Why Do Most Start Up Companies Fail?

[RMClubfitter]

http://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/

Have been on this message board about 2 months. Whether Elio Motors succeeds, seems to occupy a lot of the discussion here. It seems a lot of that discussion are from a few that seem hell bent to do whatever they can to persuade others that there is no way Elio Motors can succeed. While I consider myself a sunshine-pumper, (I see no benefit in being a fatalist in any area of life) I would be very unwise to consider the risk in investing in a start up company (have done tax and accounting for small businesses most of my life) and know the risks.

I thought this article addressed the subject fairly well and could be the basis for a fair and reasonable discussion on the subject. Here Goes.

Reason #1: Not really in touch with customers through deep dialogue.
Is Elio in touch with it's potential customers. Are they listening to potential customers at the mall shows they do?? Much of this is pure speculation as I doubt any of us know what kind of market studies have been done or other intentional interaction with Customers have and are taking place.

Reason #2: No real differentiation in the market (read: lack of unique value propositions)
Think Elio has definitely nailed a specific market with a one of a kind target market here. For low income as well as the middle class, a commuter car that makes a lot of sense. A low cost vehicle that will save its buyers a lot of money.

Reason #3: Failure to communicate value propositions in clear, concise and compelling fashion.
I think Elio has done a great job here communicating the value of there product. I think in the next year we will see the communication of the value of the Elio amped up substantially.

Reason #4: Leadership breakdown at the top (yes — founder dysfunction).
We will definitely find out what kind of leadership skills Elio has this next year. I have no inside knowledge here but can only judge by what I see just like most of you. I think Mr Elio does a great interview and tells his story well. Since I am not in the board room I do not know how he performs there. I'm sure Mr Elio has a lot of his own money and resources invested in this project. I do not believe we have a Leadership problem here.

Reason #5: Inability to nail a profitable business model with proven revenue streams.
This to me and in my experience is the most critical piece of the puzzle. Being able to attract Revenue streams and being able to make a profit sufficient to sustain the business is most important. There have been a lot of posts on this site relating to this subject. We have been given little tidbits as to where Elio stands in its search of Capital. Venture capitalist will open up their checkbooks if they believe in the product and the people who are managing the product. If Elio has done all it's homework and is confident of it's business plan, it needs to start playing its trump cards. The natives are getting restless.

I have seen a lot of effort in the past put into business models but it's like an old man told me one time, "When your outgo is more than your input, them you upkeep will be your downfall". We as future (lots of hope here but being very pragmatic) Elio owners need to tell the Elio story to our friends and try to get them on board and provide positive support to the success of Elio Motors.

3rd party influence is one of the most powerful sales tools. It is what we can do to help us to one day drive our Elio.

 

[Lil4X]

Having started a couple of companies of my own, I've attended a lot of business seminars - some good, most out of touch with reality.

This article does a good job of hitting the highlights of traditional business/marketing models. But it overlooks the number one cause of new business failure: undercapitalization. With insufficient start-up capital, most new companies fail in their first year. The survivors may struggle on for a few years, but it is difficult on a limited budget to get into full production while fighting marketing challenges, competition, growth, and regulation.

Overall, it appears that EM has covered all the bases, doing quite well without a MASSIVE infusion of capital. By bringing in vendors as virtual subcontractors, EM can cut start-up manufacturing costs while putting key suppliers on the development team. Well played, gentlemen, well played!

 

[RMClubfitter]

Having started a couple of companies of my own, I've attended a lot of business seminars - some good, most out of touch with reality.

This article does a good job of hitting the highlights of traditional business/marketing models. But it overlooks the number one cause of new business failure: undercapitalization. With insufficient start-up capital, most new companies fail in their first year. The survivors may struggle on for a few years, but it is difficult on a limited budget to get into full production while fighting marketing challenges, competition, growth, and regulation.

Overall, it appears that EM has covered all the bases, doing quite well without a MASSIVE infusion of capital. By bringing in vendors as virtual subcontractors, EM can cut start-up manufacturing costs while putting key suppliers on the development team. Well played, gentlemen, well played!

Yes. I think that in a round about way that is what #5 was implying. No doubt undercapitalization is biggest reason for business failures.

 

[CrimsonEclipse]

Try getting a business loan without a detailed business plan.

 

[Dino3721]

I think may start-ups fail because they try to re-invent the wheel.
The fact that 80% of the Elio is off the shelf parts already in production is a big plus.
New startup's try to stand out by adding new technology. Again, I love the Elio is not a hybrid, or fancy- just a simple car with pure design.
And many new start ups are completing with the big boys for customers. Elio is making a new class of vehicle.
The fact it is considered a motorcycle will allow Elio to fast track around some of the hurdles of regulations.

There is no way people are not going to ask you about it at the gas station or stop light. There are small cars, there are compact cars and there is Elio.

I think they really have a good plan- if it comes together.

