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Business

Top 5 Reasons Behind Startup Failure

author

Mark Galieo

Vybeliving #232 Mission Street

calander

6 Mar 2020

Startup Failure

Almost every startup owner dreams of transforming their business into the next Uber or MailChimp, but having a dream alone doesn’t guarantee success. As a budding entrepreneur, when you stop to consider that 70% of startups fail in their first year, you know you’ve got to step carefully and learn from the mistakes of others.

Here’s the thing: Startups don't fail overnight. There could be several things that didn’t work out in their favor. And while it’s hard to generalize because every business has its unique problems, we can identify 5 common reasons that could potentially hit your startup hard.

1. Nearly 42% of startups fail because their product is not needed in the market.

Every entrepreneur is sold on his idea from the very beginning. They’re ready with all they’ve got to disrupt the market. But, how do they know that their idea is viable? Do they have substantial data and research to support their logic or it’s just a gut feeling?

 In most cases, entrepreneurs are relying on their limited experience and they lack a complete understanding of the market they’re going to operate in. Factors such as market trends, customer preferences, and the number of players in your respective industry matter a lot and they have the potential to determine both the success and failure of any startup. Bottom line? It’s important to have extensive market research at your disposal before giving your startup idea the green signal. 

2. High burn rates: 29% of startups run out of cash and shut down

Burn rate is a key measure of sustainability for any startup. It determines the pace at which a business eats through its capital to keep the organization running. For instance, a company that is spending $8000 per month but generating revenue of only $5000 has a high burn rate. In other words, it’s operating at a loss. It stands to reason that startups with a high burn rate won’t be able to sustain themselves for too long. Investors will also shy away from such companies since they wouldn’t want to put their money into a company that’s unable to manage its funds or is looking at possible bankruptcy in the future.

3. 23% of failed businesses do not have the right people in their team

Both aspiring and established entrepreneurs know the significance of hiring the right people in their organization. What they don’t know is how critical it can be to not hire the right people when they need them the most. 

Most startup owners tend to be Jack of all trades, doing almost everything by themselves at the initial stages of the company. However, as the business grows, it will need people with specific skills to handle specialized operations. When the time comes, don’t hesitate to include a new professional into your team. Even if you’re forced to spend more than you budgeted for, you should fulfill the demands of your business or you’d be stunting any possibility of its growth in the future. 

4. 19% of failed startups were unable to survive the competition

In their day, many startups began with little more than vision and passion and they were able to make it big. But those were different times. The market wasn’t as crowded as they are now and the need for unique solutions laid the foundation for the success of such startups. In today’s crowded market space, however, startups cannot afford to ignore the competition. They’ve got to stay up to date on what their competitors are doing and tweak their offering to stay relevant to their audience.

Yet another reason why startups are unable to survive competition is that they ignore what their customers are talking about. Consumer feedback is integral to the growth cycle of a company. If you fail to listen to your customers, you miss the chance of improving your product, leading to dissatisfaction among your consumers. They’re likely to switch over to your competitors if they stop having a good experience with you.

5. 14% of startups fail due to poor marketing

There’s a very common saying in the startup world: Entrepreneurs are rarely ever good marketers. And for the most part, it’s true. Talk to the founder of any startup and he will be able to tell you in great detail about the product he’s working on. But ask him about how he’s planning to market it to his audience and you’ll probably get a blank stare from him. 

Entrepreneurs may know their product inside out, but they don’t know the first thing about marketing, and this is where things go south. The best product will not be able to lift off without a proper marketing strategy and most cash-strapped startups tend to sideline that in favor of product innovation. Unfortunately, in an already crowded market, robust marketing is needed to put you out there and within reach of your audience. And if you fail to do that, you may as well forget about your dreams of taking over the market. 

No one would like to see their hard work, years of innovation, and countless sleepless nights go to waste. And that’s why we’d always recommend borrowing a leaf out of someone else’s notebook. Look around you, talk to fellow entrepreneurs, read up extensively and consider all aspects of your startup venture before you launch it. As they say, it’s always better to be safe than sorry!

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