DECODED - Top 5 Reasons Why Startups Fail

Technology App Development August 24, 2020

When startup failures are more common in this era, it is easy to get caught up with startup success stories. Many researchers have stated that more than 70% of tech startups fail. While there are ample reasons why startups fail, we are going to do a post mortem of reasons why startups fail and how they can stop it from happening.

While there is no one reason why startups fail, but an amalgamation of several reasons. There is no survivorship bias when it comes to surviving the entrepreneurial ecosystem. Standard numbers in the startups’ world show that 1 out of every 5 million non-funded reach unicorn status. Unicorn status is reached when the startup is worth $1 billion or more. 

Entrepreneurs and startup founders must be good at risk mitigation. Starting a startup is difficult, and looking at the number of failures makes it all the more dreadful. Intelligent entrepreneurs always learn from other’s mistakes and try to avoid them in their startup. 

Here is a list of top reasons why startups fail:

Lack of Market Demands

What is often seen in the startup scene is that the companies do not figure out whether the market requires the product they are selling. A common mistake and belief in most startups that have failed are that they find their invention appealing in the market without conducting proper research. Companies need to validate their products in pilot projects or even in beta tests before launching them in the market. Doing this will reduce their chances of failure, help them understand their target consumers, and significantly lessen their failure and market rejection risk.

Lack of Skills Needed in Founders & Team

Many founders fail to understand their skill and do not do what they are supposed to be entrepreneurs. They must concentrate on industries that value their educational background and skills alongside their professional expertise. This will boost the odds of success and inject the determination and practice into the business, which will not be a burden. It is essential to have skills that are complemented well with the team that you choose. A business needs to have someone good at sales who can prepare a pitch to sell the product. Good at marketing will help understand the market scenario and understand the relevance of the product in the current market situation. Good at bookkeeping who will keep track of all finance-related issues and ensure enough funds in the company account to carry forward with the work. Some are good at management, who will help manage the team and make sure everything is working seamlessly. Someone good at project development to create a relevant product and ensure that it is made as per the current market demands. Customer service. In house legal employee and business development will help the business land in the second phase. It is also essential to read, study, experience theoretical and practical knowledge to give you the upper hand against your competitors and prevent your company from crashing.

Market May Not be Ready for Your Product

Some companies launch their product way ahead of time when the need and demand for the product are not there. Some also make the mistake of launching their product too late when the market is already saturated with similar products or the demand for such products have extinguished. The critical factor is always to be aware of the current demands of the market and thoroughly check into competitors’ behavior when sales are not ticking off. It would be the best time to call a STOP for the product and pivot and invest time, capital, resources, and efforts in another market. 

Ignorance of Your Customers’ needs

There is not enough stress that one can put on how important it is to launch a viable product and get customer feedback time and again for product development and testing. The company’s biggest asset is its consumers, and it must be given importance. This also allows you to build a bridge with your consumers and incorporate changes in the product to hook your customers to the next version of your product and services. 

Poor Marketing

The buzz that you create with your product matters. No matter how great your product is, it is going down if no one knows about it, proper marketing ensures that it does not happen. There is no rocket science behind it, while a startup does not necessarily require a PR team initially. Still, to get the buzz going, the product must be advertised appropriately through social media and press. You must also make sure that it is published in magazines and websites popular and authoritative for your target audience. If the product is not marketed correctly, no one will know about it; therefore, no one will buy it. Spreading awareness about the product may seem a waste of time and money, but it is crucial to get the business up and running and is fundamental for a company to survive. 

Failure of a Business model (Bonus Reason)

Business model is the base foundation of the business. It dictates the commercial and economic viability of your business to make value and money. Many companies fail to look at the business model because that is one reason why startups fail.  An inefficient business model will lead to having no scalable ways to acquire customers, low or unknown value of customers, and is characterized by high costs to acquire customers. 

Final Thoughts

While it is unavoidable to fall into situations listed above, the founder must take responsibility and address them and make sure to take timely efforts to ensure the well being of the business. 

It has commonly seen that startups fail when they are not solving a market problem. A diverse team with different skill sets is crucial for the startup's success, along with a product that is relevant to the target audience. Having said all that, a startup must also ensure it is free from legal complexities which have been the core cause of failure in many startups.

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