 

[RMClubfitter]

I think may start-ups fail because they try to re-invent the wheel.
The fact that 80% of the Elio is off the shelf parts already in production is a big plus.
New startup's try to stand out by adding new technology. Again, I love the Elio is not a hybrid, or fancy- just a simple car with pure design.
And many new start ups are completing with the big boys for customers. Elio is making a new class of vehicle.
The fact it is considered a motorcycle will allow Elio to fast track around some of the hurdles of regulations.

There is no way people are not going to ask you about it at the gas station or stop light. There are small cars, there are compact cars and there is Elio.

I think they really have a good plan- if it comes together.

I agree. I think it is a great idea whose time has come. Now they got to get the motor to work the way they have designed it to do, then I think the funding will come. No doubt it is going to be a great conversation piece.

 

[Jeff Porter]

Having started a couple of companies of my own, I've attended a lot of business seminars - some good, most out of touch with reality.

This article does a good job of hitting the highlights of traditional business/marketing models. But it overlooks the number one cause of new business failure: undercapitalization. With insufficient start-up capital, most new companies fail in their first year. The survivors may struggle on for a few years, but it is difficult on a limited budget to get into full production while fighting marketing challenges, competition, growth, and regulation.

Overall, it appears that EM has covered all the bases, doing quite well without a MASSIVE infusion of capital. By bringing in vendors as virtual subcontractors, EM can cut start-up manufacturing costs while putting key suppliers on the development team. Well played, gentlemen, well played!

Lil4x, really interested in getting more of your experience with starting a company. On the subject of lack of money, I would think 9 out of 10 companies that are just getting started, say that they have a lack of money. How does a startup company get more $$? How successful can a startup company be in getting more $$?

Assuming Elio Motors will have a need for more money, let's talk about the items that you mention:
o marketing challenges - with social media, websites, email lists ... it seems that marketing can be handled and managed, and so far EM is doing well from what I have seen;
o competition - don't see any competition yet; it's a new market that EM has created, will be interesting to see if, at this time in 2015, any other companies, new or existing, will be talking about their future plans to build an autocycle that gets 50+ mpg combined;
o growth - EM appears poised to handle growth, which is 100% guaranteed to be there;
o regulation - this looks to be a wild card to me... if lawmakers get some heat from lobbyists of auto makers or oil companies, some strange laws could suddenly be making their way thru the U.S. House and Senate, that could really muck things up for EM... such as regulation for a new autocycle that might rival 4-wheelers' current regulations;

Agreed on the vendors as virtual subcons, being a great advantage.

 

[RMClubfitter]

Lil4x, really interested in getting more of your experience with starting a company. On the subject of lack of money, I would think 9 out of 10 companies that are just getting started, say that they have a lack of money. How does a startup company get more $$? How successful can a startup company be in getting more $$?

Assuming Elio Motors will have a need for more money, let's talk about the items that you mention:
o marketing challenges - with social media, websites, email lists ... it seems that marketing can be handled and managed, and so far EM is doing well from what I have seen;
o competition - don't see any competition yet; it's a new market that EM has created, will be interesting to see if, at this time in 2015, any other companies, new or existing, will be talking about their future plans to build an autocycle that gets 50+ mpg combined;
o growth - EM appears poised to handle growth, which is 100% guaranteed to be there;
o regulation - this looks to be a wild card to me... if lawmakers get some heat from lobbyists of auto makers or oil companies, some strange laws could suddenly be making their way thru the U.S. House and Senate, that could really muck things up for EM... such as regulation for a new autocycle that might rival 4-wheelers' current regulations;

Agreed on the vendors as virtual subcons, being a great advantage.

This is one I am concerned about. Glad you brought it up. Elio is straddling the fence as far as, "Is it a Motorcycle or an Automobile". As you state any change in regulations that would make the Elio an Automobile is a game changer.

 

[karl]

We are the ones on the fence with that with the motorcycle vs auto cycle. I believe Elio chose to go with the motorcycle route to get the simpler regulation. A good plan that could haunt them if they are not successful in getting exemptions for there vehicle. All to often we humans that need to make the choices don't understand what they are choosing and why.

 

[Folks]

Yes. I think that in a round about way that is what #5 was implying. No doubt undercapitalization is biggest reason for business failures.

Memphis has a long history of famous entrepreneurs possibly starting with Clarence Sauders, founder of the first supermarket. Kemmons Wilson and Wallace C Johnson founders of Holiday Inns. Fred Smith, Fedex. My neighbor's only claim to fame was as a banker in 1974 he traveled to the Little Rock Airport and chained down and repossessed a Cessna 172 belonging to Fred Smith. Kemmons Wilson was reputed to have owed money to everyone in Memphis and no one could find him. LOL All had skin of your teeth stories of staying funded. Fred's boom or bust story tops them all in my opinion;
Three years in rising fuel cost and Fedex was down to it's last $5000. General Dynamics had just denied more funding and instead of going back to Memphis he took his $5000 to Las Vegas black jack tables. That Monday rolled around and there was $32000 in his account allowing for a little more than a weeks fuel giving him time to find 11 million funding from somewhere else and the rest is history.