Top Reasons Why Startups Fail And How to Deal With Them

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It takes a lot of planning and meticulous efforts to launch a business and run it successfully. But only rare businesses are in sync with their niches and succeed in the long run. According to a report, 90% of global startups fail eventually, and almost 10% of them fail in their first year. So, what makes these startups fail? From product-market-fit to misfits in the team, here’s a comprehensive post-mortem of startup failures that will help you to bounce back at the right time with the right approach. In this post, we will discuss common fallacies and mistakes that most startups make and lose their worth.

So, What Leads Global Startups to Failure

There’s a common pattern among global startups that lead to their downfall. You will certainly learn from this in-depth analysis of the causes of startup failures to help you avoid common mistakes that can prove fatal for your startup business.

Lack of Research: Consumers, Market, & Competitors

Most startups often think of making huge profits and selling millions of units in the first year without even understanding the market complexities. There is too much to explore on the internet today, and you can use some smart tools and technologies to get valuable insights on the research-based approaches toward the market. 

You must know your target audience well before serving them with a product or a service. Think of the prevalent communication channels in that market and devise a strategy accordingly to reach them. Additionally, you must also gauge your close competitors (if any) and look for the loopholes they have in approaching the market and consumers.

Improper Management of Cash Flow

For most startups, running short of funds has been the most common problem to survive in the market. Startups usually rely on venture capitalists and investors for funds until their products or services gain the right momentum and yield profits. As a startup, there are expenses that you just can’t avoid, like salaries, overhead expenses, and other operating expenses. Overspending, poor cash management, and not having clear financial goals are some major reasons startups face cash-related issues.

You need to prioritize cost-cutting at the initial stage, as spending less money will simplify things to get the desired result. Hence, you must plan (6 to 12 months) and have a robust cash flow forecast that should be reviewed timely. This will refine the entire process while you can explore some more options to bring in cash for your startup.

Not Recruiting the Right Talent

The characteristics of a good and dedicated employee are quite universal, but you must take a step further and hire employees that have some specialized skills pertaining to your tasks or workflow. Manpower is a make-or-break aspect for entrepreneurs, and you will be aware that most successful startups often credit their teams for any achievement. Hence, being in a hurry to hire staff and start work can have negative consequences.

To hire the right talent for your startup, note down the essential characteristics you wish to see in an employee for a particular position, and then create an ideal persona in mind. Consider visiting trusted and reputed conferences, meetings, seminars, and other events where people could be looking for jobs. Make a comprehensive list of interview questions to gauge a candidate on several critical aspects related to your work.

Underestimating Product Validation

This is another one of the top reasons why most startups fail, as they take product validation much lightly. Product validation is evaluating the value of a product or service to identify what level of satisfaction it can bring to end users and stakeholders. Launching the product into the market and constantly revising it will waste time, effort, and money. This is also a major reason most investors often back out from startups.

You must conduct a comprehensive survey (both online and in-person) and have at least 50 conversations with customers (who don’t know each other) to get genuine feedback for your product. To ensure optimum results from this, you must know your customers before building the product. Form an internal team and create a business model hypothesis including the following points:

  • Building buyer’s persona
  • What critical problems do they face?
  • How does your product/service solve them (or up to which extent)
  • Define your product’s value proposition (in comparison with competitors)
  • Test your product’s feasibility (through surveys)
  • Summarize the result & user feedback
  • Create an MVP and test it constantly

Burnout or Dwindling Passion

So, you fell in love with an amazing idea and decided to implement it in the market, and you start losing interest or vigor gradually. Yes, this is the problem with most startups, as owners often lose the passion for driving their startups ahead. There may be plenty of reasons behind this that eventually urge them to move on to a different product idea. Tenacity and consistency are the two most required traits for an entrepreneur to succeed, and if you lose these at any point in time, it will have a direct impact on your startup’s performance.

Here’s a golden rule to avoid burnout or losing interest in your business is; “Change is the only constant thing in this world.” No matter how debilitating the situation is, it will certainly change and offer you opportunities to recover. You must be patient enough to identify the right time and bounce back.

Not Having a Robust Business Plan

You might think no startup would ever enter a market without any business plan; everyone has it, so what’s new in this? Mere having a business plan is not enough; it must be good enough to cover all possible risks associated with your startup and the market that you deal in. Most startups prepare a vague business plan, miscalculate costs, or underestimate facts when conducting research on the market.

Here are some key elements you must include in your business plan:

A detailed Executive Summary: This will also be your mission statement, including who, what, where, when, and why. Think of why you started a business, who will be solely in charge of everything, where you would like to see your startup in the coming time, and most importantly, how you will reach there. Conduct a SWOT analysis considering the type of market, management and personnel, product, marketing, and financial plan. 

Read also: How to Ensure Optimum Performance for Your Startup Website?

Wavering Market Conditions (Risk Management)

We are living in a digital age where evolving technologies and some other factors highly influence consumer tastes and preferences. This also leads to frequent changes in the market. You may have prepared a detailed report on the type of market your startup operates in, but now, the situation is completely different. The pandemic is a recent example that compelled worldwide startups to shut down.

No matter how difficult it may be to adapt to the changes but ignoring them can prove to be fatal for your startup. You must develop a mechanism for this to ensure effective communication, a reward system that appreciates proactiveness, and a level of accountability for outcomes. Use your time and team astutely and figure out which factors can be controlled. Moreover, your team must be well aware of what is going on inside your mind to let them feel that they are working to drive changes rather than merely implementing a strategy.

Lack of Leadership Skills

The foremost trait of an entrepreneur is to be flexible and keep adapting to the changes sticking to your core competencies. Keep enhancing your leadership skills by focusing on communication, delegating authority, and channeling the team’s energies toward a specific goal. Be intuitive and develop foresight to form foolproof strategies to sustain business expansion. Sharpen your strategic vision to elaborate the learning curve and value ideas and suggestions from employees. Be a good observer and spare time for developing self-awareness to harness your fullest capabilities.

Endnote

Set realistic goals, outline your priorities, and develop a transparent personality to admit mistakes and learn from them. Being a successful entrepreneur requires diligence, followed by optimism. These critical tips will help you to evaluate your current approach toward your startup and identify where you need to improvise.

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