What Causes the failure of Startups? Ensure Yours Succeeds

Headstart to an entrepreneurial venture is as scary and exciting in equal measure. In the enthusiasm to make a difference and create something meaningful, knowing and unknowingly, entrepreneurs make mistakes that lead to failure of their hard worked for startups. There are some fatal mistakes done by startups that cause their businesses to fail. Statistics revealed that small businesses grow only to disappear as quick as mushrooms do.

Starting and building a business might seem like an easy and simple thing to do. Unfortunately, new businesses are still vulnerable and they usually fail before they even soar high. Most startup businesses fail. Those which still exist are the result of the natural selection process as they were able to successfully apply the right business principles. 

Image Credit: Anna Vittal

If you have plans to build your own startup or business soon or have already started one, it is always recommended to learn from the failures of those who went for it before you and avoid getting yourself stuck in the rut.

There are many mistakes to avoid, pitfalls to not fall into and warnings for first-time or long-time entrepreneurs.

Lack of Capital

We have all witnessed well capitalized ventures fail miserably, and severely under-capitalized ventures eventually grow into category dominant brands. A lack of capital can provide a socially acceptable excuse for business failure, but it is not the reason businesses fail. Raising, deploying, and managing capital is ultimately the responsibility of leadership. The amount of capital required to run a business is based upon how the business is operated. Therefore, if leadership operates the business without consideration for capital constraints, or irrespective of capital formation issues, then the blame should fall squarely on the shoulders of leadership. If executive leadership squanders capital through irresponsible acts, there will also be severe consequences.

Building Something that Nobody Wants

Problem: The foremost reason why many startups face their demise before they even start is because they decided to build a product that nobody wants or needs. They only decide to give it a go and create something without really putting the concept or idea to test in the actual world. 

Solution: To keep failure at bay right from the get go, the best thing to do is apply lean startup methods together with the growth hacking process. It lets you test the product prior to its launch for you to determine if it suits the needs of the people or if a pivot is already necessary. Validating your concept and proving your idea is key to avoid failure.

No Investors

Problem: Some startup owners think that they can survive without the help of investors. But, the truth is, having investors can make a difference to reach success. 

Solution: No matter what your startup is, it is important (not compulsory, though) to have investors. They can help you when it comes to capital or investment. Since you are a startup, there are many things you want to improve to reach your goals. If you have investors by your side, it is much easier to take action of your plans and create more products or services to offer. 

Although finding investors is not that simple, you can attract some by presenting the whole concept of your startup and your aim. Networking at startup events, contacting or joining incubators and accelerators will help you get in touch with investors. You need to be prepared with an elevator pitch, a pitch deck and if possible a business plan and financial projections. 

Once you present your business plan effectively, expect that you will get some investors who will be interested to work with you.

Product Myopia

Sometimes entrepreneurs are stuck in the notion known as 'product myopia'. This is when entrepreneurs focus too much on the idea they created instead of meeting the customer needs, expectations and demands.

This is considered to be one of the blind-spots since it prevents founders from looking beyond their mentality to understand the actual scenario. Moreover, product myopia leads to waste of effort and energy leading to disappointment.

Creating products without considering the needs and demands of the market unless innovative/ disruptive is definitely bound to fail.

Raising Too Much Money

Problem: Raising too much money might not sound like a real problem. But, there are startups that raise too much money right from the start only to use everything up faster than necessary. Or, they raise too much money and have unrealistic goals or expectations from the investors.

Solution: Startups have to remember that too much funding right from the beginning could mean the death of your business. This is not the main reason startups fail but it happens. The trap here is that funders are going to spend a lot without focusing enough on the income. As you design the amount of money you plan to raise, think of 18 months or two years. Don’t go overboard if you don’t want to risk exploding your financial bladder and using the money faster than lightning.

Lack of Focus

Problem: Startups that were not able to last long in the industry are those that got sidetracked by personal issues, distracting projects and suffered general loss of focus.

Solution: Start your business with market research so that you don’t lose track of what you are doing. Through proper research in advance and with the right strategy put in place, you will not lose focus on what should be done next and instead, you will focus on the most important things and stop doing stuff that is to keep your business moving forward.

