90% of Startups Fail Why?

by January 4, 2018 0 comments Blog

Out of every 10 startups 9 of them fail. Below is the failure rate sector wise

Startups have been much hyped from the past decade. A few companies make it big and change the face of business. But others startup has failed mysteriously and unnoticed.

Many startups build things people don’t want with the irrational hope that they will convince them. But if no one wants your product, your company is not going to succeed.

One needs a lot of courage for starting up a business. Rightly said by Eric Ries “Don’t be in rush to get big. Be in rush to be great product”. As there is no guarantee of success, like that there is not one reason for failure of startup.

Reasons why startup fails are:

NO MARKET OR NEED FOR THE PRODUCT (42%)

The company makes products no one wants. According to the survey 42% of the startup makes products that the markets don’t need. Lack of a market need for their product is the biggest reason for their failure. Startups think that the market should change to fit their vision, but ignores the market realities. Or maybe the market is not ready for it.  If the startup wants to make the products one must make sure it’s the right product for the right market. If the company does not have a powerful value proposition to convince the customers. The potential customers will not purchase its product and service.

Every startup is based on assumptions.  Assumptions are made in building product, tackling competition and how customers will react to the product or service. The company’s vision must match the customers’ expectations. It must be initially tested on a few customers to see if it works. If it does then the startup should come into mainstream business. Consumers are generally resistant to change and try a new product. The consumers may not understand the use of new products.

Business model failure (17%)

Entrepreneurs are too optimistic on acquiring customers in no time. They assume if their business model interesting then customers will come running to their doors. Eventually this will happen as humans are attracted to new things but after that it will be difficult and expensive task to procure and retain them. In many cases the cost of acquiring customer is expensive then lifetime value of the customer. Entrepreneurs should able to acquire customers for less money than they will generate in value of their lifetime. But despite that majority of entrepreneurs fail to pay attention to realistic cost of acquisition.

Cash crunch (29%)

There’s not much that startups can help if they run out of cash. Many businesses fail because they become unprofitable, when they run out of cash. Startup should not carelessly spend money on features that are not needed. Unable to pay basic salaries and carry out operations, lead to these companies being shut.

Money left should be prudently used. Employees should be given full notice, salaries must be disbursed. The business model should be such that no matter how much cash you raise, even without revenue generation liquidity should not run dry. The companies must keep in check the marketing budget by measuring what you are getting back. Examples Google and Facebook. Google and Facebook took the risk by dedicating cash to a fraction of it (ideas), but not every startup can afford this. Approx 30% fail to do so & close down.

Too many Players in the same segment (19%)

The world is becoming tech friendly. Most of the startups are in the form of (mobile based) applications. For example, numerous players entered the food segment like Zomato, Dioptric, Tinyowl, Except Zomato all have shut down Many a times, getting the first set of customers early in the business can leave very little chance for other players to enter the market. They put their hand in the similar segment and burn their hands.

Imperfect team (23%)

Most of the startup is started by employees who work in corporate.  Then they start a company on their own.   Being an employee is different and being an entrepreneur id different. A successful employee may fail to transform into true entrepreneurs. It therefore requires different skill set in people management and dealing with customer’s expectations. An entrepreneur requires 24X7 dedications, focused approach and sincere dedications.  Their priority should be building the company. In number of cases, ego clashes.   The fact that there will be only one leader, others have to listen to the leader, startup fails.  Democracy does not work in startup environment.  Lack of homogeneous team leads to frustration, and create an unhealthy environment. A great team is not just about selecting a group of people; it’s about complementing each other’s strengths and removing each other’s weaknesses.

Ignoring competition (19%)

Ignoring the competition result in 19% of startup failures.  Startups wrongly believe that they are the only ones in this field with the great idea. They go out without proper competitor research. When you’ve built a business model that works only up to a certain size, your model cannot sustain growth. Sometimes you must change your model sooner than expected. The startup who are not flexible, who are stubborn, and who don’t think ahead, will end up being their own downfall. In this uncertain world, the market changes faster than you blink. Blame it to the technology or software solutions becoming available at lower prices. Startups have to be fast to adapt to technologies, adopt to the latest CRM-related software and product design technologies in order to stay ahead in the race.

Examples: Companies like Uber, Ola, Flipkart, and Oyo Rooms are 1st in the race of market share, leaving no room left for industry peers to battle it out.

Product pricing issue

Pricing the product is a challenge and crucial aspect for success. If you set the prices too high and you may push potential customers away, if set too low and you will cut your profits. So, it’s advisable to get as much as information about your market, your customers and your own internal numbers that drive your profit. Also, it’s crucial to have a very good idea of costs of creating and delivering one’s product or service, so that pricing and margins are enough to sustain a growing company.

Failure in feedback (14%)

Unwillingness to admit a mistake can be costly for startup, disappointing both the customers and employees. Failing to get feedback from potential customers can be poisonous for a startup. That’s where many startups go wrong.

When you don’t validate your market aggressively you can’t build a good product.

First talk to your customers and then develop your product according to your market need. Get feedback on it, and use that input to build a new one.  It should develop a loop until potential customers demand your product. Startups should open up shop for testing. They can also spend a few more months making it perfect.

Without measuring, tracking, validating, and optimizing the data you get from your customers, it’s not possible to create a good product.

The above article is a reality check. It is not meant to demotivate the new startups from pursuing their dreams of staring a company. Therefore, it is first important to have a solid business plan and have a deep understanding of the market you are catering to. This can only be done by being flexible, compassionate. Most importantly, being able to think like a customer, putting yourself in the shoes of the customer. This will lead the startups to be the one of those 10% that succeed and thrive.

Leave a Reply

Your email address will not be published. Required fields are marked *