The reason Start-ups fail

The reason Start-ups fail

The reason Start-ups fail

PUBLISH DATE 24th March 2020

Ideas are the new currency in the 21st century. Start-ups are companies in the initial stages of their operations. They are founded by one or more entrepreneurs who believe that they have a great idea for a product or service which has some demand in the market. They don’t have a fully developed business model and lack the adequate capital required to move on to the next phase of business. Initially, most of these companies are funded by their founders or they turn to friends, family, or venture capitalists for funds.

The government of India has come up with initiatives such as - Startup India, to build Start-ups and nurture innovation. Through this initiative, the govt. plans to empower Start-up ventures to improve entrepreneurship, economic growth, and employment across India.

Startup India will help boost entrepreneurship and economic development – by ensuring that individuals who have the potential to innovate and begin their own business are encouraged – with proactive support and incentives at multiple levels.

Although there have been many success stories of start-ups – AirBnB, Facebook, Uber, etc, there are more stories of failure that don’t make the headlines. But never the less, these stories become lessons to learn from by future entrepreneurs.

The first few years are very important for start-ups—a period during which entrepreneurs should concentrate on raising capital and developing a business model. Most entrepreneurs think they’re building the future big thing but actually, over 90% of them fail.

Let’s discuss the reasons for these failures:

  • Absence of market for the product – One of the major problems faced by start-ups is the absence of a market for their product which may be an outcome of poor market research. The failure to properly analyze customer needs and requirements leads to the invention of a product/service which is worthless and hard to market. Another reason may be that you are ahead of the market by a few years and they are not ready for the product/service at that particular time. One more reason could be that the market size of the people willing to purchase the product is not large enough.
  • Insufficient marketing – Some tech start-ups have founders who are excessively engrossed in the coding and manufacture of the product. As a result, they often neglect the marketing aspect of the merchandise. Identifying the audience, attracting them, and converting them into leads are vital skills for a successful company.
  • Pricing issues – Setting the value of a product or service is often the trickiest part of entering a market. Start-up owners should consult skilled analysts before making a pricing decision.
  • Poor Management Team – A common problem that causes start-ups to fail is a weak management team. They may be weak on strategy, poor at execution, which leads to issues with the product not getting built correctly or on time, and the go-to-market execution will be poorly implemented.
  • Running out of Cash - On one hand, some start-ups can raise huge funds and on the other, some find it very difficult even though they have brilliant business plans. Impulsive entrepreneurs who can raise huge finance sometimes engage in mass hiring and callous expenditure and as a result drain all their funds and have nothing left for dry spells.
  • Single founder and the wrong team – A diverse team with distinct skillsets strengthens the foundation of the start-up. Start-ups with more than one co-founder and a diverse team are more likely to be able to attract venture capitalists. However, due to the fear of dilution and personality clashes, many start-ups tend to have a single founder. An additional co-founder can help usher in the much-required innovation and maintain checks and balances.
  • Problems with pivoting – Reluctance to pivot is a widespread issue observed among start-ups. It is essential to simply accept the failure of your original idea and advance to “Plan B”. Expanding the business and exploring new opportunities can result in a successful business idea, one that you simply didn’t have in mind while establishing the company.
  • Legal issues – Entrepreneurs face various legal issues concerning the setting up as well as the operations of an organization. Incomplete knowledge about laws that they have to abide by as well as negligence in following them has led to operational disruptions in many Indian firms. All big firms hire legal help but start-ups lack the resources to do so.

Thus, it's also necessary to look at those start-ups that don't succeed and understand the cause behind it. In short, they must learn from other’s mistakes. Moreover, entrepreneurs must know the market demands inside-out before starting a venture. Learning from other people’s mistakes and incorporating it into one’s business plan is the recipe for success.


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