Working Capital Mismanagement

Working capital can be understood as the capital needed by the firm to finance current assets. It represents the funds available to the enterprise to finance regular operations, i.e. day to day business activities, effectively. It is helpful in gauging the operating liquidity of the company, i.e. how efficiently the company is able to cover the short-term debt with short-term assets.

Managing Working Capital efficiently is crucial to keep the business going on a daily basis. For instance, you might have made huge sales, but they are on credit.

Working capital mismanagement happens when it is time to pay your employees, but the company is out of funds to pay them, regardless of making a significant amount of sales in credit.

Another factor is managing the investor’s funds effectively. It not only means investing in profitable avenues but also making sure that you do not incur too much spending which does not bear any returns.

Failure to Execute Marketing

Problem: Business owners assume that the moment you create something, it’s bound to be successful, the people will come to you on their own and buy your product. 

Solution: You need to define a marketing strategy for your startup, either it’s a full inbound marketing strategy, the implementation of content marketing tactics, or just a simple social media strategy. Marketing strategies are of utmost importance to make sure that your target audience will know about your existence and understand your product/service better. As marketing is the heart of every business, doing it properly makes it easier to generate higher sales. If you don't have the capabilities or skills to execute your marketing, your startup can also decide to outsource digital marketing to agencies or freelancers.

To also help you with marketing, you've got a lot of digital marketing tips at your disposal and free or paid marketing and growth hacking tools to choose from: don't do everything manually when you can automate so many tasks!

Not Having Co-founders / Not Having the Right Co-founder(s)

A single founder has a lot of responsibilities on his/her shoulders. Firstly, one cannot have the expertise of every department. Secondly, trying to juggle every responsibility is not an effective way of running a company.

The lack of specialisation means not getting things accurately done too. In most cases, a single founder trying to do everything will not be able to handle the startup effectively since focusing on strategies becomes too complicated.

Problem: In the startup world, it is well known that you have a better chance to succeed with a co-founder rather than starting alone. But, be careful, this is actually a myth. However, data has shown that you don't necessary need a co-founder to succeed. There are many success stories of solo founders. 

A lot of people assume that they can launch their business without a co-founder or starting it with the first co-founder they find. 

Solution: A team will always be stronger than a single person and looking for the right co-founders who share the same ideas and aspirations as you will ensure a smooth sailing for your startup. You might not have entrepreneurial DNA or you miss some skills. A co-founder can help you fill the gap. Having a co-founder will also bring a counter balance to your thoughts and should bring you complementary skills. 

However, don’t rush while looking for a co-founder. If you don’t find one, don’t worry, you can succeed by hiring employees, agencies or freelancers. It’s better to not have a co-founder than having the wrong one.

Failure to Execute Sales

Problem: Most startups only market their products/service and stop right there. They forget about sales execution or take it for granted in general. 

Solution: Sales execution is a vital aspect of any business of any type. It's not because you are a startup that you should not make sales or be profitable. Make sure that all members of the team will focus on selling, starting from finding leads, converting these leads and closing the deal. You can close deals via phone calls, video calls or by implementing great email marketing campaigns. Indeed, email marketing is the top channel to convert leads into sales.

Lack Of Innovation

The lack of innovation relates to a derivative idea. It means copying or imitating the business model of other companies.

Therefore, trying to deliver services based on the services of other businesses becomes hazardous. Basing one’s startup to the successful or established business model of other companies does not make sense since one does not know entirely about how the other businesses operate.

Additionally, every business is unique in its ways. Therefore, lack of evaluation and innovation may lead to failure of the entire business model.

Raising funding With the Wrong Investors

Problem: When searching for outside funding, many of today’s startups make the fatal mistake of rushing into partnering up with the investor who was able to offer the highest amount of startup capital. 

Solution: It is extremely important to bear in mind that all money will not be equal as far as outside investors are concerned. There are investors who bring money to the table together with useful insights to help your business grow as well as helpful industry relationships. 

There are also investors which will only bring lots of headaches by interfering with all aspects of your business, making it a challenge to run your company. Thus, you need to study at the overall value beyond the money that investors will bring to the business. As far as investment is concerned, the most money is not obviously the better choice.

