Top reasons why startups fail and what to do about it? – Part 1

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Why startups fail: Common Reasons 

Based on 101 interviews with startup owners, CB Insights has listed and described the top 20 reasons why these businesses fail.

Reason #1 

There is No market Need

Trying to tackle challenges that are interesting to solve, rather than meeting consumer and market needs, was cited as the No. 1 cause for failure, as noted in 42 % of the interviewed.

Many startups meet death before they had started because they thought to develop a product that no one ever wants or needs. They try to give it a go-to build something without ever placing the definition or idea to the test in the real world.

Undoubtedly, the most widely discussed lesson, by far, was that you ought to verify whether the market needs what you propose. Ideally, it would help if you did this before spending a substantial amount of money, time, or cash on the idea.

What to do about it?

Create a Prototype, a Proof of Concept, or an MVP (Minimum Value Product), and get it out to validate the market as soon as you can.

 

Reason #2

Run Out of money

The financial challenges, which have sunk 29 % of startups, are not due to the lack of investment but mainly from lack of profitability.

Consequently, the inability to sell the product profitably leads to loss of investor interest and management issues.

Over-hiring too early is usually a significant risk and could quickly destroy an otherwise very successful company.

What to do about it?

Underspending and cash flow are the two most important financial aspects you need to keep in mind, particularly when you start making money.

Early in the company’s life, it’s necessary to keep operating costs as minimal as possible (founder living costs + minimum operational costs).

It would be best if you outsourced whatever else you need (freelancers, agencies, consultants).

This gives you the advantage of reducing expenses almost immediately if you quickly encounter a roadblock.

And by doing so, you’ll be able to keep your company alive, leaving you the time to fix your problems.

Money and investments must both be carefully controlled, regulated, and managed using a sustainable business model, find that model.

Reason #3

Problems with the Team 

Often it will happen that no matter how much experience a team member has, they’re not up for a particular project.

Startups need people who are startup-savvy. Or they may lack any critical consistency to make the project a success. The more acute the project goes, the sharper it sounds.

However, lack of experience usually means different things:

  1. Lack of basic knowledge in your domain: you need to know your market.
  2. Lack of knowledge in marketing: how to meet your clients, keep them interested, how to expand your company. It’s a prevalent cause of failure on tech-only owner teams. A strong marketer is utterly crucial for a startup, and one of the most important founders needs
  3. Lack of technical expertise: if you have a technical product, you need a strong technical team. If you don’t, you won’t be able to create a quality product. That said, it’s essential to keep the tech side as lean and agile as possible early in the life of a startup.
  4. Lack of management and business knowledge: Poor business/startup decisions will potentially overrun all your attempts to be successful and kill your company.

Finding a well-balanced team is the secret to a successful startup.

Resources and tools for a variety of skill sets are crucial for building a successful startup.

The right team is not made up of perfect and knowledgeable people, but rather about people sharing talents and alleviating each other’s flaws and weaknesses.

What to do about it?

If you don’t know your market very well, then speak to prospective customers before building anything.

Educate yourself first. Create a small proof of concept to test the waters. Then, when you feel more confident, go for an MVP.

Get Marketing early on in the company; If you’re the company’s King, Marketing is your Queen.

If you lack management skills,  hire a consultant or learn about other people’s experiences from articles like the one you’re reading.

Reason 4 

Competitors 

With all the fuzz that happens in early startups, how are you supposed to pay attention to the competitors?

Worst, as your product matures, there will be several competitors ranking up your space.

Avoiding acknowledging the competition was also a prescription for failure in 19 % of startups.

Usually, business owners do not think about monitoring competitors as long as they feel that their strategy and individuality would separate them from the crowd.

Would you enter into an infested shark tank just because you want to be a shark too?

What to do about it?

Monitoring your competitors will make your company successful.

Put tools in place to monitor them, how they work online, what are their pros and cons, do your research and make it a habit.

In some instances, rivals can also become allies if the strategies match.

Reason 5

Pricing

18% of the companies stated that they were unable to price their products correctly. Therefore, they failed to become profitable.

 

What to do about it?

Your price should be neither too low nor too high; it must reflect the value of your product. It’s supposed to be right and fair so that your consumers and clients are willing to accept it

But, how do you know which price is best?

Experiment and research the market. First, you need to check what the rivals are doing. You will measure your expenses to provide a product that will offset your costs and then, if possible, make some money for you.

That’s why you must be as cost-efficient as possible.

It would be best if you fine-tuned your pricing strategy. Chan Kim and Renée Mauborgne in Blue Ocean Strategy have a specific section on pricing your product correctly. Please read it.

Reason 6 

Unfriendly product

Implementing a user-unfriendly app is a sure bet for failure for every entrepreneur. A confusing UX (User Experience) or CX (Customer Experience) can cause the startup to fail.

It usually occurs when entrepreneurs skip the UI/UX design stage to reduce costs.

Even when using Agile methodologies, you need to design first to prevent a scenario that destroys the product’s appeal and desire.

What to do about it?

It would be best to think about design from day one, create prototypes, test, retest, hire professionals to help you out.

Then create an MVP. But don’t go too far to cut off critical functions.

Reason 7

Product without a business model

Most failed entrepreneurs believe that a business model was necessary.

They also thought it was simple to create a product, service, or website and attract consumers.

It is not that straightforward to do without an appropriate business model.

What to do about it?

Think first about your monetization strategy; how will you earn money to survive?

Is it your plan to get funded? Then investors want to know about your Business Model and how you’ll be profitable. Yes, you need to be profitable.

Antonio Gualdino

Antonio Gualdino

TechRivo main Sponsor António is an Entrepreneur with 25 years of experience in the Software Development Industry. He worked and served several sectors like the Banking Industry, fintech, and Healthcare, but also in Tourism and Automotive.

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