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5 Reasons Why Australian Startups Fail in Their First Year 

With a rapidly growing startup environment, Australia is well-known for being a land of business opportunity. 

Hundreds of Aussie businesses have been founded in the last few years, some of which have managed to survive. 

But how many of these businesses are still around and how many of them failed?

Here’s a not-so-fun fact: in Australia, one in three startups fail in their first year, two out of four by the end of the second year, and three out of four by the fifth year (source: University of Technology Sydney).

Some websites even report that as much as 97% of Australian startups fail over a period of years. 

The good news is, we know some of the current challenges in the Australian startup scene and the most common reasons why these businesses fall behind and eventually fail. 

From inability to raise capital to poor marketing, we break down the top 5 reasons why Aussie startups fail and what business owners can do to prevent it. 

Table of contents:

  1. Failing to raise capital 
  2. Doing it all alone
  3. Premature scaling
  4. Failing to pivot 
  5. Poor marketing 

1. Failing to Raise Capital

Raising Capital for an Australian Startup

Money is a finite resource. 

For lots of Aussie startups, running out of cash – tied with the inability to raise enough capital to keep going over the next few years  – is one of the biggest stumbling blocks.

This is because many startup owners fail to think through the eyes of an investor. But the truth is, when raising capital you begin answering to someone other than yourself. 

Having some great idea and some great product can only bring you thus far, but having a system that makes your idea fundable is what can actually propel your business to success.

That’s why it’s best to prepare yourself so you can be able to answer questions about your management team, exit strategy, business model, marketing plan, and more. 

While many have the perception that investing is gambling, this is not true. Sure, investors are risk-takers, but they also need relevant information in order to minimise risks and maximise their return on investment. 

That’s why it is essential that you prepare yourself so you can successfully pitch your business idea to investors. 

Plus, it is super important that you understand the type of funding you are engaging in and the real cost of raising capital, whether you are looking for debt financing or equity.    

2. Doing It All Alone

Australian Startup Owner in a Virtual Office

Especially when you’re a solopreneur, there will come a time when running a business feels too heavy for one set of shoulders. 

Many business owners tend to treat their businesses like a DIY project, working tirelessly and getting involved in every aspect of the business – including mundane, repeatable tasks that often prevent them from focusing on their core business. 

But the truth is, doing everything yourself isn’t commitment, it’s bad leadership. 

If you believe that no one out there can get the job done, you are undermining your ability to delegate tasks and build an efficient team.  

That is actually stunting your business’s growth. When you do everything yourself, you are setting your business up for failure. 

So what can you do instead? 

Find freelance experts and professionals you can rely on, such as an accountant or tax professional. Bring on a virtual receptionist to pick up the phone and take some of the work off your plate. 

If you’re operating remotely, get a virtual office that comes with a wide array of services so you can stop spending time working on the micro elements of your business, such as handling your mail or finding a location to hold your meetings. 

If you really want to thrive, you must remember that your business cannot survive if you’re doing it all alone. 

3. Premature Scaling

Scaling a Startup With a Virtual Office

According to Medium, premature scaling happens when a company expands faster than it is ready for it, accounting for 70% of all tech startup failures. 

In layman’s terms, premature scaling means too much, too soon, whether it’s too much money, too many early adopters, or too many employees. 

While real scaling is associated with positive growth, premature scaling means making hasty decisions that lead to negative growth. 

The problem with premature scaling is that often it is difficult to recognise when you’re scaling too quickly. 

Typically, key signs of premature scaling involve inability to meet success metrics, overwhelming stress on the team, inconsistent profit, and unachieved goals. 

To avoid the premature scaling death trap, focus on your customers and their feedback instead of releasing products that don’t actually have a market. 

Wait to grow your team until your team members have reached their limits, and taking on more staff becomes absolutely necessary.

If you’re looking to scale up without incurring significant expenses and putting your business’s finances at risk, it’s best to opt for flexible office space (such as the virtual offices provided by B2B HQ). 

Flexible offices help you mitigate risks by scaling up without spending money on larger premises and investing a ton of money into overhead.  

4. Failing to Pivot 

Pivoting an Australian Startup

Pivoting occurs when you decide to change your business strategy in order to adapt to changes in the industry. 

For example, you may want to turn one feature of a product into the product itself, use different technology to build your product, or employ a new revenue model.

Sometimes, pivoting is looked down upon in the Australian startup economy as a sign of failure which makes business owners fear the step. 

But the truth is, sometimes pivoting is important for learning and growing through mistakes as you make adjustments to meet the “right fit”.   

In fact, a CB Insights study cited by The Hour reveals that not pivoting is one of the most common reasons startups fail.

This is because pivoting is an art – it must be done at the right time with considerable planning and thoughtful execution.   

The problem with many startups is that they take too long to pivot.

While deciding when it’s the right time to pivot isn’t always easy, you may want to consider pivoting when the market does not respond to your expectations or your business isn’t financially viable. 

You may also want to pivot when you have a single feature of your product or service that stands out so you want to support that single feature.  

5. Poor Marketing

Building a Marketing Strategy for an Australian Startup

Even if your product is able to fill a market gap, it’s going to fail if no one knows about it. 

The problem with many fledgling businesses is that they wait to reach a larger stage of development in order to get guidance from marketing experts. 

However, failing to implement some sort of marketing strategy means you are not visible to your target customer or client base. 

This, in turn, can kill your business’s growth. 

That’s why it is essential that you spend money on marketing instead of just pouring all of your money into the product or focusing solely on one aspect of the business.

Even if you create a strong brand identity to communicate your values and tap into your true target audience, that is pointless without an effective marketing strategy in place. 

While you may operate on a shoestring budget as an early-stage startup, there are plenty of opportunities to market your small business without breaking the bank.   

Remember, without a go-to marketing strategy, chances are your business will die slow. 

Growing an Australian Startup

Conclusion: Some startups will emerge, and some will disappear. 

The one that will survive and thrive will be a business that avoids these 5 mistakes and chooses to raise capital and scale up at the right time, delegate tasks and implement a smart marketing strategy.

Even if you realise that you’ve made one of these mistakes, it’s never too late to fix the issues with the right problem-solving approach.

Looking for ways to give your business a better chance of succeeding? With a premium virtual office in Melbourne, you get everything your business needs to run smoothly and build reputation so you can focus on what really matters – boosting profits and growth. For more information, do not hesitate to contact us. We would be happy to answer any questions you may have!   

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