Obstinacy (Stubbornness)

A startup may fail when it is too stubborn with its vision. A startup needs to understand that a vision set might change with the acknowledgement of new venues and business environment.

Likewise, at times, the entire business focus might shift in comparison to the initial foundation. There are times when startups are too stubborn to bring in a change to the core vision. Even this leads to failure as one is unable to cope with the changing environment and needs.

Chasing Investors Not Users

Problem: Startups face their demise as they are too intent in searching for investors while neglecting their users. 

Solution: While there is nothing wrong with attracting investors, this must never distract your focus away from the more important and the sole source of funds which truly matter for your business, none other than the users or customers. Keeping your users satisfied and willing to pay for your product means that you stay in business. 

Focus on meeting your users’ needs as you implement your ideas. If your users are happy and you can show traction and/or a growth curve, investors will be pleased. If you just talk to investors without focusing on your product and users, nobody will invest in you – no matter how many investors you meet.

Workforce Mismatch / Hiring Poorly / Not the Right Team

It is critical to choose your team, interns and employees correctly. One needs to understand the needs of the company and attract talents accordingly. For instance, one needs to recruit that personnel who match to the needs of the organisation in both long and short-term.

Failing to do so will not just increase people in your company, but it also means a waste of limited resources. Similarly, it is likely to build frustration and chaos in the organisation as targets are not met on time or effectively.

Problem: Many startups today fight to have the right team so they end up hiring the smartest applicants who don’t really complement each other in terms of strengths and weaknesses. 

Solution: Finding a properly balanced team is the key for startup success. Startups need diversity in the business. Manpower and resources for various skill sets are important to build a thriving startup. The right team is not composed of perfect and intelligent people and instead, it is all about people who share strengths with one another and mitigate each other’s shortcomings and weaknesses.

Wrong Timing Of Launch

Entrepreneurs need to make sure that they launch their products and services at the right time. Launching products/services late or ahead of time, both are detrimental. It leads to failure of product launch and outreach.

For this, it is essential to understand the market competition and what the competitors are doing. It is better to prepare adequately before making a predicted failure move. Regardless, it is also necessary to launch the product on time no matter how relevant it might be.

Introducing products late could label the services as a “me too” service. Therefore, make timely decisions and targets if you wish to avoid such labels or failure following.

No Partnerships/Alliances

Problem: Many of today’s startups wait far too long before they start to discuss about securing partnerships and alliances which can benefit the business. This is again one of the top reasons why startups fail: they believe they can do it alone. Partnering could help you be more competitive and grow faster. 

Solution: For your startup to be successful, you will need partners and allies. Do you know what a startup is? A startup should be focusing on growth... and you shouldn't do it alone! Aside from finding partners, the process must also be started at the earliest time possible. Your partners will help you create quality products, add services or features to your product, gain better market visibility, streamline operations and make sales. They offer exponential and endless benefits.

Not Tracking Competitors

Problem: This is one of the top reasons why startups fail and by tracking competitors you can definitely make your business succeed. Business owners don’t think of tracking competitors as long as they believe that their plan and uniqueness will make them set apart from others. It may work at some point, yet it’s a big deal to track competitors for you to determine the things you should or not do. Don’t tell people you have no competitors! 

Solution: Tracking your competitors will not only help you know the things you should change in your business, but also you will be able to avoid the mistakes that they have done before, giving you an edge over your competition. Also, competitors might become partners in some cases if your solutions complement each other.

Choosing Supposed Profits Instead Of Customers

For startups, profits and investments can be very tempting since the financial necessities in the initial phase are pressing. Entrepreneurs need to keep their head clear that short-term profits matter but they do not matter as much as consumer loyalty and building a customer base.

Most startups that fails tend to focus more on short-term profits than building long-term relationships with clients and customers. This tendency leads to compromise in the long-term strategies and vision.

Therefore, entrepreneurs need to know the importance of customer centricity and enhance their customer experience. Customers bring revenue and profits, however, failure to attract customers leads to losing out on profits.

Too Much Competition / Overcrowded Market

Problem: Starting a business in a place with too much competition is not a good idea, especially if your brand is new. 

