Reasons Why Many Start-Ups Fail

Armed with a disruptive new idea and fuelled by passion, millions of startups plunge into the business world every year. They think they are creating the next big thing and they can do it better than the competition. However, the cold harsh truth is success is a hard nut to crack and without proper forethought and dedication a business is more likely to end badly. In fact, statistics revealed that 50 percent of small businesses sink during the first year and 95% within the first 5 years. And generally, it’s not one huge mistake that kills a startup, there are multiple reasons that lead to business failure.

No Market Need

One of the most common reasons for a startup- failure is no market need. Many companies believe that their product is so appealing that the market will beg for it and money will begin to roll in. So, they end up making a solution for a problem which nobody has and lose all their effort and resources into failure. Sometimes the product or service may be desirable but the market might not be ready for the particular solution at that stage.

One of the best examples in this context is Webvan, an online grocery store that delivers groceries to your doorstep within 30 minutes of ordering. This is what Webvan promised but twenty years ago, in 1999 when online commerce was still in its infancy and the Internet connections were not fast enough. The startup raised VC funds and even had a blockbuster IPO after which it was valued at $1.2 billion at its peak. But being way ahead of its time, it racked up $830 million in losses and filed for bankruptcy within a few months.

Lack of Fund

The second reason why many startups fail is inadequate funds. Many entrepreneurs lack a proper understanding of their cash flow and few have no idea of how much capital they will truly need. As a result, they are forced to shut down. Also, some business owners set impractical expectations of what profits will be and it becomes the reason for their failure. 

Team Incompatibility

23% of startups mentioned an inadequate team as a contributing factor to their failure. Having a team of highly motivated, persistent, and diversely skilled people is vital for a startup to get success. It is important for a team to have a common vision and long-term goals so that everyone in the team remains on the same page as the startup thrives.

Silo Mentality

Another biggest pitfall for new startups is the silo mentality of businesses. Amid the idea, product creation, and management, startups often miss out what customers are telling them. As a result, they end up offering a user-unfriendly product, or a service whose price isn’t at all sympathetic to the market. Being unaware of trends and competition in their market space, they start losing customers.

Business Model Failure

Being too optimistic about how easy it will be to acquire customers is another roadblock to success for startups in many cases. Most entrepreneurs fail to pay adequate attention to figuring out a realistic cost of customer acquisition. They assume that their web site, product, or service is so amazing that customers will beat a path to their door. That may happen with the first few customers, but after that, attracting and winning customers becomes an expensive task. 

Wrong Team

One of the key questions that companies need to address in the early stage is: Are you hiring the right people? When your startups get to a transition stage, just the entrepreneurial zeal cannot take you forward. Having the right team is essential to getting things off the ground. Many startups fail because they have either not got the hiring right or the firing right. Some even struggle to nurture their resources appropriately.

Poor Marketing

No matter how great your product or service is, it’s going to fail if no one knows about it. Marketing is crucial for your business to succeed. Although you don’t necessarily need to hire a professional PR team at the beginning, you shouldn’t completely ignore the marketing. 

Founders’ conflict

There is one cliché in the business world that startup is like a baby and your Co-Founder is your spouse. And, there’s a lot of truth in it. 60 to 70 percent of startups fail because of founders discord. When the founders aren’t aligned on a common principle, it can derail a startup. Starting a business is a long and tough journey and as the journey progresses, several friction points come along the way as different people have different aspirations. This is when often teams fail to stick together.

Final Word

Finally, the most imperative factor that will determine the success of your startup is you, the business owner. Backed with hard work, passion, fortitude, and a positive outlook, you should deem any kind of setback as a chance to learn from the experience and rebound from it. Now that you know some major reasons why most of the startups fail, avoid the hiccups on your road to success and take your best shot at building a successful company.