Every startup begins with an idea to change the world and make some money in the process. However, very few startups see the IPO or a good exit. In fact, 99% of startups fail! In this blog post, I cover common reasons for startup failure.
1. Idea: Bad fit for the market?
Most successful startups that exist today, have survived because they solve a problem. Take an example of any hot startup right now, like Uber – it helps connect drivers with commuters. Folks at Uber leveraged Internet technology and solved the problem of transportation in a city with just a tap on the smartphone.
Market need is critical for any startup to survive. If your product doesn’t solve a real problem, you won’t be successful. In the concept stage, find a problem that needs fixing, and develop a way to solve that problem.
The very best startup ideas tend to have three things in common: they’re something the founders themselves want, that they themselves can build, and that few others realize are worth doing. Microsoft, Apple, Yahoo, Google, and Facebook all began this way – Paul Graham
2. Lack of Planning
Strong business and marketing planning is needed to create a successful startup. You can only execute a plan well if it has been properly researched and has room for adjustments.
Ola, an Indian startup, had a great marketing plan, and it was able to acquire other players who were already in the market. Ola’s reliable product and robust marketing plan helped them to acquire customers and made them the market leader.
Create a solid business plan and be ready to adjust quickly according to business needs and market feedback.
3. Leadership problems, Fights between founders
Startup leadership can go wrong in many ways. Some of the most common are, founders giving half-hearted efforts, problems with investors, short-sighted plans/goals, egoism, choosing the wrong co-founders/partners, lack in generated investor interest, bad mentors, following bad advice, inflexibility, lack of domain expertise or lack of knowledge.
It is important that founders have excellent domain expertise and knowledge of what they are doing. Start when you know what you are doing.
Innovation distinguishes between a leader and a follower. – Steve Jobs
4. Lack of funds
To run a startup, you need money: to research and develop the product, pay employee salaries, bills, and vendors, as well as marketing etc.
Many startups fail due to lack of funds. Sometimes, founders do not have enough money to sustain the bootstrapping period, when they are still generating traction to get interest from investors. Sometimes, even after investment, or several rounds of investments, startups fail due to investment in the wrong decisions.
If you are starting up, make a business plan and ensure that you have enough funds for at least six months, including the cost of product development, marketing, and customer acquisition. Once you have enough traction, start looking for investors to raise funds and invest money judicially in the right resources.
Rule No. 1: Never lose Money. Rule No. 2: Never forget Rule No. 1. – Warren Buffet
5. Hiring the wrong team
A solid team is critical for developing a product, acquiring customers, and helping you in scaling appropriately. Many startups fail due to the wrong team. A startup works differently from an established company, your employees should also. They should have industry expertise, be flexible and creative, and should be willing to put in extra effort during the experimentation period.
My advice for good hiring is to recruit people already working for good startups. Test everything – many startups are working in recruitment innovation, which can help in the testing phase for different job profiles. Lastly, choose an energetic team; lethargic people kill organizations.
6. Time and Location
All successful startups were launched where and when they were needed most. An immature market cannot provide a profitable return.
7. Poor Customer acquisition strategy
After developing a great product, a good customer acquisition strategy will make or break your startup, because it is customers who pay for products or services. Your team should listen to the feedback of early adopters to improve your offer.
Many startups fail because of a high burn rate: not generating enough revenue to cover their costs. If you are starting up, you should have a solid marketing strategy and don’t hesitate to experiment with different customer acquisition strategies.
8. Sales and Pricing
After customer acquisition, sales and pricing can be an issue. Some startups are excellent at customer acquisition, but they lack good sales strategies and sometimes their price is higher than other competitors. Many startups fail due to bad sales strategies and bad pricing.
Make sure the product or service you are offering justifies the price. Focus on value, not valuation.
9. Operational inefficiency
Startups can also fail due to operational inefficiency. There can be many operational inefficiencies that, if not addressed in time, can create problems for the startup.
Focusing on profit rather than customer satisfaction, ignoring user feedback, not improving your product or service over time, bad allocation of resources, over expansion without getting profit equation, poor execution, legal challenges, business model failure, and bad investments are all types of operational inefficiency.
The right team can help in achieving operational efficiency. They will focus on profits, listen to customers, take feedback positively, carefully allocate resources, expand when you have made a repeatable process, execute the business plans correctly, consult an attorney if there are legal issues and focus on solving them.
10. False Hustle
I often write and speak that being a hustler brings many opportunities. However, in startups, the focus of entrepreneur should be on doing things right. Hustling, but not showing off to the world. Being an entrepreneur sounds cool, but it is not easy.
Don’t become the victim of a false hustle! – Bittu Kumar