6 Reasons Why Startups Fail


So you accept that you might not become a billionaire, but how can you prevent your startup from failing like so many others? To begin with it’s important to understand why startups fail and build your strategy to avoid the same mistakes.

Let’s take a closer look at these reasons …

1) The Wrong Team and/or Leader

A startup is only as good as the people behind it, so if any part of the team or even its leader isn’t suited to the project it will most likely fail. A good team needs to have all the skills required to research, launch and build the startup, and they need to be able to fulfill their individual roles without too much oversight. At the same time the founder needs to be able to set the vision and inspire the team. If you can’t convey your idea and needs to others, they can’t help you bring it to fruition. An icon like Steve Jobs was a master at setting the company vision and inspiring it within the team. Smart people also need to be on hand to handle unforeseen hurdles (changes in the market, funding issues, poor feedback etc).

Take a look at your own team, if something unexpected happens will they be ready?

2) Not Market Driven

The majority of successful business ideas solve a new problem or solve an existing problem better than anything else on the market, but they must do so with sound data to back them up. For example, solving a problem that only a few hundred people have is not going to sustain a business for the long-term or improving on an existing concept but spending millions in the process might make it impossible to break even. The market has to be there and it needs to be accessible with mind to all of the constraints a startup faces. You might also have the right idea but are targeting the wrong market, or just the wrong idea altogether.

Just because you think you have a great idea doesn’t mean other people do or will spend money on it.

Note: One common mistake in the tech industry is putting new technology before the needs of the market.

3) Too Many Competitors

But what if you have the right idea? Startups also commonly fail because there are too many competitors or the little competition that does exist is just too strong. Even if your product or business is objectively better than the competition, they may have more funds, experience, better marketing or other advantages that squeeze you out of the market. The market itself might also be saturated, with several businesses carving up consumers without much room for anyone else. Unless you can do what they do better (see: Not Market Driven), then it’s time to come up with a new idea altogether.

4) Inadequate Funding

An idea can’t go anywhere without the required funding, this means you must have a realistic expectation of how much your project is going to cost, whether you can raise such capital and if not, how things can be tweaked accordingly. Most entrepreneurs will go the traditional route of pitching to relevant investors, but smaller projects and tried and true businesses (a new restaurant) can also rely on loans.Funding failures are often down to a poor pitch or not foreseeing and handling funding gaps at different stages of the startup’s development. Small funding gaps that need to be filled while you wait on other agreements might even be covered by reputable online services like WhoNeeds500.com, who can deposit money in 24 hours for a term of up to 30 days.

Longer funding gaps and other needs might be covered by regular business loans.

5) Overpriced Product

Products obviously need to be priced to cover costs, but when those are so high that consumers aren’t biting (overpricing), it quickly leads to under-performance and failure if changes can’t be made. Many startups fail not because the product itself is bad or there’s no market, but other factors have made the product too costly in this manner. 

6) Poor Business Model

Giving away lemonade for free but monetizing it with ads is not a very realistic business model, and while most startups aren’t usually this clueless, a bad business model is one of the primary reasons for failure. An efficient business model needs to be scalable (i.e. has the mechanism to grow and acquire customers) and can be monetized to a level where costs can be met and eventually profits can be made. A good business plan might even work out an accurate cost of acquiring new customers and therefore what this means for the viability of the business as it grows.

Keeping these points in mind will stand you in a good position for formulating your business plan. If you found the information valuable feel free to comment below and share the article.


You Might Also Like