Why do Startups fail? 11 Main Reasons for Startups Failure
Over 50% of startups fail in the US after four years. Did you notice why startups fail? We analyze the main factors for companies’ fiasco. Keep reading and check out the 11 main reasons for the startup’s failure.
Setting up a new startup is a risky business as Lindsay Manseau, photographer and entrepreneur said
“Starting your own business is like riding a roller coaster. There are highs and lows and every turn you take is another twist. The lows are really low, but the highs can be really high. You have to be strong, keep your stomach tight, and ride along with the roller coaster that you started.”
To find out the reasons that contribute towards the failure of startup research has been carried out.
Entrepreneurs have written post mortem essays for a purpose why startups fail. From all of that, we have gathered the factors that lead a startup towards a downfall.
Through all of the researches, it has been found out that there is no single primary issue that contributes to a startup failure but many issues that contribute toward that end.
One of the major reasons for the startup’s failure is the lack of funding or running out of money but it’s not the only reason. If your business is not a money generating or fails to cover its finances then the startup is bound to be a failure.
11 Main Reasons for Startups failure:
In this article, we are going to figure out the main reasons for the startup’s failure to generate money that can keep it afloat and other factors that lead to that outcome as well.
1.Lack of money
Cash is the king of startups without proper cash flow any start-up or a well-established business is bound to fail.
If a business runs out of cash or cannot get proper financing to keep itself afloat then all of the efforts put into it are bound to go down the drain.
2. Perfect Idea, weak business model
Vitoto founder, Vinay Patanker says that “A good idea but bad business was the primary reason for his start-up’s shutdown”. No matter how brilliant the business idea is if the business model is weak or it’s not been implemented right the business is bound to be a failure. For a business to be successful it needs to be profitable and scalable without that you won’t have a successful business.
3. Not according to the market interests
Moped founder, Schuyler Deerman says in the post mortem about his start-up failure that “We did not build something that enough people wanted”.
If your product lacks market interest and not something that the masses need in a particular time frame then it’s going to fail to generate income which leads to failure of the operation.
4. Ignoring cash burn
Another reason why startups fail is ignoring cash burn. Most entrepreneurs are technicians and engineers at heart. They just want to give the best of their problems and launch their product after that. This can be a problem in keeping the doors open for cash flow because the more you spend on building the product without getting any profits in return the more de-stabilized your company becomes. In that phase spend only on the essential and refrain from spending extravagantly at the start of your business endeavor.
5. Inability to raise capital
Too often the process of raising capital for the startup is started too late and then the entrepreneur goes to the rescue with the first group of investors that comes his way which mostly turns out to be a decision taken in haste.
Fundraising in a startup needs proper planning and takes up the first six months of active participation, meetings, calls, and visits. To finally get the idea of what you need as a company and what investors who are looking for your profile want. It’s a long process that need not be taken lightly.
6. Poor monetization
Companies need to have a proper monetization strategy to stay afloat. Unlike Everpix that allowed its users to store their pictures on a secure server without keeping a monetization strategy insight. When the time for paying Amazon services for the servers came, the company got blown and end up shutting down.
From that to ever happen to your start-up/newfound company you always have a clear monetization. How to recoup and make money from the product you are making.
7. Lack of technical expertise
Most of the time the entrepreneurs find themselves unwilling to hire technical expertise and invest in product development and look for cheap solutions instead. This leads to a low-quality product that no one fined themselves to be interested in.
8. Premature scaling
Every start-up sets a goal for itself from the point of inception to not be a start-up for long. Much make them scale prematurely. Up to 70% of start-ups scale too early which in turn leads the company towards its downfall. Scaling refers to hiring new people, getting funds, releasing new products, and entering new products. The passion for going too big too soon ends up taking the company down with it.
9. Disorganized development team
Statista (Statistics Portal for Market Data) shows that 23% of start-ups fail due to the wrong team. If the company doesn’t have a dedicated team then it’s bound to be failed. Companies cannot function without a proper dedicated team.
10. Poor management
A start-up cannot afford ineffective management. If the management is poor then the development team won’t be aware of the company’s needs. Which would lead to them not being 100 percent involved in the process? Which in turn is going to affect the product quality and for the product development to take longer than the usual time.
11. Poor communication
Companies basically run on efficient communication among the team responsible for running the operation. Holmes report shows that companies lose $37 billion annually because of poor communication. Which does not only include language issues but everything from the development team not setting up a clear communication flow to ignoring meeting?
Most of the times the founders find themselves to be in the dark and not fully in touch with the going-on with the team during the development process. Which leads to the development team lacking a vision for the product and producing something that is bound to be failed in the market?
Each startup fails for its own reasons. We analyze and show the main points for startup failure that there are a lot of circumstances and variables that can have an impact on why a company fails. Keep in mind our main points on why startups fail, because there are always larger trends that possibly coincide with multiple businesses.