Startups failure is a very common scenario. So, it’s wise for any entrepreneurs to learn from those who failed so that they never repeat these in their businesses. Before that let’s dissect the word startup and know its meaning.
According to the Oxford dictionary, a start-up is a company that is just beginning to operate. According to the Cambridge dictionary, a start-up is a small business that has just been started. The dictionary meaning only mentions the inception of the business but I think a start-up is more than starting a business; a start-up is art when founders design the business model, building relationships with investors, making affiliations with other businesses, choosing the right person with the right skill at the right time in the right place. Again, when founders analyze the market share, inception costs, advertisement costs, payback period, break-even point, profit margin it becomes science. So, a start-up is a new venture that creates a new product/service, which will solve people’s problems, with the aim of growth and scalability.
After analyzing 300 companies, C B Insight found that “ 70% of upstart tech companies fail. And consumer hardware startups fail even more frequently, with 97% ultimately dying or becoming zombies.”
If you are thinking of starting a successful startup company you must know where you might be stuck. So, before starting your business read the reasons behind the failures.
There are many reasons behind this failure such as poor business model, lack of investment, poor marketing plan, improper product pricing, not having the right team, poor product, product mistimed, legal challenges, business environmental challenge, no market need of the product, wrong location, lack of passion, failure to pivot, pivot gone wrong, burn out, lose focus, not giving priority to customers, run out of cash and so on.
1. Poor Business Model
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If you are thinking to start a business then prepare a solid business plan first and try to answer all of your questions like what is the problem in the society, how can you solve the problem, Is there any solution available, if yes, who are they, what do customers say about their solution, how can you position your product as a newcomer, what will be your marketing plan, your financing plan, etc.
But to be honest, most start-ups ignore many of the above questions which result in failure at the end of the day. Most of the entrepreneurs are living in fantasy. They are too optimistic about how easy it will be to acquire customers. They assume that because they will build an interesting website, product, or service, that customers will beat a path to their door. That may happen with the first few customers, but after that, it rapidly becomes an expensive task to attract and win customers, and in many cases, the cost of acquiring the customer (CAC) is actually higher than the lifetime value of that customer (LTV).
2. Ran Out of Money
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Another reason that causes start-ups' failure is running out of cash. One of the core jobs of an entrepreneur is to make sure that they have enough cash to run their business smoothly. Unless having enough positive cash flow the business tends to suffer.
In September 2019, augmented reality startup Daqri shut down after burning through more than $250M in funding and failing to raise a new round from investors:
“Daqri faced substantial challenges from competing headset makers, including Magic Leap and Microsoft, which were backed by more expansive war chests and institutional partnerships. While the headset company struggled to compete for enterprise customers, Daqri benefited from investor excitement surrounding the broader space. That is until the investment climate for AR startups cooled.”
3. Poor Marketing Plan
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It’s common even for products that fit the market, to lack proper marketing. Companies either sell their products in a way that doesn’t attract an audience, or they don’t understand what it is that people really want and try to push the wrong features. You can have the best product in the world, but if no one knows about it and isn’t appealing, then it won’t sell. Captivated by their product, many startup founders tend to neglect marketing efforts.
Approach to avoid
The most important thing to realize is that no matter what business you are in, be it flower delivery or super tech VR/AR set, in reality, you are always in the marketing business. The sooner you realize it, the more chances for success you have.
4. Pivot went bad/Failure to pivot
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In startups, especially the tech ones, there are often two contrary concepts that have to be kept in mind: laser focus and the ability to pivot. The trickiest thing is to do them simultaneously without losing your balance. It’s important to outline the main goal of your project, not get sidetracked by the secondary functions, and deliver what you’ve promised to your customers and investors. On the other hand, it’s not rare when startups make a complete restart with new ideas, and the basic concept almost always changes in one way or another affected by the market realities.
For instance, the Inboard Technology company that began as a Kickstarter project offering the development of electric skateboards failed in making a pivot to electric scooters.
The drone company Airware stated in its shutdown announcement, that “History has taught us how hard it can be to call the timing of a market transition. As we worked through the various required pivots to position ourselves for long-term success, we ran out of financial runway.”
On the other hand, if it happens that some of the secondary functions of your project prove to be far more popular among the audience than the primary one, it can be a wise decision to focus on exactly those functions. For example, Youtube has started a video-dating service but made a massively successful pivot into a major host of online videos as we know it today.
Approach to Avoid
Keep focused on the main idea of your startup. Have a clear, realistic goal with a good 12-month, 2-year, 5-year, 10-year plan. Stay on target with the goal.
Then again, don’t be blinded by over-focusing on your main goal at the expense of flexibility. Remember that the plan can change. If your 5-year plan looks the same after 5 years, then it’s out of date. Things change rapidly, and you should too.
5. Poor Product
Many times starting any idea-based business needs justification, testing, and acceptance. An entrepreneur may not know the realistic demand of the idea as it is not launched yet. And once the product is positioned it faces challenges due to the features or benefits it is offering to its customers. However, customers don’t get bothered by your words. All they want is to solve their problems & if your products do offer that solution then no worries! It will be cordially accepted by customers. But the challenge lies in developing a well-featured product focusing on solving clients' needs. If you've thought of an idea for a product and believe that it would sell well when placed on the market, it's essential that this belief is backed up by market research.
Approach to avoid
Analyze your market and identify your competitors. Study your competitor’s products. Get the review from the end-user. And finally, decide which strategy you need to adopt.
- START-UP | meaning in the Cambridge English Dictionary
- start-up_1 noun - Definition, pictures, pronunciation and usage notes | Oxford Advanced Learner's Dictionary at OxfordLearnersDictionaries.com
- Why Do Startups Fail: It's All About Marketing and Team