The Startup Failure Report card!
The question on everyone’s mind is ‘Why do most Startups fail’? It is a heartbreaking fact that 8 out of 10 startups fail in the first year of their business. This can be prevented if one is aware of the mistakes made by startup founders. Here are 5 reasons why startups fail and what blunders need to be avoided:
1. Lack of Focus on the Consumer & the Market Need
- A study shows that 42% of startups fail because they were not successful in solving the need of the market.
- The founders think they have a brilliant idea, build a product, add extensive features but the customer rejects it and then the business runs out of money
- Know your customer- Talk to them as much as possible, find out what they want; what they expect from a business like yours and then build a solid product.
- Avoid overload of features- It makes no sense to include ‘Nice to have features’ in the model. Most startups fail because these unnecessary shows off only leads to money drain. Focus on solving customer challenges and once the business paces up then see what extra features can be added.
- Launch a pilot- This means take your market to the market, test it and get feedback. Incorporating opinions and valid points can help improve the business.
2. Variable Market Conditions
The value you offer to the consumer needs to be compelling enough for him to buy your product. It needs to be a ‘Must Have’ for him rather than a ‘Nice to Have’ product.
- Unfavourable Economic Situation- Such a crisis is out of your control and can lead to many startups failing. For e.g. there is downturn or a recession in the offing or a lockdown like Coronavirus outbreak, it becomes difficult for the business to sustain.
- Wrong Timing- Sometimes the product you bring in the market could be ahead of it and the consumer is not ready for it. In the second case, the product can be a ‘Copy Cat’ version of other products already in the market. Both these cases are reasons why most start-ups fail.
3. One-Man Army
Apart from understanding the customer’s need, a successful startup needs a mix of good and talented people.
- Don’t think that only you can do everything. A solo founder may take 5X longer to outgrow the startup phase
- Get a well-balanced team in place time to take strategic management decisions
- Great ideas are generated when you work with a team and it might help in changing the founder’s perception on various issues
4. Premature Expansion
One of the biggest reasons why most startups fail is that they want to run before they learn to walk properly.
- Don’t be over-enthusiastic if you get a round of funding. This does not mean that you are ready to scale up drastically
- Be very sure of the lifetime of your product & customer both and the customer acquisition cost for it
- If you are not acquiring customers the way you had planned, defer scaling up plans till a solution is met
- Once you reach a stage where customer acquisition cost is lower and revenue is increasing leading to profitability, you can take the plunge and scale-up
5. Running out of cash
The last reason why startups fail is that they run out of cash. The key job of the CEO/Founder is to keep a note of the cash left for working capital or how to make the company cash flow positive
Warren Buffet, an American billionaire & investor said:
Rule No.1: Never lose money
Rule No.2: Never forget rule No.1
- Everything goes wrong if the company runs out of cash before the next milestone is achieved. However, funds can be raised but the valuation at this time could be much lower
- Define a framework with phases of growth. Get clarity in what phase you will want to conserve cash and in what phase you want to be cash lenient
- Do not mix your personal finances with business accounts
We all know now, why most startups fail. But this should not discourage you from becoming an entrepreneur. Instead, it should encourage and make you work harder to achieve your goal. Just remember:
Keep Customer-first over product
Choose a team overwork in isolation
Believe in sustained growth over greed for expansion
Be focused rather than over-ambitious
And success will become a part of your journey!