5 Biggest Reasons Why Startups Fail
People start their business with much of a hullabaloo, which is good. Being enthusiastic about an idea you have dreamt upon – is finally going to get shaped. But through the course of time, you find what you have planned for, it’s not what it actually is.
Putting it simply, there are many startup problems which are faced when a business is started by a person. A startup, is a tough task – putting an idea to the execution level, with proper planning requires a lot of dedication and commitment. This often loses its way mid-way through the process because of the challenges faced by startups.
This is natural honestly, people do lose their enthusiasm, some lose the direction and many more factors are there which hamper your dream. The key is here to stay right in the path, with proper analysis of the factors and reasons that determine the success.
So, what are those reasons actually, which make the startup fail?
Poor Management Team
This might be the biggest reason why startups fail. A proper management team is the most important thing for a business to succeed. Because let’s face it, you have the idea, the planning too, but not a managing tool – how you are going to organize all the things in a proper way? They are often weak on strategy, building a product that no-one wants to buy as they failed to do enough work to validate the ideas before and during development. This can carry through to poorly thought through go-to-market strategies. They are usually poor at execution, which leads to issues with the product not getting built correctly or on time.
A major reason most startups fail, is that they run into the problem of their being little or no market for the product that they have built. The market timing is wrong. You could be ahead of your market by a few years, and they are not ready for your particular solution at this stage. Market problems are needed to be determined beforehand – if you are going deep into this field. The competition is cut-throat, which can cut your throat literally. And that is why many ideas are going downhill.
Running Out Of Cash
This is the most common reason that startups fail – they ran out of cash. A key job of the owner is to understand how much cash is left and whether that will carry the company to a milestone that can lead to a successful financing, or to cash flow positive. What frequently goes wrong, and leads to a company running out of cash, and unable to raise more, is that management failed to achieve the next milestone before cash ran out. Many times it is still possible to raise cash, but the valuation will be significantly lower.
Business Model Failure
One of the most common causes of failure in the startup world is that entrepreneurs are too optimistic about how easy it will be to acquire customers. They assume that because they will build an interesting web site, product, or service, that customers will be at their doorstep. But there are some things which are to be kept in mind – that this might work for some startups, but not all of them. This might make them a little bit skeptical about going further with their plans – but they need to realise that everything doesn’t come so easy because they have an idea with them.
Another reason that companies fail is because they fail to develop a product that meets the market need. This can either be due to simple execution, or it can be a far more strategic problem. Most of the time the first product that a startup brings to market won’t meet the market need. In the worst cases, the product will be way off base, and a complete re-think is required. If this happens it is a clear indication of a team that didn’t do the work to get out and validate their ideas.