If you are plunging into a startup business, you have a shot at achieving success. But you also have a good chance of fizzling out early. You might have a disruptive new idea but turning a great idea into a viable business is a different ballgame. It takes more than just a great idea and fat bankroll to succeed in this business world. Millions of startups kick off each year with sky-high aspirations and revolutionary ideas. But while some cross the golden line of $100 million revenue, others inevitably fail.
In fact, a study by Harvard revealed that 75 percent of total startup ventures fail in the first year and if they manage to survive the first year, they have 36 percent chance of failing in the second. And in case they make it through two years, there are 44 percent chances to go down in year three. Hence, overall, 50 percent of start-ups sink within five years. This may sound dismaying but this is the harsh reality of today’s business panorama.
Why Many Start-ups Fail?
According to the CB Insights, ‘running out of the cash’ contributes 29% of all reasons for a company’s failure whereas ‘no market need’ contributes 42%.
- 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 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.
Apart from these two major reasons (no market need and lack of funds), there are other factors too.
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 are vital for a startup. Along with that 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 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.
The Startup’s Keys to Success
All the above factors lead to the downfall of a company. But then there must be something that helped some startups such as Uber, Facebook or Airbnb to skyrocket. The successes and failures of a venture aren’t simply left to chance. Indeed, they rely on a number of variables and factors that all influence the final profitability of a business.
- Starting With Testing the Market
Just because you’ve got a product or service that is appealing to a large market, doesn’t mean you need to tackle it all. Indeed, you should start small to fine-tune your process and ultimately get there. A classic example of starting with testing a small market is Facebook. Initially, Mark Zuckerberg infamously launched the Facebook site at Harvard and other Ivy League universities. Later it expanded its reach to others with a “.edu” email address. In fact, it was constantly innovating and adjusting to feedback before taking over the world. So, evaluating the market need and testing the market is the key to success for many successful businesses today.
As Bill Gross mentioned in his famous TED talk, timing is accounted for 42% of the difference between success and failure. When we think about it, it makes perfect sense. All new companies that are renowned today have one thing in common and that is timing. If your product is too early or too late for the market, it won’t work out.
- Giving Attention to Customers’ Feedback
When Airbnb, one of the leading American startups was struggling in its initial stage in 2008, they decided to focus on building a product that people fall-in-love with. And we all know how successful is the company today. Giving priority to customers and their feedback goes a long way in overcoming early growth challenges with success.
- Hiring The Best Team
Starting a business requires a number of key things to be in place to evade the risk of early failure. But having good people on board should be a core part of the business strategy. Why do you think that Apple is immensely successful and unrivaled in its field of expertise? If it wasn’t for the strenuous team vision, ruling over the smartphone market would still be just a dream for Apple.
The Bottom Line
While the startup-failure statistics aren’t exactly encouraging, you shouldn’t let them put you off from pursuing your dreams. Sure, all entrepreneurs might not be Mark Zuckerberg, but with some careful planning, and a lot of determination, it’s possible to join the ranks of successful startups.