6 Common Causes of Startup Stagnation and How to Avoid It
January 16, 2024
Adam Wakefield

You should never ignore business stagnation because it can be a sign of a failing venture.  Startups come and go, and 90% fail within the first year. While an innovative idea is a good launching point, earning that elusive unicorn status takes much more. Even when a startup sees success, there can be periods of business stagnation. The entire trajectory can change when a business experiences slow or flat growth rates. Instead of having a strong heartbeat, a startup facing stagnation can flatline.

The question is, what causes startup stagnation, and how can you stop it? 

In this guide, we’ll share some of the most common causes. Plus, we’ll provide practical tips to avoid hitting this roadblock.

What are the most common causes of startup stagnation?

As a business owner, you want to give your startup the best chance of success. While business stagnation isn't uncommon, it doesn't have to be inevitable. When you are prepared and understand the complexities of your market, you can reduce the chance of failure. 

Here are some of the most common causes of startup stagnation, along with strategies to overcome them.

1. Lack of capital

If you want to see business growth, you need the funds to back up your short and long-term goals. Lack of capital is one of the key factors responsible for business stagnation. You may have a clear plan and a strong team behind you, but it can all fall apart without finance. A staggering 38% of startups fail due to a lack of cash flow, making it the leading cause of failure. 

The initial phase can feel like a whirlwind; entrepreneurs often only have enough funds to cover the first stages. Once the money starts to run out, the lack of capital can quickly impact all business areas. For example, it may be difficult to:

  • Purchase assets required for expansion
  • Invest in market research
  • Pay suppliers and employees on time
  • Cover ongoing expenses such as rent, utilities, and insurance

Remember, even if your business is flat but stable, there may be little chance of growth or expansion without additional investment.

How to increase your cash flow

You can use various strategies to improve your startup's financial situation and boost economic growth.

First, you can look at traditional financing options like personal funds and bank loans. If you approach a bank for a loan, you must share a thorough business plan and proof that you can cover the repayments.

Another way to move forward is by partnering with investors who understand your business. Experienced investors usually have a specialty and industry expertise. For example, Founders Factory Africa focuses on early-stage startups across the tech ecosystem, including fintech and healthtech startups.

If you want to find the right fit, it's important to understand where you are in the process. Why? A late-stage startup won't have the same goals and requirements as a new startup. Sometimes, you need to think outside of the box. Networking and crowdsourcing can give you a quick cash top-up and keep your business afloat.

2. Talent shortages

Successful businesses know the power of a solid team. Whether you have one employee or twenty, having the right mix of employees can be the key to achieving those long-term goals. When starting your business, you may juggle most of the work yourself. However, founders often get to a point where they can no longer do it all. If you can't delegate tasks to people you trust, it can cause your business to stagnate.

Employing people who share the same vision is vital to a growing startup. You need reliable, skilled, trustworthy team members who don't need micromanaging. Finding talent isn't always easy. 77% of employers have trouble filling roles, the highest statistic in 17 years.

The tech industry can be particularly competitive, and there can be other brands looking to recruit the same candidates.

How to find the right talent

While attracting the best candidates can be challenging, it's not impossible. By prioritizing your hiring processes from day one, you can grow your team and avoid a business plateau. Before recruiting, consider your company's culture, values, and management style. With this information, you can determine what you're looking for in an ideal candidate.

Here's an example. Your business leaders may have a visionary management style. They need employees who are innovative and creative and share the same goals.  Alternatively, your business may have a democratic leadership style where everyone works as equals in a team. This environment's key employee attributes are self-motivation, teamwork skills, and determination.

Where do you find these people? Try various recruiting methods, including job sites, internal referrals, social media, and internal promotions. Be prepared to offer unexpected yet appreciated perks to help your company stand out. Other employers are already ahead of the game, including Google. Besides the usual list of traditional benefits, some of the "Googley extras" employees get are:

  • Flexible work arrangements
  • Meals and snacks in the workplace
  • Complimentary fitness, well-being, and cooking classes
  • Inspiring and comfortable workspaces
  • Coaching programs

These unique benefits may be enough to attract, secure, and retain quality employees.

