Here are the most common reasons why startups fail whether it’s a lack of direction, superficial market research or non – availability of funds. Also we should understand why we need to overcome them in order to succeed.
10 Reasons that can stop your success
1. The paucity of Right Mindset
The foremost essential step towards the foundation of every startup is brainstorming and finalizing the basic idea. It may be worth millions or billions, who knows. But the initial stage where many startups fail is the lack of keeping the right mindset.
The startup is not just a multi-level authority corporation rather it’s more a group or team of people united for achieving mutual objectives and creating something interesting and to cater to the needs of the society. Entrepreneurs begin the startups with full excitement and encouragement towards one another for few beginning years but soon all the energy, enthusiasm and interest fades away.
With an improper frame of mind, things become more complicated. The physical energy mainly depends upon the focused state of mind. Therefore, it results in the increase of startup failure rate and the reason why most startups fail.
On the other hand, they should remain focused on the core principles and objectives and goals of why they started the business. They should continuously innovate new products/services and update existing strategies according to the market fluctuations and change in demand.
2. Inadequate Market Analysis
The second step in the process of foundation of a startup is to identify the target audience. For that market analysis is required and of utmost importance because with effective market research, it enables the budding startup to gain invaluable information about their competitors, demographics, economic and cultural shifts and other related vital information.
As with the development of the economy, the market is becoming more and more competitive with each day passing, therefore having suitable information about the concerns and preferences of customers, and understanding the factors those affect the business directly.
Without adequate market analysis, startups lose out all the essential information that will significantly affect the chances of growth and ways to elevate the performance levels. Even many of the times it makes them difficult to survive in the competition and unable to gain the competitive edge in the market. Therefore, the reason to why startups fail in the first year is they don’t perform the required market analysis.
3. The problem of Lone Wolf
A startup is a team of entrepreneurs joined together to work collectively in achieving common objectives. If you want to go fast, go alone but if you want to go far go along with others. But sometimes, the person with the ideas behaves in a way where he doesn’t believe in dividing the work with others and tries to do every task by himself.
This is one of the most common reasons why do startups fail in the first place only. Young entrepreneurs fail to understand the importance of the division of work to other members. This doesn’t only affect the efficiency and productivity but also hampers the team spirit and make other partners feel they are not required in the startup.
Therefore, they start to leave the company and results in the increase of churn rate. Many a time, others develop a sense of arrogance which results in poor network building with the external sources and eventually startups fail.
4. Unclear Vision & Strategy
A vision is a mental picture of the result the entrepreneur wants to achieve. It’s a picture so clear and strong which have the ability to make the result really. A vision is not a hope, vague wish or dream; on the other hand, it’s a bigger picture of the real results of the real efforts. It comes from the future and informs & energizes the present backed by the past experiences.
It is one of the most important factors that determine the scope of the business, what it is the ultimate objective, where it will go, how it will achieve goals and other related information. Improper visioning and strategizing will not provide any sort of help to the organization and individuals to get the result they want. A vision inspires the action, also pulls in ideas, people and other resources.
In the simpler term, the future position where the startup wants to be is the vision and the process regarding the step of achieving the vision is the strategy. Without the proper vision and strategy, the startup does not get any proper direction and go on round and round with insignificant growth and creating the huge loss for the companies.
If the company is unaware what it should do next, it won’t be able to prepare strategies accordingly, and if they do it will eventually fail because company ultimately fail to develop plans, set achievable goals, objectives, make decisions, coordinate and evaluate the work on projects. Here’s why 90 percent of the startups fail without even completing two quarters as they don’t develop adequate vision and strategies.
5. Lack of Clarity
The fifth reason why do so many startups fail is that lack of clarity, communication issues and room for a lot of confusion created over time. The one of the important requirement for building a healthy organization is to create clarity among customers, team members, vendors, and administrators related to important discussions and day-to-day operations.
Within the context of making an organisation healthy, alignment should be achieved so that there is as little room as possible for confusion, disorder and infighting to set in. The startups today face loads and loads of obscurity within the communication part where the effects are devastating.
In startups, many a time, team members are unclear about policies and procedures or any hidden agendas, people definitely experience negativity in such working situations. Cultural clashes sometimes become so intense that it results in the split of the company.
Apart from clarity with the policies, procedures, and communication, there is one more factor, that contributes to the reasons of why do startups fail. When startups are formed, their objective does not stop at creating one product and selling it through a lifetime period. Their job is to regularly innovate new products/services and provide attention to every detail through a process of product formation until customer relationship management (CRM). Even a single mistake has the capability to ruin the well-settled business.
That’s the case with most of the startups today; they fail to provide clarity towards details regarding the working operations. Hence, adding to the list of reasons contributing towards why do so many startups fail all over the world.
6. Fund Problems
The sixth major reason why startups fail is that they soon indulge in fund problems. Every business requires funds to run, grow and diversify its operations and building loyal relationships with the customer. Funds are required at every stage of the lifetime of the business, like capital required to be raised at the different development stage of companies where funding rounds begin with a ‘seed capital’ and following A, B and C series funding depending upon maturity levels of business.
