Why Do Startups Fail?

Starting up is easy. We have come a long way from the time when the word 'startup' was not as cool as today, to the present-day scenario where every other GenZ dreams of becoming an entrepreneur.

The markets must have seen thousands and lakhs of Startups to date which shows that - be it India or any other country for that matter, starting a business or a venture is easy.

But do you know how many of them actually survive?

Unfortunately, it's less than 10%.

Yes, almost 90% of Startups never get funded, never make it big, and have to shut down within the first or second year since commencement.

The major reason for Startup failure is not the lack of funding itself but the execution.

If you have landed on this article and are keen to understand the reasons behind - why Startups fail? Then you either must be a founder yourself or must be planning to Startup in the near future.

Thus, being in this position, it is extremely important to understand all the things that can go wrong while Starting up & managing your own company and how you can overcome them.

In this article, we will take a look at 7 common mistakes founders make that become a reason for Startups to fail miserably.

If you stick with the article till the end, we will also be revealing the solution for how you can increase the possibility of the success of your Startup.

1. Choosing A Wrong Partner

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While Starting up, you are going to need a partner. Generally, it starts with one person's vision and another person's expertise.

One may be a specialist in a technical aspect that is a core part of a business, whereas the other can work ON the business.

We also often see that people with a similar vision, similar goals, or maybe from the same colleges or institutes join hands together to work on a business idea.

But when you start working on the ground, there can be differences in opinions. Opinions based on ideas, execution, productivity, or decisions. And it is ok!

Only when these opinions start turning into debates rather than discussion is where conflicts occur and your company starts suffering.

How To Choose A Right Partner?

Partner with someone who brings in experiences or skills to the table. Don't fall just for your good old relations.
Find someone who shares your vision, values & is passionate about what you are doing.
Stay away from someone who is only interested in monetary gains.
Find someone who might help you bring in resources for your business.
Trust plays the most important role here. Thus, be careful while partnering up with someone whom you don't know much about.

2. Business Model Failure

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Your business model is the heart and soul of your Startup. It's the foundation for your business and can make or break your business.

It's the method of how you're going to generate your revenue & sustain your business in the long run.

Considering its importance, it is surprising how often business models fail when it comes to Startups because of the unrealistic assumptions by the founders.

Sometimes the Startup cannot generate enough demand for its product or services and other times, it can't make a profit from them.

After spending a huge budget on marketing campaigns, they realize that customer acquisition costs are way higher than the customer lifetime value.

This happens when the business model is flawed. And, creating a solid business plan even before stepping out in the market will ensure that this doesn't happen.

How Should A Good Business Model Be?

You should be clear & specific about your target audience, their behavior & psychology.
If your product or a service is something new in the market, spend some extra energy creating an efficient demand generation strategy.
Create a record of activities that need to be done regularly & create replicable systems & processes. This will be useful during scaling up.
Building a solid value proposition is key to a good business model.
Simplify things. Don't make it too complex to follow & practice.

3. Poor Team Management

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I cannot stress this enough. Your Startup is not just your idea or some registered abstract entity. It is the team that is working with you.

To discuss it fundamentally, let me ask you this. Why does a Startup fail?

The simple answer to it is that - it fails because the team failed, right?

But have you thought about - why does the team fail?

We have thought about it! And here's the reason.

Because there were basically two kinds of mistakes:

A failure to get the right team together in the first place.
A failure of managing the team effectively once it was assembled.

The biggest mistake the Startup founders can make is failing to manage the team in the right way.

And you know what? It's much easier to fix a badly managed team than to fix a bad idea!

How To Find The Right Team For Your Startup?

You are a part of the team. So keep your bossy mindset aside first & build yourself to be a leader & a guiding force for your team.
Don't choose people simply based on their knowledge. Choose them based on their actionable skills.
Have processes in place that can help your team to execute things in a systematic way.
It's your responsibility to keep your team well trained & up to date with what's going on in the market. Keep on optimizing the way your team works from time to time.
Build your team with long-term relationship goals. People who are ready to dedicate a major time span of their life to your Startup are going to be someone who will be ready to put all their heart & soul in.

4. Not Maintaining Healthy Cash Flow

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Every Startup has a finite amount of resources. And resources, whether they be time, money, manpower, or even a cash flow, are precious commodities.

Raising seed funding is a good way to launch a Startup. It helps you build your product and find early adopters.

The problem is that seed funding can often lead to a rushed product and a Startup that is forced to pivot too early.

A lot of Startups fail not because they received inadequate funding or didn't have a good product. But, because they didn't have a good cash flow.

Being cash flow positive is one of the most important things a Startup can do to survive.

When you're cash flow positive, you're able to pay your employees and contractors and cover any expenses that may come up.

You'll also have a lot more freedom to make decisions that aren't motivated by money.

How To Maintain A Good Cash Flow?