3. Fierce competition

There's nothing wrong with a little healthy competition. When you have competitors, it can keep you motivated and push your team to perform to a high standard. There is a downside, though. When there are too many similar businesses in the same field, it can saturate the market and create stagnant industries.

Startups may undercut prices to stay relevant. This strategy may give you a short-term boost but can hinder future economic growth. Plus, fierce competition can have a direct impact on your finances. Locking in niche investors can be more difficult when competitors try to secure funds from the same places. As we already know, lacking capital is detrimental to any new business.

How to beat the competition

You'll need competitive strategies if you want your startup to survive. Even though the competition may be similar, innovation will set you apart. Creating a diverse workplace is a good place to start. Hiring employees from different backgrounds will give you new perspectives — vital if you want a positive company culture.

A growth mindset and actionable goals will also be beneficial. Look for new business opportunities and stay on top of trends. You won't have all the answers, so partnering with experts can give you a competitive edge.

Remember, excellent customer service can increase customer loyalty. Beating the competition can be as simple as quality products — and positive customer experiences.

4. Legal obligations

Startups can get hit with periods of stagnation due to legal obligations. Expanding into different markets and rapid growth can mean continually changing obligations. For example, the rules will differ if you want to launch in the US or the UK.  Red tape can hold up progress, and keeping track of your legal obligations can be costly and take time and effort. Unfortunately, this can be enough to crush a startup before it has a chance to succeed.

What types of legal obligations do you need to consider? Here are a few examples:

  • Employment and workplace laws, including anti-discrimination
  • Contracts between employees and suppliers
  • Intellectual property (IP), including trademarks and patents
  • Data collection and retention requirements
  • Taxation and reporting obligations
  • Partnership agreements
  • Stock allocation laws
  • License requirements

If your business doesn't comply with local laws, you may face penalties, such as monetary fines. 

How to meet your legal obligations

One of the most critical steps you can take as a startup is to seek legal advice. Try to find someone with experience in the industry. They should understand the unique needs of your business and flag any potential legal obligations.

You can minimize business disruptions by being prepared. When you construct your business plan, take some time to do your research.  For example, you must check that you can legally use your business name. If there's a trademark issue, it can result in a lengthy court battle. 

Next, speak to your lawyer and accountant to learn which business structure is the most suitable — they may suggest a corporate structure to protect your personal assets. Your accountant can also support you with budgets and tax requirements.

It’s no secret that meeting your legal obligations doesn't come cheap. These expenses can dent your cash flow if you aren't expecting them. Set aside funds in your budget for potential legal bills.

5. No vision for the future

Industries are constantly evolving, and founders need to see the bigger picture. Without a strong business vision, your startup can tread water. It could be a mistake if you're not thinking about "what's next" and considering all avenues for growth. 

Still not convinced? Consider the tale of Amazon, a giant that requires no introduction. When the internet started to gain traction in 1994, Amazon launched as a virtual marketplace specialising in books. The initial success may have been enough for some — but not Jeff Bezos. He envisioned the future, and printed books were only the beginning. Even though Amazon was already thriving, in 2001, the platform diversified to include a range of goods from electronics to clothing. Due to the vision of Amazon's founder, the company has seen ongoing growth. With its continued economic performance, the platform has an e-commerce market share of 37.8% in the US.

As you can see, pivoting and embracing change has helped Bezos remain profitable. If he'd stuck to paperbacks, would Amazon still be where it is today?

Here’s another ecommerce example from closer to home. Jumia is known as “Africa’s Amazon” and has been in business since 2011.  Before Jumia, the 160 million people in Nigeria couldn’t access an online shopping platform. It was a unique idea but did come with challenges, including payments and logistics.  With the vision to overcome these challenges, Jumia has since expanded to other African countries. There have been ups and downs, but the company has grown from 10 employees to 5,000.