Series A, B, and C funding rounds are merely stepping stones in the process of turning an ingenious idea into a revolutionary global company. But at times, the funds raised by the company are not managed carefully as per the requirements and the level of its current position.
Hence, they soon begin to face problems like lack of funds, improper funds allocation, unable to meet the expectations of the customer, increase of debt balance and not being able to achieve the deadlines which collide with the formation of poor strategies. Funds are the backbone of every business, without funds, no business can survive for long and shut down soon. Therefore, making it the most common reason why do startups fail.
7. Misinterpretation of Customer Behavior and Trends
In order to set out target audience, the company needs to go through the process of market analysis, where they carefully study what are the requirements of customers and plan their future objectives accordingly. But when the complete process of analyzing market goes in the different direction, it results into the misinterpretation of customer pattern, taste, and trends of buying things. If the company analyses the requirement of the customer in the wrong direction it will not be able to make its sales.
Misapprehension of customer behavior and trends will not help in identifying the new business opportunities and also in designing the marketing campaigns that will ultimately turn the interest of your potential customers and therefore reduced sales. With the issue in the understanding of customer’s requirement, it will affect the process of acquiring valuable information about particular customer segment, during a specific time and within the particular age group.
Furthermore, it increases the chances of loss to a large extent. Before launching a product, companies are not able to identify potential problems and even look out for solutions. The research carried out after the launch of a new product can help to find loopholes and devise plans to counter that loss and increase the profits.
The startups fail because they become unable to comprehend the above mentioned vital information and do not provide ways to outcompete their competitors, set achievable targets for business growth, diversification and information about upcoming product developments.
8. Product Issues
The eighth common reason for the startups to fail is the issues related to the product they intend to deliver to the society. Before the formation and development of new product, companies need to take the help of data management and analyzing team in order to check what the demands of the customers actually are.
Here the startups make a mistake; they either don’t go through the process of analyzing the market at all or not properly the way it should be done. They fail to understand the demands, trends, the pattern of customer buying habits, upcoming social, legal challenges, changes in the society regarding culture and economic shifts, new governmental policies, rules, and statutes.
The product before real formation should aim at particular customer segment in the market that will cater to the needs. On the contrary, they develop a product with zero commercial intent. The term commercial intent means what is the percentage of the population in the market actually needs or wants to purchase or have the capacity to buy the product of such kind.
Since the market analyzing is weak, startups create a product that is actually not required by their targeted audience at all and hence does not meet the expectations, resulting in loss of valuable resources. It is one of the biggest reason why do startups fail.
9. Business Model Complications
The ninth common reason that led to the failure of startups is the complications regarding business model. A business model plays an important role in the success of any company. The term business model refers to the set of standards and strategies identified and set out by the companies in order to generate revenue.
For entrepreneurs, a business model aids in acquiring investors and establishing partnerships. Moreover developing a business model helps the entrepreneurs to think in and out about the overall business plan which includes the type of product or service will be offered, how and what are the merits and demerits associated with the process of achieving the vision and mission.
But sometimes startups and even well-settled companies indulged in unethical ways of earning revenue or totally screw up the values and behaviors in their business model. For instance, Volkswagen, the world’s second-biggest car manufacturer admitted that it had been dishonest with customers and regulators. It has installed system software in cars that falsifies the emissions data of its diesel cars.
Unfortunately, it is a perfect example where the complications in the business model like to alter the values promised to customers and the real behavior contradicts with the promised value to be delivered to their customers. Hence, this problem is more often witnessed in startups led by the young entrepreneur with comparatively fewer funds.
10. Lack of Sound Management
No doubt startup is a budding team that connects people with different perceptions having the understanding of things. This creates chaos at times and requires the proper system to resolve the issues and so that would not hinder the growth and development of the startup.
The work of management not only remains to the major decisions making but also to handle petty issues occurring in routine tasks which in turn affecting the overall performance of the organizations.
Therefore the tenth most common reason for why startups fail is that they somehow lack the required ability to allocate sound management whether in terms of day-to-operations, funds allocation or capital investments. Every organization requires the team of management but to function more effectively and improve the productivity of resources; it requires a well-dedicated management team.
Today startups are founded by young entrepreneurs more and since, they lack in many aspects whether it’s in terms of management, strategy formation, and even raising required funds. Neither have they allocated a sufficient mechanism in terms of redressing a grievance occurred in the company. Therefore, either they get outcompeted by the experienced ones or resulting in the split among the partners. Ego clashes are often seen as the biggest reason for why startups fail, and as they lack grievance redressal mechanism it is difficult to keep partners together.
That’s it, these are the top 10 reason why startups fail and if you know any more, mention them in the comments section below.
In case you are planning to start your own startup, a piece of advice is always remember these reasons, their root cause, and plan your solutions in advance accordingly so as to overcome such problems and don’t forget success comes to those who “Never give up”.