Top Reasons Why Startups Fail
Conventional wisdom says that 9 out of 10 startups fail. Sadly, this deplorable fact is true, at least in the sense that only one out of ten startups becomes successful. Others either fail completely or are not very profitable. In the tech world, almost 70% of startups fail. Any company can meet this fate regardless of its seemingly promising nature.
Anyways, making mistakes and learning from other people’s lapses helps to avoid own mistakes in future. So, below are the most common failings made by startup founders along with some solutions and recommendations regarding them.
Top Startup Mistakes and How to Avoid Them
#6: Not being able to adapt to the changes
Many startuppers fail to adapt to the changes that encounter on their way, be it sharp shifts in customer preferences, upgrading technologies or instability of the economic environment. The same goes for untimely pivoting. If a person is too fixated on one idea, it will be hard for one to step back from a bad idea before it’s too late.
Agility is the characteristic that should be inherent not only to software development process but also to the mindset of an entrepreneur. As such, one should be able to adapt to changes of various kinds, including market developments, transformations within their organizations, emerging technological innovations etc.
#5: The absence of an effective business model
The idea startup generates may be terrific and deserving the prominent position among the Silicon Valley innovators, but everything may be spoiled if the company doesn’t have an adequate startup strategy to monetize its brainchild or if the monetization is limited by a single channel. This leads to the situation when the business doesn’t scale and investors hesitate to put money into the venture.
In order not to stumble upon this issue, you need to think over the marketing strategies beforehand. Understanding the importance of the subject in question, we have devoted the separate article to this topic, where you may find useful recommendations on how to prepare your business plan.
#4: Inadequate assessment of competitors
While over-focusing on rivals is unhealthy as well, a large number of startups crash against the underestimated competition. The classical example is the story of Facebook putting MySpace out of the leading position in social media. Naturally, there were other factors in that case, but the competition was a detriment factor.
Thus, you need to create a truly innovative and user-friendly product to gain competitive advantages and ensure your customers’ loyalty even being surrounded by dozens of competitive companies. Again, Facebook was easier to use as compared to MySpace, and this to a great extent defined its success.
#3: Wrong people alongside or no people at all
Our environment is what makes us who we are. We are influenced by the people we deal with. That’s why it’s so important to surround yourself with people who are eager to constantly grow and motivate each other. In the practical sense, your team should be selected in such a way that every department of your enterprise is supplied with an assigned specialist who knows exactly what to do with tangible aspects of your business and has adequate technical skills for all of these.
You cannot just fit into anything when establishing a venture alone. Moreover, the more outside perspectives you receive the better. Of course, if the viewers are your allies. That is, remember that entrepreneurship in many ways is a team game that requires a good set of knowledge, expertise, motivation and a shared vision.
#2: Running out of money
Yes, a trivial, but a very common reason for startup failure. Just like the time, the money is a finite substance that needs to be wisely distributed.
The solution is evident: you need to have a substantial safety cushion to survive the most difficult periods of a business formation, such as low sales profits. You should know your potential and additional channels of funding. Also, you should avoid expanding the business too soon. Besides the issues with management and supply lines that will surely appear, you will play yourself into a corner in terms of finances. However, if the business develops too slowly, there is also a problem. In order to be able to overcome the difficulties associated with lack of funding, your startup needs to grow at a perfect pace. This will help you stay afloat.
#1: No market need
Startup killer number one. Not finding a proper market to sell your product at is the most common reason for startup fiascos. Your services or goods may be innovative and superfine, but it may happen that people are not ready to plunk their money for them. Whether the product is oversaturated with frills or does not really address any issue of the customer — anyways, if it is not needed, it is a dead end.
The key thing here is to offer the product that would solve a particular and tangible need of a specific group of people who are capable of paying for it. This is how you occupy a profitable niche.
The path to a successful business is fraught with obstacles, but it is wise to learn lessons from any experience. Some entrepreneurs even leave their failure post-mortems after they face the cold truth of their startup’s death. These statistics are not intended to intimidate the startup founders; the people who prepared these data wanted to warn the newcomers and encourage them to organize their business in a smarter way.
The pivotal concept related to №1 mistake is aptly described by Dave Sloan, the founder of Treehouse Logic, who wrote the following in their post-mortem:
“Startups fail when they are not solving a market problem. We were not solving a large enough problem that we could universally serve with a scalable solution. We had great technology, great data on shopping behavior, great reputation as a thought leader, great expertise, great advisors, etc., but what we didn’t have was technology or business model that solved a pain point in a scalable way.”
The above-mentioned mistakes are not limited by these five instances, but they are the most common ones. So feel free to use the experience of those who have already paved the way through the failures and do not repeat their mistakes in the process of your startup launch.
