Startups are believed to change the face of business and technology, but the culture of founding new companies has been hyped-up by leaps and bounds in recent years. Though there are some startup success stories that are interesting and inspiring, countless startups have been brought down to the ground in no time.
Nine out of ten startups will fail. This is a hard and bleak truth, but one that you’d do well to meditate on. Entrepreneurs may even want to write their failure post-mortem before they launch their business. This is because a very optimistic entrepreneur needs a dose of reality now and then. Cold statistics like these are not intended to discourage entrepreneurs, but to encourage them to work smarter and harder.
Here are the most common reasons why startups fail.
- Choosing the team
An incredibly common problem that causes startups to fail is a weak management team. 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 think 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.
- Poor Finance sources
Though money is not a major problem when it comes to starting a business, running out of it is not going to help. It is always difficult to track investors and attract them to make investments. Most startups do not have an idea of making the right approach or finding the pool of investors who might be willing cash their money on. Another mistake startups make with money going into spending-spree.
- Lack of good network
We often hear about startup entrepreneurs lamenting their lack of network or investor connections so we were surprised to see that one of the reasons for failure was entrepreneurs who said they did not properly utilize their own network. “Get your investors involved. Your investors are there to help you. Get them involved from the start, and don’t be afraid to ask for help.
According to an analysis, only 18 of the startups out of all had at least one female founder. Companies with at least one female founder outperformed startups with all-male founders. It also could just reflect the fact that there are comparatively few female founders in the startup world.
Getting sidetracked by distracting projects, personal issues, and/or general loss of focus was mentioned 13% as a contributor to failure. Startups can’t afford “paralysis by analysis” and its simple good sense to realize that can’t anticipate everything in an undertaking that inherently involves the unknown.
That being said, there’s truth in the corny old quote “failing to plan is planning to fail.”
Ideas are the backbone behind startups and an extensive analysis of the market needs to be done before starting a business. 20 percent of entrepreneurs in a survey have reported startups failure because of the product-market fit. Entrepreneurs need to understand that starting a company, marketing and spending a lot of budgets might not always work. Before diving into business without analyzing the prospect of the target market will surely hit back and hurt.