HR · 16 September 2015

Bad management of founders, not lack of funding, is the key reason for startup failures

The majority of new entrepreneurs failed because they could not work with people effectively
The majority of new entrepreneurs failed because they could not work with people effectively

While many point to access to finance being the key stumbling block for many new businesses, a new report from the Chartered Management Institute (CMI) has found that bad management is at fault for startup failures.

The “Growing Your Small Business” report, from the CMI, Chartered Association of Business Schools and business network The Supper Club, found that nearly half (44 per cent) of companies started in 2011 in the UK had failed by 2014. The reason 56 per cent of them failed was poor business management.

While 89 per cent of leaders at big firms had management training, just two in five of budding business owners had. Of those employing less than 24 people, the number fell to one in three. Despite this, only one third of small businesses employing between five and 24 people said they had provided management training during the last year.

Ann Francke, the CEO of the CMI, said that while small firms are a “vital part of our economy”, these kind of firms’ growth is “held back by poor management and leadership”.

There are over 600 publicly-funded support programmes out there which Francke said makes for a “complex and confusing landscape for busy small business managers”.

In an attempt to help address this, the report also launched a heat map tool for small firms to see what support is available to them. Owners should be able to check what publicly-funded training programmes are accessible to help address the gaps they may have.

The climate for new businesses is increasingly active – the UK has a higher number of startups than ever before, but only six per cent are estimated to generate at least £1m in revenues after three years. The UK also has the worst record of all OECD countries for one to nine employee businesses growing to more than ten employees within a three year period.

The report found a “clear connection” between managers’ skills and the ability of small firms to survive and thrive. Employers in Northern Ireland train their managers less than anywhere else in the UK (with 39 per cent of organisations training their managers), and this region also had the lowest survival rates among its startups.

Of the 1,200 businesses polled, 16 per cent were deemed fast-growing and the report suggested this could hold back the UK economy as a whole.

Francke said it was “about taking management seriously”. She added it was easy to end up doing everything yourself, but to successfully grow, founders needed to delegate to others, have a strategy and be able to adapt with change.

Many entrepreneurs failed because they were unable to cooperate with others or lacked a cohesive strategy – both of which could be improved with training.

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Rebecca is a reporter for Business Advice. Prior to this, she worked with a range of tech, advertising, media and digital clients at Propeller PR and did freelance work for The Telegraph.

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