Solution: Experts recommend avoiding high competition as much as possible. If there is a lot of competition, this probably means the market is huge. For instance, if you go to industries like Blockchain, Fintech, IoT, Biotech, Virtual Reality, Drones, Augumented Reality, Artificial Intilligence or machine learning, you will have a lot of competition. Of course, you can go to these industries but in these industries, choose a niche that is not overloaded. 

You need to find a niche and have a clear value proposition to differentiate yourself from the competition. Don’t be one of many but be one of a kind.

Pricing / The Sale Price

Problem: The sale price can be everything for consumers. As a startup, a product that’s too expensive or too cheap might not be a wise move. 

Solution: Your price should not be too low or too high. It should be just right and something that is reasonable and will be embraced by your customers or clients. But, how do you know the right pricing? By experimenting and studying the competition. First, you need to check what competitors do. Then, you also need to calculate your costs in order to offer a price that covers your costs and if possible make you some profits. You also need to experiment your pricing until you find the right one.

A Product that is "User-Unfriendly"

Problem: Not all products are appreciated by every consumer out there. Introducing a product that’s user-unfriendly is a bad move for startups. Having a complicated UX (User Experience) or CX (Customer Experience) will lead your startup failing. 

Solution: Consumers purchase products if these offer some benefits and have a purpose. Also, other consumers check for if the product is user-friendly. Once they find some items user-unfriendly, they don’t think twice to avoid buying them. Therefore, when creating products for your startup, make sure that these are user-friendly, offer benefits, and resolve their problems. 

You need to ensure the user experience is great and simple. To do that, you need to test your products on a few people in your industry: the best thing is to make sure your product is tested by people you networked with.

Poor Professional Advice

Nobody has cornered the market on knowledge and wisdom. If leadership doesn’t seek out the best quality advice available to them, then they will likely not make the best decisions. All CEOs and entrepreneurs need top quality professional advisers. There is no excuse for C-level leaders to have blind-spots. When a leader has a "miss" or a blind-spot, he or she is simply showing the arrogance of operating within the limitations of their own thinking.

Burn-Out

Problem: Founders think that it’s okay to do things simultaneously. However, bad work-life balance can be the reason why startups fail as this can make startup owners burn out, which can lead to losing passion and motivation on their startups. 

Solution: Try to maintain a good work-life balance. Have fun sometimes and enjoy your quality with your friends and family without thinking about running a business. This will help you relax and fuel up your body with the energy you need to accomplish your daily activities. 

Many people believe you should keep hustling and have 100-hour work weeks when you are an entrepreneur. Some weeks you might have that amount of work but you should not work that many hours every week. Your productivity will go lower and stress higher if you don’t sleep enough, you don’t exercise or you don’t socialise. You should do your best to avoid startup stress and burnout. It’s better to work 10 hours at 100% of your productivity level than 20 hours at 20% productivity.

Fighting Between The Founders

Any chaos or intense emotion between founders builds a destructive environment within the startup. It is okay to agree to disagree. However, one has to make sure they respect each other’s viewpoints and differences.

If the startup is to grow properly, the founders have to be and work in harmony. Any fight or unsolved disagreement(s) leads to more significant problems. It is better to put off any fire before igniting any.

Wrong Target

Problem: There are startups that have the wrong target for their products which ultimately makes them dissolve before they even leave a significant mark in the industry. 

Solution: When coming up with a new product or service, startups should focus on fundamentals like solving a particular issue or addressing a need in a different or new way. It is also at this point when you have to identify the individuals or the businesses who are going to buy your product i.e. known as the target audience. 

However, there might be a need for a more granular approach to your target audiences. You need to define your target audience. This is because a product tends to appeal to different buyers who might have varied goals and needs. A one size fits all sales and marketing approach will not work here so better identify the types of buyers first, look at their problems or needs, what they want to achieve, how they will be successful and the budget they are willing to spend. You should really define your buyers’ persona and take time doing it. Without knowing your target, you will not know which channels to use and which message to deliver.

