Mostly startups have been triggered by the hype of success stories of about last two decades.
The reason why most startups fail, is made clear through a case study done by Lance Surety Bonds, teaming up with marketers at Priestley. The team worked with Bonds, compiling upto 20 reasons of what makes a startup fail. An info-gram has been drawn from CB Insight Analysis, studying reasons behind 156 failed startups. Founders were interviewed and reasons were sorted out into 20 distinct categories. Percentages here increase than matching to 100% because some of the startups failed due to multiple reasons.
1-No Market Need (42%)
Every new startup can be the next big thing by the entrepreneurs but they are not a requirement by the market itself. However, the sponsors and stakeholders need to do their research to make a way in through the particular market, if the venture meet a market vacuum, just by bringing another player would make a congestion in the field to make the competition even tougher to start afresh.
2-Run out of cash (29%)
A common practice is seen where the innovators set unexpected expectations from their startups. They expect to have speedy cash flow to pour in, making them overnight millionaire. This is not a prudent approach. A startup must have financial resources at least to meet its 12 months needs without earning a penny.
3-Not the right team (23%)
For a startup to be successful, a team of well minded and similar interests of individuals need to come together. If a right team is not there, the goals become difficult to achieve. A right team can ensure accurate, fast & flawless delivery of products and services to keep the consumers intact and to give them something to come back for more.
4-Get out competed (19%)
Certain reasons like motivations, expertise and funding, alone or in combinations can cause a startup out competed. That means either the startup can suffer from exhausted resources or is burnt out in terms of being competed.
5-Pricing/Cost Issues (18%)
A poor planning in terms of budget, results in poor costing, estimation that end up into losses. A financially strong feasibility is an only recommendation to avoid such a catastrophe.
6-Poor Product (17%)
Quality is a buzz word behind market leading products. If a product and service, lacks in its quality, consumers would begin to find alternative products.
7-No Business Model (17%)
Every start up needs a working business model and a plan. A proper feasibility covering all aspects of initial investment, cash flow, recurring expenses etc., is must to give a clear view on how the shorter and long term goals would be attained in order to achieve success for startups.
8-Poor Marketing (14%)
Marketing is an essential tool to attract consumers. In order to attract the right audience, this would make or break the business and needs to be shaped up in a highly professional way to pave a sound foundation.
Startups need to put their customers first, if they need to be successful in shorter and longer goals. In order to give consumer satisfaction, making them the king would be a successful step. Thus, the proper way of channelizing it is through a better communication mode to listen and to match the customer demand.
10-Product Mistimed (13%)
In this step, the meaning of a startup not making is through the is due to miscalculations and wrong estimation by the entrepreneurs. What could be the success rate of store offering winter wear in start of summer or a restaurant waiting for the customer at breakfast with all the delicious bar B Q. A launch relevance is half success, if you agree.
11-Loose Focus (13%)
A startup is nothing less than a “First Love”. Taking it otherwise, can fizzle out your focus. Putting it as second priority will result into shaky results and it would be all over the place. To avoid the clustering of the information, timelines need to be given with a much more clear focus.
12-Disharmony on Team/Investors (13%)
Disharmony is antonym of harmony. It means that the team and investors are not on the same page. Having similar interests for the teammates is an essential step to tap into the right investors. Otherwise, the clash of interests brings disputes within the team.
13-Pivot gone bad (10%)
Pivot is central theme which gives a direction to a startup. Just like any pilot of any series that paved the way ahead. If anything disturbs it, the direction is lost. Results than surely be distorted.
14-Lack of passion (9%)
A startup is a venture by an enthusiast that is filled by a passion. If passion goes missing, then there is a chance that the business idea wouldn’t even work in any slightest way.
15-Bad Location (9%)
Targeting the right thing at the right bulls eye with that location in mind, is the key to success. Choosing a proper placement and preference to the product and services is half success.
16-No Finance or Investor Interest (8%)
A startup launch is not possible without a reasonable initial investment. Failure is around if finance is not reasonable or the investor’s interest in venture is not in accordance with his expectations.
17-Legal Challenges (8%)
Opening of bar is almost an assured success, but how is it in a country like ours, where drinking is legally banned? A venture attracting legal repercussion cannot survive for long. The culture and laws of that place need to be in accordance.
18-Don’t Use Network/advisers (8%)
An advice in startup like professional feasibility and clarity of investor’s goals, is must to form a winning plan. But networking with conflicting opinions can play havoc to a startup.
19-Burn out (8%)
A poor work/life balance can disturb or divert concentration, whereas a startup needs a full focus especially by the person at driving seat.
20-Failure to pivot (7%)
One always learn by mistakes but not accepting the failures mean sticking and repeating it, unless an acceptability and owning it to comes through.
Evaluation of the study:
- The reasons pointed out are good to provide general understanding.
- These are not final and the only reason for failures of a startup but just a possibility.
- Study conducted is of 156 startups.
- Broadening the study base can make a little changes in percentage.
- An industry to industry study can provide altogether different results.
The fact is that
9 out of 10 startups fail
The study provided a guidance on startup failure. This info-gram in no case is a bible on startup failure but just a source of study to compare, if yours is not open to typical proven risk factors.
Miss. Urza Umar Chahal is a freelancer blogger, content and copywriter. She is also an accredited motivational speaker and trainer.
She can be reached at: firstname.lastname@example.org