Why do most start-ups fail?
It all starts with an idea. Thinking you’re building the next big thing. You think of all the possible scenarios, cover all your bases and success is only just out of your reach.
That’s what most entrepreneurs think, but why, then, do 60% of start-up’s fail?
Perspective.
Start-ups can bring life to some of the most innovative solutions to everyday problems, but sometimes, it’s a solution nobody asked for. A recent study by CB Insights showed that 42% of startup’s failed due to a lack of market demand, i.e. entrepreneurs who focused too much on their product and didn’t consider the customer. They lacked the perspective of the end user and eventually burned through their funding trying to sell a product nobody really wanted.
The study also shows that lack of sufficient capital (29%), having the wrong team (23%) and market competition (19%) are among some of the key reasons why start-up’s fail.
These numbers may seem daunting, but at the end of the day, mistakes are made so we can learn from them.
The first and most crucial step is to keep your customer at the center. This involves testing your idea regularly, getting customer feedback as frequently as possible, and developing features that aim to solve real problems and challenges for your end user.
Second, you need to spend smart. While running out of funding is almost never a standalone issue, being unable to raise capital will surely run your business into the ground. There are several ways to sustainably raise capital, such as crowdfunding, angel investors or incubators, and organizations like FundedByMe exist to help solve such problems. It is key to manage your funding to ensure you meet your milestones, and when it comes to spending, be sure to invest in ideas and features that you know are important to your customers.
Lastly, don’t go at it alone. Building a diverse team can give you exactly the perspective you need. Having even one co-partner from a discipline different to yours, who believes in your idea and asks the questions you don’t can make all the difference in whether your start up succeeds. A balanced team lends perspective and allows you to learn from others while working together towards a mutual goal. Who knows, maybe you’ll end up building the next Microsoft together!
