A not-so-easy start: Top reasons why start-ups fail
Ideas strike. Relentlessly. Many times a day. That’s what their job is. To keep nagging at the fertile minds of prospective innovators and compel them to act. It is, however, the duty of the discerning individual to realize which idea has a realistic, feasible and achievable potential and which deserves just a clap and a send-off.
Unfortunately, one of the main reasons behind the persistent failure of various start-ups, in India as well as globally, is this lack of judgement. Getting excited by an idea and latching onto it without giving it a thorough thought, let alone research, spells doom for many half-baked concepts. In their excitement, most prospective entrepreneurs quickly express their ideas to their relatives and friends, who also join in the chorus of encouragement. But the ideal entrepreneur should remember that the responsibility for the success or the failure of the idea is entirely his/her and the loved ones are just playing their part of being your trustworthy cheerleaders.
According to a latest report by Small Business Trends, approximately 51 % of all start-ups fail within the first four years. Come to think of it, four years is not enough time for any business to greatly exceed the break-even point. However, if it’s close to bankruptcy, that’s a red flag right there. This happens mostly due to the lack of long-term planning from entrepreneurs, who intensely rely on funds provided by third-parties and VCs and then lose control once the money starts draining out.
As Warren Buffett says, the two biggest rules of business are 1. Never lose money 2. DO NOT forget Rule No.1. Most start-up entrepreneurs start spending significant money gathered from VCs into allied things such as furniture, swanky office rooms and equipment rather than devoting the entire bit to strengthen the concept of the business. This tendency invariably leads to its downfall. Businesses need to see the VCs money as a debt that has to be paid back as quickly as possible, along with a share in the profits.
The involvement of family members also hampers the prospects of a start-up. This is especially true in the case of Indian families. While in the USA, house garages often serve as office for start-ups, in India, it is difficult to keep working at an idea while all around you, people keep telling you to get a nice government job, get married and get settled. With this kind of familial and societal pressure, it becomes tough after a point of time to keep clinging to an idea, and the entrepreneur finally gives in.
Pre-research and training is also important as without it, a prospective entrepreneur will never be able to fully understand the intricacies of his/her idea. While on the surface, a job might look simple enough, it is not until you learn skills from professionals and experts in the field that you truly develop an understanding of the industry. Furthermore, if your area of business requires you to deal with intermediaries, then it is essential to do at least 6 months of simulated operations to understand the ways of functioning and communication.
The word ‘start-up’ is being thrown around easily these days. In reality, however, it is extremely difficult to quit academics or a cushy job to pursue your business dreams. If you have really made up your mind to begin a start-up, then the words of Swami Vivekananda might just be the golden advice you need to follow-“Take up one idea. Make that one idea your life — think of it, dream of it, live on that idea. Let the brain, muscles, nerves, every part of your body, be full of that idea, and just leave every other idea alone.”