15 biggest reasons why startups fail
Some estimates say only one in five million unfunded startups end up being worth at least $1 billion. For every 1,000 startups that meet with a venture capitalist, only two get funding. And for every funded startup, only one in 10,000 ends up being worth $1 billion.
So, you can see that the odds are heavily stacked against a startup looking to succeed in this competitive world. We've all heard stories about some of the biggest startups biting the dust. We have also seen several startups that were once seen as Unicorns going out of favour.
Ever wanted to know why most of these startups fail? Well, CB Insights - a market research firm that tracks the venture capital industry, has recently come with a list of reasons behind startup failures across the world. Here are a few of them:
Not targeting a market need
This refers to tackling problems that are interesting to solve rather than those that serve a market need. A startup may have great technology, great data on shopping behavior, great reputation as a thought leader, great expertise and great advisors, but if it doesn't have the technology or business model that solved a pain point in a scalable way, then it is bound to fail.
Running out of cash
Money and time are finite and need to be allocated judiciously. The question of how should you spend your money is a frequent conundrum and reason for failure. Despite various approaches and incarnations in pursuit of the product market fit and monetisation, running out of money - and a runway - can cause a downfall.
Not having the right team
It is critical to have a diverse team with different skill sets for the success of a startup. Several startup founders who failed often lamented that "I wish we had a CTO from the start," or wished that the startup had "a founder that loved the business aspect of things".
As they say, never take competition lightly. It may outbid you any time. Despite the platitudes that startups shouldn't pay attention to the competition, the reality is that once an idea gets hot or gets market validation, there may be many entrants in a space. And while obsessing over the competition is not healthy, ignoring them is also a recipe for failure.
Pricing is a dark art when it comes to startup success, and startup post-mortems highlight the difficulty in pricing a product that isn't too high or too low to make money in context of the particular costs of a company. Both too high and too low pricing can be dangerous for a product.
Having a 'user-unfriendly' product
It is always utmost important to keep users' needs and demands in mind, as they say that the customer is the king. Bad things happen when you ignore them, whether done consciously or accidentally.
Lack of business model
It's just not important to have a business idea, it is equally critical to have a sustainable business model to run it. Failed founders seem to agree that a business model is important - staying wedded to a single channel or failing to find ways to make money at scale left investors hesitant and founders unable to capitalise on any traction gained.
It's important for businesses to know their target audience and how to get their attention. Knowing your target audience and knowing how to get their attention and convert them to leads and ultimately customers is one of the most important skills of a successful business.
Being inflexible and not actively seeking or using customer feedback
It is crucial to take customer feedback seriously. Being inflexible and not actively seeking or using customer feedback is a major reason behind the failure of startups. Never ever ignore your customer. Always list to him/her.
Not releasing product at right time
It is important to get the timing of products right. If you release your product too early, users may write it off as not good enough and get them back may be difficult if their first impression of you was negative. And if you release your product too late, you may have missed your window of opportunity in the market.
Another reason responsible for the failure of startups across the world is loss of focus. Getting sidetracked due to some reason can hurt the business big time, especially when it is still in startup stages.
Disharmony with investors/co-founders
Discord with a co-founder is a fatal issue for startup failures. But acrimony isn't limited to the founding team, and when things go bad with an investor, it can get ugly pretty too.
Pivot gone bad
Pivots can go extraordinarily well, or they may go completely wrong leading to the failure of a startup. It is important that stock is taken from time to time, and changes made accordingly.
Lack of passion, domain expertise
Good ideas don't always mean successful businesses. It is critical to have the right passion and domain expertise.
Location is an issue in a couple different ways. The first is that there has to be congruence between a startup's concept and location. Location also plays a role in failure for remote teams. The key being that if your team is working remotely, a startup should make sure that it finds effective communication methods; else lack of teamwork and planning could lead to failure.
By Kunal Doley