Startups have been a rage for quite some time. A lot of people dream about starting one of their own. It’s not easy to ensure the success of a startup. Even for those who do have ample professional experience, a startup can be a challenging task.
The single most important reason for a startup to exist is to solve a previously existing issue or give a new better approach, moreover, if it doesn’t serve a well-defined purpose people won’t buy the idea. Everything should be well defined and documented.
Since a startup is like a baby, it needs utmost care and planning in its bringing up. While there are lots of things to be taken care of, there are some important factors to be considered. Nevertheless, many startups die a premature death because of many reasons. Here are the most common reasons for the failure of a new business.
15 Reasons Why Startup Fail
No Need In The Market
For a startup to taste success initially, it should strongly demonstrate the need in the market for its product. The product or the service should be disruptive to the current solutions available or should provide a better approach in its solution.
Fix: Market research is the key to finding the need for a product or a service. A good questionnaire brings out the truths of the marketplace and demand and supply gaps.
Run Out Of Cash/Underfunded
A lot of times, startups fail because they run out of money to continue with their operations. This happens in all the cases when the startup is over funded or has been adequately funded or especially when they are underfunded. Rationalizing costs and frugal spending habits will ensure better success rate.
Fix: Proper planning is the key. Decide what activities are to be done along with their costs. Plan for 6 months at the very least. Plan to spend about 30-40% less than what you have.
Team Is Not Right/Internal Disputes
A right team is essential for success. A right team means having people with necessary skills and team work mindset. Internal disputes, workplace rivalry, and politics not only hamper the productivity but also lower the morale which can lead to damaging exits.
Fix: Hire a good recruitment firm or sensible HR. Conduct multiple rounds of detailed interviews. Take time before finalizing candidates. Ensure a healthy environment and setup a cooperative culture in the office.
Product Pricing Issues
A lot of times startups produce expensive products which are the result of costly research and expensive product inputs. This may lead to sluggish demand or inadequate sales which may take the toll on the company’s existence.
Fix: Again market research would help in the pricing of the product. The demand and supply gaps, technicality, product acceptance and target audience are other prime factors that dictate pricing and help in the planning stage for future profits.
Undefined Business Model
A well-defined business model helps to determine what activities are to be undertaken and by whom. The goal of every activity is also defined with different timeline limits. This helps to achieve targets and ensure profit and success.
Fix: Define a business model. Recognize different entities and relationships between them and movement of resources. Fix rules, limits, and properties of each entity with goals and targets linked to time frames.
A Bad Product
A poor quality product or a product that fails to meet expectations as a result of bad performance is a big turn off. This tends to put off the customers and bad word of mouth leads to a bigger, faster downfall.
Fix: Sometimes a product or service has multiple steps before it is successfully installed or put to use. Poor planning, poor execution, unrealistic promises, inferior quality or underperformance are some of the traits of a bad product. Good planning doesn’t let these problems happen.
Bad Customer Service
Bad customer service can mean a lot of things. It does mean not responding properly and behaving badly. It also means not taking feedback properly. Customer feedback in a lot of cases helps solve the rejection or complaints if any.
Fix: A happy customer brings in another two, and an unhappy customer takes away at least another one. Listen to customers, take feedback, fix recurring issues over subsequent versions and most importantly thank customers for their business.
Poor Marketing/Inadequate Marketing
A poorly planned marketing campaign is detrimental to success and leads to bad financial performance. Wrongful targeting, inadequate spend on marketing efforts may be some of the reasons. An experienced and seasoned team of marketing professionals helps.
Fix: A strong sales team of seasoned and experienced professionals with similar previous experience helps convert customers and provides deep insight for better conversions. Different sales channels should be targeted and measured on effectiveness.
Get Out Competed By Similar Product/Company
It pays to be the first mover in the market. Often the second or the third entrant end up ruling the market because of a better product or a better strategy, which clearly demonstrates the importance of analysis at every stage. One should be mindful of that.
Fix: Getting out competed is sad, but a team who is always on their toes is able to stay 2 steps ahead of their rivals. Constant feedback inputs, product improvements and keeping customers happy is the key.
There is, of course, something as ‘Bad Timing’, it does happen to the best of us. A lot of big giants today have suffered from this debacle in some of their products. For a big company, a product failure is a setback since it may have other successful products. For a startup, this sort of thing can mean doom and closure of the business.
Fix: Market research is the key to finding the timing for a product launch. Probing questions bring out the need and expectations from the product. A strong desire for the product indicates the time is ripe for the product launch.
Disputes Among Investors
Different ideas, methods of execution and aims and goals may lead to a constant push and pull between the founders or the investors. This is bad for business and irreconcilable differences cause an ultimate demise of the business entity.
Fix: Every investor who puts in money on an idea or a startup has their own expectations. The founders should get into a balancing act, and take the control and find a middle way that keeps all the parties happy.
Legal Challenges/Policy Changes
As a startup grows, it expands more and more into newer areas, subjecting the company to increased government policies and rules. Sometimes a major policy change or one particular legal hurdle can mean too much a distance to fathom. This leads to a waste of time, resources and huge delays in work. For a startup, this can be very rough and costly.
Fix: A strong legal team backed by industry experts as your advisors can help tide over such crisis. At times PR firms, help to influence policy changes with the means of constructive lobbying and educating people who pose resistance.
Location matters a lot if a startup needs good talent and experienced lot for its success. A good location means great people to work with and a big pool of potential customers too. Bad location can mean low profits and ultimately closure of the enterprise.
Fix: There is a reason why tech startups start in silicon valley. Start your enterprise in a place which has ample opportunities and potential for huge demand and supply.
Lack Of Passion Towards Product
If the founders and investors are around for the sole purpose of making money or profiteering, it may not be healthy. This causes the product line to be somewhat inferior or it being a venture without heart and soul being put into. Might ultimately lead to a closure or being dumped for money.
Fix: A startup is not only about money but also about having a great product or service. Stick to fundamentals and stay profitable.
Not Using Advisors/Contacts
The founders and the team need to make ample use of the investor’s connections and their personal connections for optimum success. Good contacts bring good news, information, advice and great people to work with. These small yet powerful things ensure success and right boost to the business.
Fix: Good investors bring great contacts and seasoned advice which helps in becoming a market disrupting force. Use your own contacts too for getting access to great resources for your company.
Starting a startup is like giving birth to a baby, one has to be really careful and take good decisions. While these may not be all reasons why a new company can go bust, these should help in your journey. These fixes should help in avoiding the pitfalls before they become major issues that may become difficult to control.