Anyone who is even remotely associated with the startup world knows the phrase, “nine out of ten startup fail” by heart. Every time a venture fails, an analysis, or a post-mortem if you may, needs to be conducted for us to find out what really went wrong. So while there are thousands of success stories to look up to, there are a lot more failures to learn from, especially in order try and avoid the same mistakes.
Although there can be a myriad of factors resulting in a startup failure, we will breakdown the causes and present the major ones that might drag your company to doom.
Image : shutterstock
Running out of cash
Dearth of cash is probably the number one official reason for a startup death. There can be hundreds of reasons as to why they run out of cash. For example, they may not have budgeted properly, or their calculations for the time required to build from their funding goes wrong, or they may have simply ended up having a high burn rate. So when cash is burning fast, it’s just a matter of time that you will lose it all before you start getting transactions to attract investment.
Not a unique product
According to research a whopping 42 percent of the startups fail because their products are not needed in the market. Startups succeed because they are solving a pertinent problem experienced by their customers. With the complexity of the world increasing, there are more problems that need to be addressed each day. If your product does not offer a solution that is big and better that what’s already out there, then the chances of it succeeding is slim to none.
The chances of your venture getting outcompeted by the others in the market is very high. Competitors that are also playing in the same field as yours will not give up easily. A combination of factors such as expertise, product and funding can lead to one startup’s success and the other’s loss.
It’s not always the external factors that results in failure but there are crucial internal dynamics as well. There have been instances where two founders just do not get along or when the management team falls apart when the initial strategy fails or even, when the core team including the founders are not ready to buck up and commit to long work hours. The lack of motivation, or a common goal and/or ideology can contribute to a company’s failure. The idea of a startup seems to be a brilliant idea, but a great deal of hard work and passion goes into establishing it.
Weak business model
It’s not only about ideas and innovations; customers will buy your finished product and not your ideas. Of course inventions are fascinating but business and consumers will buy complete products that they can actually use in daily life. Founders should chalk out a monetisation policy right from the very beginning.
Having a startup is no cake walk, and chances are you will not reach your goal in one go. Learning from your mistake is the key in this otherwise very competitive business world.