning. Not only can your outsourced HR agency assist in talent acquisition, the onboarding process and training, they can manage tedious tasks like payroll and benefits administration. And when every team member is paid properly and on time, and has access to the benefits they need, your startup can operate more smoothly, from people to profits.

When setbacks are on the horizon, it’s time to pivot

These aren’t the only early signs of business failure, but they are some of the most common. 

Luckily, even if you’re beginning to notice these signs, there is a way forward. If caught early enough, pivoting can be the best strategy for avoiding a failure and getting your business back on target for success. 

Pivoting involves making significant changes to your startup’s business plan, product, or service offering. If done on time, it can help your business adapt to changing market conditions, capitalize on emerging opportunities, and overcome obstacles. 

Pivoting properly requires detailed financial planning, analysis, and forecasting. If you don’t already have one, it’s also worth considering bringing in an advisory board to help your startup navigate the difficult season to come. And if you choose to work with an outsourced financial services and accounting team, that’s exactly the kind of data and support you’ll have access to at all times. Your on-demand team of experts can help you make critical and well-informed decisions before it’s too late. 

No matter the roadblocks you face, success is possible

Every startup faces challenges. But it’s how you address those challenges that determines your chances of success. 

If you want to give your startup every opportunity to survive the two-year mark, consider working with a financial services, payroll or accounting services outsourcing agency. You’ll gain access to the highest level of expertise, while protecting your startup from the most common early-stage pitfalls.

This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.