Misdiagnosing Business Failure: Lack of Capital

Misdiagnosing Business Failure: Lack of Capital

No one can deny the special role of capital in advancing a business. But is a lack of capital the main reason startups succeed or fail?

I examine the issue from two perspectives:
- Reputable studies conducted outside Iran
- Personal study and experience in Iran

Results of Studies Conducted in the United States

Studies conducted by CB Insights show that a lack of capital or inadequate financial investment in startups accounts for only 29 percent, while 19 other factors account for 71 percent.
In other words, this is not the leading reason businesses fail or succeed, although Pareto analysis places it among the top 3 reasons.

Note 1: The CB Insights study concerned startups, but it is also highly applicable and useful for established businesses.
Note 2: The study was conducted in the United States, which ranks among the best business environments. The effects of conditions in Iran's business environment, which ranks at least 100 places lower, must therefore also be taken into account.
For this purpose, another article entitled "10 Causes of Iranian Business Failure That Should Be Added to the CB Insights Study" provides the necessary explanation.

Note 3: The other reasons will be addressed in a series of articles.

Personal Study and Experience in Iran

Personal experience in Iran also largely agrees with studies conducted outside Iran, with the qualifications explained below.

A lack of capital may cause a business to fail, but having capital does not guarantee success.
What factors can cause a business to fail despite having capital?
These factors are separate from those identified by CB Insights and mentioned in this article.

1. Financial disorder, a failure to control costs and wasteful spending:
   Buying unnecessary supplies and equipment, trying to imitate Google, and so on.
2. Running the business informally instead of using proper planning and project control:
   Excessive insistence on verbal, friendly management methods.
3. Failing to identify and analyze the project's technical risks and make the necessary provisions for them:
   Some risks discovered during the project may send it back to the starting point.
4. Misguided trial and error instead of recruiting specialists or hiring a consultant:
   Because of excessive faith in its own capabilities or for another reason, the team enters an area outside its expertise and wastes substantial resources.
5. Shortsighted and misguided cost cutting!:
   Using poor-quality raw materials, unsuitable tools, cracked or free components or plugins, and so on.