How to hone your vision

Successful companies know they must be adaptable and have a vision for the future. As a founder and innovative thinker, this may already be your specialty. Even so, it shouldn't be a guessing game. You can hone your vision by researching the industry and trends.

If you need inspiration, focus on your target audience. What are their needs and wants? You can use this research to predict what areas are worth investing in. You need ideas that are fresh and implementable. With a clear vision and the research to back it up, you can create realistic goals. 

Not only do you need a vision, but you need to be able to share it with others.

6. A poor marketing strategy

Your startup may be a game-changer for your target audience and fill a gap in the market. However, even a strong business idea can fail if no one knows what you're selling. For some founders, marketing, and promotion is low on the priority list. With a poor or non-existent marketing strategy, all your hard work could be for nothing.

Some common marketing mistakes include:

  • Not understanding your target market
  • Forgetting to create a marketing plan
  • Overspending on irrelevant advertisements
  • Failing to engage your audience
  • Ignoring online platforms
  • Copying your competitors
  • Trying to do it all yourself

Startups need to think outside of the box. Traditional television or radio advertisements may be part of the puzzle, but relying on one form of promotion can mean you miss out on new customers.

How to improve your marketing strategy

When you shake up your marketing mix, you can elevate your brand and get your customers talking for all the right reasons. Before you start, you must research your audience to understand who they are and the types of promotions that will appeal to them. 

For example, a teen audience may be best suited to TikTok and Snapchat advertising, while a parent may prefer Facebook and product reviews.  If you're expanding into different countries, you will also need to consider the local culture.

Here is a rundown of our top tips to improve your marketing strategy:

  • Know your target market
  • Diversify your marketing efforts
  • Consider outsourcing to an expert
  • Create a mix of short-term and long-term marketing goals
  • Use consistent, clear messaging
  • Seek advice from industry partners
  • Use a combination of paid and free advertising
  • Find ways to connect directly with your customers

Remember to monitor your results and modify your marketing as you go. If you need to fix something, feel free to make changes and create new goals. 

Remember that it can take time for your efforts to show results. Digital marketing, such as SEO and social media, are long-term strategies that require consistency and dedication.


Regardless of where you are in the process, there is always more to learn. Here are answers to some of the most frequently asked startup questions.

What should a startup look for in an investor?

Your startup will need funding to move forward. Investors can be vital to your business's bottom line, but not everyone will be a good fit.  While it can be hard to say no to financing, waiting to find the right investor will be worth it. Business owners should look for investors with industry expertise and goals that align with their own. Funds are essential, but other perks can come with the right partnership.

For example, your investor may offer mentoring opportunities. Plus, they may have network connections that you can utilize.

What is the biggest mistake a startup can make?

One of the biggest mistakes a startup can make is to be unprepared. Getting big too fast without the right growth strategies can negatively impact how you run your business.

For example, if you have a strong team and your workload suddenly doubles, it can overwhelm employees. When you stretch your workforce, your team members may feel like they must rush daily tasks to keep up. As a result, the quality of your products and services can drop.

When do most startups fail?

Unfortunately, a high percentage of startups fail. While the causes of collapse vary, startups often crash between two and five years. By implementing some of the strategies in this article, you can improve your startup's chances of survival.

Business stagnation doesn’t have to break your startup

When a startup faces a prolonged period of stagnation, it may not recover. Plus, it can be easy to lose momentum when you have slow or flat growth. However, your startup doesn’t have to fail. When you understand the complexities of running a business, achieving that unicorn status will be one step closer.

There are different causes of startup stagnation. The first is a lack of capital, the number one reason businesses fail. Talent shortages can also play a role. Fierce competition can make startups panic, while legal obligations are often expensive and time-consuming. Additionally, your startup will never have a chance to grow if you don’t have a vision for the future and a good marketing strategy.

Founders Factory Africa has a portfolio of over 55 startups across Africa, including Kenya, South Africa, Egypt, Nigeria, Uganda, Ghana, and Rwanda. We would love to hear from you if you’re a founder who shares our vision. Apply for investment and support.