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What are the top 5 reasons due to which startups fail?

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Most of the startup owners feel that they are building the next big thing in their industry. With a leap of faith and thoughtful planning, they start their journey of turning their ideas into reality. And, in this, some earn a modicum of success, while others make it big. 

The startup entrepreneurs work hard, take risks, invest more, and hire a team to become a sustainable contender in the market. They aspire to grow fast and become reliable with their services and products delivery. 

However, despite the hard work, thoughtful planning, and wise investment, more than 90% of startups die. And, less than 10% of them that become successful encounter near-death experiences. So, what let startups fail? Is it the lack of passion, capital, market knowledge or something specific? Let’s have a look at the top five reasons why most of the startups are unable to live the ‘age of the king’ in the market.

 

Reason 1:  Focusing only on building market presence and not on the customers

 

Problem

Most startups focus just on money and forget customer fulfillment and feedback entirely. And, this is the biggest reason why more than 42% of startups fail. They fail to understand and meet the market needs. They tackle problems that are interesting to solve rather than those that solve market problems. 

Solution

Startup entrepreneurs need to identify who their target customers are. They need to conduct market research and develop a strategy. They need to market their offerings at the right time with the best product/service. They need to understand the pain points of their customers and offer solutions that solve a meaningful problem for the customers. Their solutions should either create a need or should fulfill the needs of the targeted customers. 

A startup is too short of money to build something that the end customers are not willing to buy.

 

 

Reason 2: Overlooking the business model

 

Problem

Startup entrepreneurs are so optimistic about acquiring customers that they tend to overlook the business model entirely. They assume that building an interesting website, service or product is just enough to attract the customers. While that may happen for the first few customers, but sooner after that, it becomes an expensive task to win and acquire the customers.

Solution 

Startups need to focus on the parameters that matter most to their business. They need to have a plan that helps in conducting successful business operations. There should be a sturdy business model that helps in identifying the sources of revenue, target customers, products, and facts of financing. Asking the following questions can help.  

 

  • How the services/ products differ as compared to your competitors?
  • What are the different mediums of reaching the customers?
  • How to handle cost and revenue and make the debts lower?
  • Is there a measuring tool that can keep track of the cost, quality, and product/service performance?

 

 

Reason 3: Hiring an incompetent team 

 

Problem 

Startup entrepreneurs have low-budget when it comes to recruitment. Most of the times, they end up hiring people who often are incompetent and weak at decision making. They lack experience and intellect in terms of service/ product innovation and market repositioning. 

Solution

Businesses must remember that a startup is like a baby who needs a great amount of care, especially in the early stage. And, only a right team can ensure that the ‘baby’ crawls, walks, jumps, and eventually starts running and managing the downfall. The team should stand shoulder-to-shoulder through thick and think.  

Just for startups, here are few instructions to following in order to build a competent team.

 

  • Find a good leader
  • Build a holacratic team
  • Understand customer demand identification to demand fulfillment process
  • Be flexible with reconfiguration and replacement of team member

 

 

Reason 4: Unable to measure business performance and foresee business opportunities 

 

Problem 

Startup businesses are unaware of the tools that can help them measure their business performance. They are unable to calculate ‘who’ is doing ‘what’ amount of work daily and ‘how’ the work is translating into revenue. There is a lack of visibility and system compliance. And, due to this, they are unable to anticipate future innovation and capture new opportunities. They are unable to take risks and manage their Manpower, Money, Methods, Machinery, and Materials. 

Solution 

Startups can build a system or a model where all the business activities are traceable in real-time. They need a one-point accessible system when every process, department, and all the employees are visible with performance tracking. They need a fair system where they can identify the non-value adding business parameters and can eliminate the same by implementing business solutions. And, in this, seeking help from a Business Process Management (BPM) consulting firm is beneficial. 

 

 

Reason 5: Run out of cash

 

Problem

During the initial days, startups agree to work on credit and often fail to make effective utilization of money. They are unable to prioritize business areas where investment can have a bigger impact on the bottom line and can bring quick returns. And, hence, they often suffer bad debts. They end up investing in non-productive business areas and becoming a cash-crunched organization.

Solution 

Startups must adopt a cost reduction approach to save money which can be further utilized in improving their business and making it more efficient and productive. The cost in terms of material, workforce, maintenance, and overall production should be low at first in a manner that it should not affect the quality of their end service. If possible, all the repetitive and unproductive tasks should be automated and made productive.  

 

For startups, Time and Money are finite, and they need to be used judiciously.

Just how eager the startup entrepreneurs are to earn back their invested capital, the competitors are equally keen to test, judge, and knock-out the ‘new-bees’ from the market. Therefore, there is a crucial need to avoid the above-mentioned mistakes that can hamper your position in the market.