Try to get things on rent or lease instead of making purchases that require putting in large amounts of money only to be recovered after a long time.
Offer concessions & discounts for customers who will make early payments.
Don't overspend on marketing campaigns & acquire more customers than your serving capacity. Make sure you don't burn out on cash too soon before you start earning it back.
Try to stay as low in debt as possible. Reduce expenses like late fees, higher interest rates, etc.
Going slow & steady is the best approach to maintain a healthy & positive cash flow. The quicker you rush, the more challenging it becomes.

5. Wrong Timing

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Launching a product is not an easy task. It requires time, money, and effort to create a successful product.

But most of the products or the type of service that Startups offered failed not because the product or the service itself was not good. But because the market was not ready for it yet.

You may either end up launching a product too ahead of time or too late. And this is the reason that despite putting your heart & soul into crafting your idea & bringing it into the market, your Startup might fail.

Thus, Startups shouldn't simply get inspired from the target market from somewhere else & apply the same concepts to the audience they want to serve.

A fantastic idea might get lost just because it was launched at the wrong time.

We stay in a heterogeneous world. Some sets of the audience might be ahead or behind someone for several years.

How To Identify The Right Timing?

Conduct market research that is relevant to your time. I.e. Don't rely on the data that was gathered a long time ago. Keep up with the changing trends.
Keep in mind that it will take time for you to launch your product from the time you are going to start working on the concept. The market can change a bit within that time frame.
Don't apply the same concepts that worked in first-world countries to the developing nations. The market scenario is going to be widely different.
Even though your product is launched in the market, don't miss on keeping with the market research. Things are not always definitive, especially if you are into tech.
The best data to rely on that is authentic and indicative is the data you gather after conducting a test. Thus, focus on testing before concluding.

6. Solving Issues That No One Cares

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Sometimes, Startups get so carried away with the thought of being innovative that they fail to address the problems that actually need to be solved. They tend to chase creativity more than necessity.

If your product or service does not solve a burning problem and is just going to be there as some creative alternative, then you are bound to fail.

The rule of thumb is that you should not capitalize on solving problems that no one cares about. That said, it is important to solve them in an innovative way, which will be interesting to others.

There are two types of problems that you can go behind. First, there are burning problems that are already being solved but in an ineffective way.

Second, there are burning problems that are not getting solved at all. Both of them offer great opportunities for Startups.

How To Solve Issues That People Care About?

Study & conduct your research based on the already available solution for the problem that you are looking to solve.
If your product falls under solving evergreen problems, i.e. better Health, more Wealth & good Relationships, then the market will be pretty much clear to study.
Don't rush for trends & assume that as the problem. It is more likely that the need to solve similar problems might not exist at all as the trend goes.
Validate the market first by making a Minimal Viable Product or a prototype.
Keep an eye on repeat customers before scaling up. If your product is going to have only a one-time consumption value, then it is not going to sustain for long.

7. Quitting Too Early

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One of the best startup tips that you can receive from this article is going to be this. Do not give up too early!

Most startups fail because the founders quit too early. Startups are not a sprint, and they are a marathon.

There will be ups and downs, and you will meet a lot of hurdles. It is a long journey, and you need to be prepared.

Most Startups fail within the first year because the founder did not have the right mindset to see the Startup through.

They were either discouraged by the lack of progress, or they were motivated by the wrong reasons. Most Startups that fail give up too early.

How To Decide About Quitting?

Don't judge your success based on the short-term outcomes. Always have a long-term plan setup. Short-term plans are bound to be fluctuating & the outcome is not going to be as expected always.
The first couple of years are not about deciding whether you want to continue it or not. They are the intelligence-gathering phase.
Keep on testing if you are skeptical about how long it will go. The best data to research & make a forecast with is the data that you gather firsthand by testing.
Don't hesitate to mold or change your decisions according to the situation. Keep on optimizing based on team management, workflow, marketing strategies, set of audiences, etc.
If still, things don't take shape as you go ahead, it is wise to make a decision about quitting. Keeping on pushing with just 'hope' & no data to back will be like kicking a dead horse.

Prevent Your Startup From Failing

By now, you must have got a clearer idea about where things can go wrong. To hard code that in your mind, let's do a quick summary.

The reason for your Startup failure can be -

Not choosing the right partner(s).
Not working extensively on a business plan.
Not being careful while choosing & managing your team.
Not maintaining a healthy cash flow.
Not realizing whether your idea is too early or too late as per the market.
Solving issues that one cares about.
Quitting too early.

If you have done or are doing any of these mistakes, it's time to hold on for a while and start reworking on things. Identifying the mistake itself is a big step towards the direction of finding a solution.

And as we promised at the beginning of this article, we have a solution for your Startup that will highly increase the possibility of your success.

We at Foundership have collaborated with high-performing founders across the globe who have been there, done that, and help the budding Startups with Coaching, Connect and Capital.

Visit our Programs page to know more about what we have to offer and how we can help your Startup to skyrocket its growth.

If you have any queries, thoughts, or opinions related to the topic - why do Startups fail? Feel free to post them in the comment section below so that we have the conversation going.

For other queries, inquiries or suggestions, you can shoot us an email here - we@foundershiphq.com and we will make sure to answer it as soon as possible.

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Why Do Startups Fail? - 7 Common Mistakes