Not Able to Pivot / Not Able to Execute a Pivot

Problem: Startups often neglect the importance of pivoting while some fail to execute a pivot at a critical stage of the business process. Not pivoting quickly enough or away from a bad hire, bad decision or bad product is cited as among the major reasons behind startup failures. A lot of founders hesitate to pivot because they believe it might feel like a failure. Let's break the myth here; pivoting is not a failure!

Solution: Don’t dwell or stick to a bad idea to avoid sapping your money and resources or making your employees feel frustrated with the lack of progress. Pivoting for the sake of pivoting will be worthless. It must be a carefully calculated affair in which changes to business model will be made, hypotheses are going to be tested and results will be measured. 

You have to understand that having an idea is great but it’s easy: there are new great ideas every day but execution is the key. Also, an idea will evolve and improve. This is why you should not be stubborn and have the ability and mindset to pivot.

No Networking

Problem: Many startups don’t think of networking as an important component of their business model. They believe it is a waste of time. 

Solution: Even for big companies, networking is a crucial part of their marketing strategies. With startups, having no networking will just lead you to the path of failure. Networking is essential in a way that it can help you connect with people whom you can be your potential investors or clients in the end. You can also connect with fellow entrepreneurs who might become partners, co-founders, mentors or friends who will help you when needed. 

If you know how to connect with people, it’s easy for you to market your startup, enabling you to reach your target audience easily and without exerting too much effort and money on some marketing tools.

Networking is not that hard, even if you are shy: just go to people, introduce yourself, ask them what they do in life, exchange a business card or a LinkedIn profile and done: you have networked.

Legal Issues

Problem: It includes getting into an area or an industry, which is legally complicated. 

Solution: Some startup owners do not heed the lessons of other failed startups. Without learning mistakes from the legal issues encountered before, you might lose in the long run. So, before you enter a new venture, know the different legal challenges you might face and think if these are worth the risk or not. If you think you won’t get way with some legal issues, choose another venture that’s less complicated. 

If you are not sure where to find such information, just go to startups’ hubs and incubators in your area and they will guide you where to go.

A Half-hearted Effort

It is necessary to put your full effort with all of your heart if you want the best results. For any startup, it is essential that you take every step carefully, and to achieve that, all the concentration and invest enough time.

When you are not putting your whole heart towards your startup, it means placing half of the necessary effort to make it stable and grow.

Lack of Value

If the product fails to live up to the expectations posed by similar products, then the company is bound to close its doors sooner than expected. It is mandatory that the product has at least four unique value propositions that can give it competitive advantages over its businesses’ rival tools or products.

It is necessary to note, that the success of a product begins and ends with retaining the customers. Most of the management in tech start-ups believe a good product with a flashy website will always retain the customers. Acquiring a customer for less money and retaining the customer can cost a company millions of dollars. Also, it is necessary to keep upgrading the product as per the technology trend in versions. Always remember, the Apple iPhone as an example.

Failing to Ask for Help

Problem: Owners of startups often make the mistake of thinking that they can do things on their own and they don’t need the help of anybody or anyone. They tend to be stubborn and refuse to ask for help even when they know that they need it. Even worse, some founders ask for help but actually don’t listen to their coaches or mentors.

Solution: There is no way that you can fly to the moon alone and you can never make your startup grow without any form of assistance. As you cannot simply handle everything physically and mentally when you are alone, seek for help not only for the sake of the business but also for the sake of your health and personal relationships. 

Having mentors is key to making your startup succeed long term. Mentors should not be overlooked; they have the experience and can guide you to take the right path. They can also prevent from making the mistakes they may have done in their experience. 

Note: when having a mentor, be sure that this mentor is relevant. Having a mentor who had recent successes is probably more adequate and useful.

Ignoring Users’ Feedback

Problem: The majority of startups will tell their clients that they are their main priority, yet only some actually focus on what their users really need. 

Solution: It is not a good idea to ignore the feedback of your clients, even more if you are a startup. If you want to gain the loyalty and trust of your customers, make sure that you know how to pay importance on their feedback. Whether it is positive or a negative one, assure them that your startup will do its best to improve the service to provide them the highest possible level of satisfaction. 

Users’ feedback will not only improve their trust and loyalty but will also allow you to make your product more user-centric and therefore increase your sales and competitiveness.

