Starting a company is much more difficult than most people believe. Inspiring entrepreneurs, especially first-timers, launch a business only to discover that building a company from the ground is a complex and difficult task. It is very rare that a company is so in tune with its niche that it barely makes an effort.
The vast majority of business books are devoted to success stories. They wouldn't have sold well if they hadn't. However, survivorship bias often paints an image that is too good to be true. What if, instead of studying successful Scaleup stories, we looked at the stories of ‘Why do Startups fail’? Amid the euphoria, it's easy to forget that the majority of startups fail within the first three years of their life. The dream fades away.
Here is a list of reasons why startups commonly fail.
1. Miscalculating the problem
Every startup is guided by the market and competitors; the market has an unmet need or an opportunity gap that needs a solution that can be monetized.
However, determining the correct market and problem is not easy. If the solution is created for a problem that no one has or that is trivial, both time and money are at a risk. Also, there are chances that a lot of competition already exists. Hence, the idea needs to be unique.
The demand for a solution is also influenced by the timing of its release.
2. Failure of Business Model
The skeleton of a corporation is the business model, which determines the commercial and economic viability of a company's ability to generate revenue and value. Some businesses are so focused on the solution that they forget about the business model.
Many startups do not prepare for the future because they believe that their product or service concept will be enough to bring them success.
Although writing a business plan seems difficult, it provides a road map that can be referred to in the future. Marketing strategies should also be considered in this business plan.
3. Running Out of Cash
Some entrepreneurs struggle to keep track of their finances and, as a result, fail to take appropriate action promptly.
Founders of companies financed by private equity firms, venture capitals and other foreign investors should be acutely aware of the KPIs they must demonstrate for the next investment, such as their burn rate. In the first four years of existence, non-venture-backed firms fail more frequently than venture-backed companies, owing to a lack of money to keep operating if the business model fails.
Failure to meet KPIs and incurring unplanned expenditures with a low return on investment will lead to the company's demise.
4. Bad Product Experience
It's difficult to gain an advantage over your competitors in the market if your product has a poor interface, takes too long to process, or needs more clicks than required. Customers should be able to tell your product apart from the other competitors not only by its price but also by its experience.
If you want your startup to Scaleup and to be seen by venture capitalists and other investors, you have to make sure your idea is unique and smart.
5. Poor Marketing
A great product will fail if it isn't backed up by sufficient marketing efforts. Nowadays, marketing isn't just about increasing awareness of the product's features; it's also about incorporating marketing elements into the goods themselves and exploring uncharted territory like influencer marketing and retargeting.
Individuals who make up the management team should be able to effectively handle massive projects while still delegating responsibilities to others when required. Making the right hires is the first step in creating a successful startup.
6. Conflict Among Team Members
When it comes to building a Startup, self-centered thinking and excessively emotional actions can lead to disagreements, which in turn can kill company culture, value, funding and ultimately lead to failure. Any startup or its founders do not want to see founder conflict.
If you want to Scaleup Fast, you need to be patient and talk frankly with your partners to solve these conflicts.
Many startups agree to work on credit in their early days, which sometimes makes the situation harder for the company. It is also difficult to resist credit demands to demonstrate initial momentum. In such cases, whether the customer is dishonest or has a financial emergency, it is the company that loses.
8. Expanding Hurriedly
When a startup is expanded too quickly, it’s hard to maintain every other aspect of the company, which will likely prove to be problematic as time goes on and may worsen the reputation among customers. Expansion can be a hurdle when a startup isn’t prepared enough for the demands to Scaleup. This relates to the lack of preparation.
Expand only when you have the Finance, time, and expertise to do so without too many setbacks.
9. Hiring the Wrong People
If a founder believes in his product or service and has a strong understanding of what it takes to Scaleup; they will likely recognize the importance of hiring workers at various stages. Many startups, on the other hand, recruit the wrong people for the job.
For example, some startups prioritize recruiting their friends for jobs, even though they lack the requisite experience to handle the responsibilities. It's critical in the early stages of any startup that the people recruited are qualified for the role. You'll find that your Startup will Scaleup swiftly if you recruit the right staff.
10. Not Being Customer Focused
Many entrepreneurs fail to Scaleup because they do not take a customer-centric approach to run a company. You should show your customers that they are valuable to your company if you want to maintain your success. For example, do you have excellent customer service?
If this question isn’t answered quickly, you're probably not doing anything to help anyone. Your primary audience must be able to form a trusting relationship with the company. Recognize what consumers want. Be aware that they will only pay less, not more. Know their earnings, interests, and what motivates them. The more you know about them, the more you'll be able to pitch them.
11. High Competition
Approximately 20 percent of startups fail to find success because there's too much competition.
While there always will be some competitors, no matter what type of startup is created, nobody wants their product or service to be competing with many other companies that have already garnered success. Entering a highly competitive market will make it difficult for a company to be unique to visitors and users.
No startup will scale up if they don't know what to do when they hit a roadblock, which is why it's best to have this knowledge before starting your company.
Set Objectives and know where you need to go and where you want to go. You're just wandering aimlessly if you don't have a target. Love What You Do and be enthusiastic about your business; otherwise, it will become a chore.
In the end, Don't Give Up; no matter how effective your company is, you can experience downtime. There will be times when things seem to drag on and you wonder why you decided to take this course. Now is the time to work harder, put in more hours, and make it work.
Amit Khanna is the founder of 7startup.vc and has 19 years of experience with Startups and the Enterprise, holds an MBA, focusing on Growth and Investments. Amit supports entrepreneurs with every aspect of their business including concept and product development, investor presentations, fundraising, and scaling up.
Tags: Startup funding, venture capital, scaleups, fundraising, pitch deck review, OKRs, why do startups fail, equity research
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