Save Your Startup From Failing! Here Are Top 5 Reasons Why Startups FailMaaz Habib
If you are thinking of launching a startup, then this article is for you!
Every person dreams of becoming an entrepreneur but they hardly know that not every startup has a success story. There are many people who have become successful in as young an age as Mark Zuckerberg and there are people who have become successful in their old age as Colonel Sanders. However, each one of the entrepreneurs has to go through their own journey of ups and downs which is unknown to the world. The world only sees them either as a successful business or failure.
The stories of failures can teach a lot of lessons to new entrepreneurs and can help them draw out a pattern that reflects the reasons behind the failure. There are many entrepreneurs who wake up dreaming of becoming the next Uber or Facebook but find it hard to digest the amount of hard and smart work it requires to become one. According to reports and news, there is not anyone reason that can contribute towards the failure. There are many hurdles one has to face while creating a successful startup. There are always multiple reasons which play a significant role in either the success or failure of the startup.
Let’s dig into some reasons which cause startups to fail with multiple examples from around the world!
Reason # 1:
Failure to offer products or services that are needed by customers
One of the top reasons that contribute towards the failure of the startup is that the company fails to offer products and services which are needed by the market or customers. According to the CBI insights, this reason was reported by 42% of the entrepreneurs who faced failure. Consumers are always looking for resolving their needs.
For example, the Internet was a startup that was launched in order to compete with LinkedIn but was shut down after 3 years. The reason was that they were unable to offer customers and the market what they wanted. Sometimes the startups are not able to offer a value proposition for their products. Sometimes they do not have large funds to satisfy demands of certain market size and the timing of their entry in the market may be wrong. Hence, not offering a satisfactory product or service into the market will contribute as a factor towards the failure of startups.
Reason # 2:
Weak Business Model
When planning to launch a startup, entrepreneurs become too optimistic about their business plan and think it is easy to acquire customers when in actuality it’s the opposite. Initially, these businesses make their websites fancy, offer attractive products and services to customers. As a result, this helps them to acquire customers initially only. Later the cost of acquiring customers becomes high. When the cost of acquiring customers becomes greater than customer lifetime value, then it becomes problematic. For entrepreneurs, it is essential to understand the idea of a business model. You need to know how to acquire and monetize the customers. Follow the simple rule given below;
COAC < LTV
COAC = Cost of Acquiring Customers
LTV = Lifetime Value of Customers
Lack of Capital
It is very important how you spend your money. Sometimes startups simply fail because they do not have enough capital or they run out of cash. The startups fail to sell their product and services to the customers which subsequently leads to run out in cash. While planning for your startup, it is important to have an understanding of cash management so that in future the business is able to create positive cash flow. According to CBI insights, 29% of the startups have reported failure due to lack of capital or cash. Wow Air, a European airline faced failure due to lack of capital. The company was not able to secure funding for themselves and had to shut down eventually.
Reason # 4:
Lack of Proper Management
For any business to be successful, it is essential to have a strong and diverse team. Diverse teams are from different backgrounds and have diverse skills sets. A diverse team is a critical success factor in any business. One of the most frequently cited reasons for the failure of startups is having a weak management team. A weak management team means weak strategy. As a result, business will manufacture products that is not needed in the market.
The implementation of product development becomes weak due to lack of proper planning by the team. Zirtual had to lay off 400 employees overnight because there were a series of financial miscalculations and mistakes. A poor management team will always build a weak team under them. Hence, the lack of proper management also contributes to the failure of startups.
Reason # 5:
Poor Product Development and Pricing
Sometimes the startup is not able to develop the product according to the need of the customers and even if it does, the pricing strategies are poor. When talking about startups, pricing is critical. Many startups face difficulty in setting prices for the products because they have to cover up the cost of production and also to attract customers. However, there are some startups which set high product prices and end up attracting less number of customers as compared to the startups who set low prices. Sometimes companies also fail to function because their cost is too high as compared to the revenues its products and services are bringing in.
For startups, it is important to develop the right product that fits the market needs and at a lower price in order to attract customers. For example, Shop A sells molten lava cake with amazing taste and quality for $40 whereas, with the same quality and taste, Shop B sells molten lava cake at $30. It is very much obvious that the customers are going to choose the latter. This is because they are offering the same product and taste at a lower price as compared to their competitor. Therefore, poor product development and pricing strategies also lead to the failure of startups.
Conclusively, the reasons listed above will give you an idea about things to avoid while planning your startup. There are many case studies available for multiple businesses which have failed, and every failure has a story and a reason.