Article

Alika Cooper
Alika Cooper 21 September 2018

Top Reasons for Startup Failure

According to Harvard Business School study, around 75% of startups fail in the few years. The reasons behind failure are countless as every business is unique and faces a new set of challenges. However, failure is not the opposite of success; it is a part of success.

Over the years, startups have really dig diamonds through their smart investments. Have you heard of Accel Partners- an American venture company that helps startups in their early growth? They actually invested $14.8 million in the website called “facebook.com,” and you’ll be surprised to know the profit they earned- it was $5.6 billion. Wow! The amount is 378 times more than the investment amount. What an amazing decision made by Accel Partners!

However, not every startup is blessed with such profits as there are around 70% startups that fail within the 20 months of their business- a report by CB Insights.

Moreover, this ratio of failure is becoming worse day-by-day. What is the reason behind failure? As every entrepreneur starts a business with great enthusiasm and put in their 200% efforts.

Let’s look into the top reasons for startup failure:

•    Launching any product without market research-

Market research plays a critical role when it comes to introducing a new product in the active market. You might release a product that has better competition out, or people don’t need it, or people will take time to accept the product. So when thinking about starting your business, talk to your friends or people about your idea and see what response you get as around 42% of startups are out of business due to poor market knowledge.

You know even the top brand Colgate came up with an idea of selling frozen entrees in 1982. However, consumers didn’t responded as positively as they are indulged with this brand for oral hygiene and its frozen foods didn’t match up with their oral products. This is one of the biggest mistakes by Colgate and why it happened? Poor market research!  Keep in mind the following crucial factors before your product launch:

  • Do proper market research and analysis
  • Always do test marketing among your target audience
  • Take down the feedback of customers to make the changes
  • Offer best deals and offers for customers initially to win the trust

 

•    Running out of cash-

Another major issue among startups! This happens when startups don’t get proper funding for their business. However, self-investment at the initial stage is done, but for growing your business, you need financing. Many enterprises take loans from the bank and fail to pay them on time and become bankrupt. The ratio is quite frightening for startups that run out of cash, i.e., 29%. Thus, to gain proper knowledge of funding, it is essential that you concern any accountant, but startups usually avoid this step for saving money. You might have heard of Eastman Kodak- a well-known brand for its camera and film. And even I used to have that camera in my childhood. It was so exciting! However, the company ran into financial difficulties and become bankrupt in 2012.

So make sure to go with innovation technology and keep your books updated always. In case, if you don’t have time or resources you can opt for accounting services.

•    Not having the right team at the place-

Being a startup owner, your employees are your assets as at the initial stage you both are in the same game. You are starting a business to prove yourself and chase your dreams, whereas the employee is working to prove himself, enhance his abilities and earn well. So always choose the team that has the will to do something out of the box as their creativity at some point will help you in any way. And you know around 23% of startups fail because of the wrong team who is just working for the sake of working. Blackberry- a forever brand for every individual earlier! No one could ever thought of having any other mobile. But this brand failed due to poor leadership skills as they often hire people who are ready to work on tenure and neglect examining their skills and potential.  Follow these steps while hiring employees for your firm:

  • Hire employees who are in need of the job
  • An employee with a shared vision can change the game
  • Hire domain expertise who can do wonders for your business
  • Try before you buy

•    Getting defeated-

If you have a healthy competition for your product in the market, irrespective of whether it is from well-established companies or smaller companies that are offering better discounts than you, it is quite obvious that you might lose out to competitors. According to researchers, around 19% of startups fail because of being defeated by the competitors in the market. Coke and Pepsi are one of the famous rivals of all time. They always try to come up with unique advertisement to connect with consumers emotionally. However, coke is more into such advertisements.

Thus, try to have a unique approach that will impress customers because whenever you come out with the same product, customers will always look for “unique aspects” that will enforce them to switch to your product.

•    Poor pricing techniques-

Being a startup means you are new to the business and pricing your product higher so that you could easy profits is one of the biggest mistakes. But that doesn’t mean you will price your product lower than how much it actually cost you. More than 18% of startups face pricing issues that lead to business insolvency as people won’t buy it. You know Bill Gates loved Ford Edsel car. And the brand Ford invested $400 million into this car and launched in 1957. But, Americans were seeking some economical and smaller car. And according to researchers, this car was one of the highest-end Ford cars. 

So to figure out the right price for your business, conduct a survey or opt for test marketing in your area. Price your product and sell out them and just see the response of people. What recommendations they have for you regarding pricing this technique will make a big difference. Moreover, you can also consider the following steps:

  • Calculate the final cost of the product including manufacturing, shipping, etc.
  • Price your product and check whether you would pay this much amount being a consumer
  • If you, yourself are not satisfied then change your strategy

•    Lacks marketing approach-

Marketing is of great importance in the business world, especially when you are a startup. At the initial stage, startups often neglect the marketing part as they are very much confident about their product and later they regret the factor. 14% of startups fail because of this late regrets, which is of no use. You know Apple introduced iPods in 2001 and gained huge popularity. And after 5 years, in 2006, Microsoft introduced Zune to beat the Apple market. Unfortunately, Zune failed as Microsoft was not able to beat the aggressive marketing techniques of iPods so they end up offering music streaming service.

Hence, creating your brand awareness in the market as there are innumerable options available in the market and attracting consumers towards your brand is significant. Implement some effective marketing strategies that are cost-effective but will let your consumer know what you are; what are you selling, etc, etc. You adopt some of the inexpensive marketing methods that include:

  • Understand online world like SEO, creating blogs, etc.
  • Work on social media platforms to build your network
  • Consistently offer your customers better deals and offers
  • Ensure your existing customers are happy and in touch with you
  • Ask for referrals

Bottom Line

Startup entrepreneur should be sharp and smart enough to make the right move if they don’t want to be a part of that 70%. Thus, the factors mentioned above can help you grow in this ready market if you embrace them. However, it’s not a one month game. You need to adhere to these strategies to feel the difference!

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