Wrong Time To Market

Problem: Regardless of the type of startup you have, timing is everything. So, if you fail to market at the right time, you will surely end up shutting down your startup in the long run. 

Solution: Startup owners should remember that timing can make a difference in marketing their products and services. Wrong time to market your services or products might just cause you loss of investment. For example, if your startup is a clothing line and you offer winter clothes on a hot summer season, expect that your target customers will ignore you. 

No matter how cheap your winter clothes are, they won’t buy them because people will look for something that would fit in for their summer goals. This can sound like a silly example and you probably wonder: who would do such a thing but I can ensure you this happens. Bad timing will take you nowhere but failure. So, decide on the perfect time to market and you will see the difference.

No Passion

Problem: This could probably be the main reason why startups fail (And by being passionate, this is how you can make your startup succeed). If founders are only interested in the profits they will earn and not because they believe that their idea will work, they can easily lose traction. Passion is crucial and should be part of your 'entrepreneurial anatomy'. Your startup might be successful at first but startup life is not a flat ride, you will have ups and downs. If you are not passionate about what you do, you will give up when difficulties arise. 

Solution: If you really want to see your startup grow and gain more profits in the long run, you have to believe in your idea and you should be passionate in everything you do. In this way, you can be assured that your startup will work and would grow according to your plan. Just don’t focus too much on the money you will earn because this will take away your love for your work as you will only be interested with the profits you will get.

Bad Location

Problem: Some think that establishing startup anywhere can work. Well, for others, it can, yet often, a startup should avoid choosing a bad location. 

Solution: There is no exact definition for bad location as it depends on what you are going to offer to your target customers. The main benefit to being well located is being able to interact with your audience as well as knowing the environment they are into. If you are a startup in the Silicon Valley or New York City but your target audience is in China or India, you might have a huge problem understanding your target and their needs/problems. 

If you want your startup to work, you should do your best to choose the right location for it. Aside from timing and having a revenue model, the right location is also an important factor. Remember, a location can either break or make your startup grow. If you don’t want failure, select a location that would help you reach your potential clients or investors.

No Revenue Model

Problem: More often than not, most startups concentrate on creating a business model and ignore the importance of revenue model. This was working before where platforms like Twitter would get as many users as possible with the idea to create a monetisation system or revenue model after. A few years ago, this was easier than now. Investors want revenue more than just a large user base. Finding a revenue model later on is not a solution. For instance, Twitter's business model still remains broken nowadays. 

So, being able to create and plan a revenue model is without a doubt a characteristic you need to succeed as an entrepreneur. 

Solution: A revenue model will help you generate revenues. This also helps you identify which source of revenue to pursue, how to price the value, what value you can offer, and who will pay for the value. It also determines what service or product will be created to generate revenues and ways in which the service or product will be sold. 

Without a clear and well-defined revenue model, your startup might struggle because of the costs that you will not be able to sustain. Through having the best revenue model, a startup may concentrate on a target audience, establish marketing plan, fund development plans for products and services, and start to raise capital.

Therefore in conclusion, there are more mistakes made by startups and entrepreneurs leading to failure. However, the above mentioned are the most common. It is important for entrepreneurs to understand their business needs accurately such that strategies can be made efficiently to meet them with optimum use of resources.

Keeping those reasons in mind will help you determine which things you should prioritise and help you succeed in your chosen industry. Just make sure to start with a good business plan and use the best marketing strategies for your startup. 

No matter how big or small your startup is, you probably don’t need an excessive amount of capital depending on the product or service you offer to start with. All you need is dedication, passion and commitment to your startup. 

It’s also very important to network, have mentors, have friends, be connected and partnering up. No matter how good, smart and efficient you are, you need people around you and to help you. 

The Bottom line is businesses don’t fail – leaders do. The talent that it takes to operate at the C-suite level is matched only by the amount of responsibility that goes with the territory. If it was an easy job everyone would be a CEO or an Entrepreneur.

Too many startups begin with an idea for a product that they think people want, when they fail to reach broad uptake from customers, it is often because they never spoke to prospective customers and determined whether or not the product was interesting.

Credit: Riju, Jonathan Aufray, P.M.

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