Reasons why most startups fail?
According to data presented by the Harvard Business School:
- 25 percent of startups will fail within the first year.
- Of those remaining, 36 percent will fail within the second year.
- Of those remaining, 44 percent will fail within the third year.
In India, Most startups fail in their first 5 years.
Why do most startups fail?
Success & Failure are the two sides of a coin.Well, the best part is, you have the power to flip each side with your positive or negative efforts.Being an ENTREPRENEUR means to look for opportunities and embrace change.CHANGE doesn’t guarantee success and if you want guaranteed success, then this path is not meant for you, you must part your way.
Let’s try to understand this with the help of an example:There is a student named “Dhruv”.He is good at four subjects,but bad at the last one.(it is also of the same importance.)
Some of the the choices he has are:
1.Stop studying that particular subject & fail at the entire course.
2.Invest more time in that subject,try to learn it with different ways,understand its value,take help from other people.
Well,I think he should go for the second option and i know you might also think that.So,the same happens with entrepreneurs.
but,let’s give Dhruv’s story a different result?
Suppose,He studied four subjects but doesn’t even think about the last one the whole year.Now,he wants to complete the whole syllabus in a few days or overnight and achieve great score.What do yo think can he fulfill this?The answer is “NO” for this year,let’s wish him luck (with smart approach & efforts) next time.
So,we have come to a conclusion that there are two types of mistakes.
Type 1:You can learn from them and improve them in a limited time period also.You are still in a good position.
Type 2:You can learn from them but you can not improve them in a short span of time with little or no resource.Hence,you are in a bad situation.This situation is your ultimate failure.
Ofcourse,Failures give us more chances to learn.But,in Type 2 situations we have to learn from the mistakes,which could be easily avoided.The extremely high rate of startup failures makes us analyze the reasons and learn from them to avoid blunders.After knowing about the mistakes,Let’s move towards the reasons for startup failures.
Reasons:Why Most Startups Fail?
1.)Wrong Industry Selection
The first reason,why most startups fail is the WRONG INDUSTRY SELECTION.Ofcourse,you might have read very much about Jeff Bezos and Amazon,as you might like to read about entrepreneurs just beacuse you also want to become.
But still,It is actually a very bad idea to get inspired and going into the same field you are fully unaware of.You don’t know anything about that field and you have lack of skills and experience,you are going to be a part of an ultimate failure.
2.)Faulty Business Model
We think that we have a great business model.We are earning a specific amount on each unit.But what if,
- we forgot to less some expenses while calculating our net profit?
- the price of raw material (material we use to make our product ) fluctuates very much?
In both the cases,we are not able to increase the price to maintain our profitability.
So,No Profits=No Business,as we won’t be able to survive for a long time without profits.
Marketing Myopia means,when an organisation focuses on its needs and ignores customers’ needs.
It could be in any way,some of the examples are given below:
- The product that company is making is of no use any longer,it is outdated.
- The product is not meeting the needs of customers or we can say unable to solve the problems.
Ultimately,the customers will stop buying it & the organisation will be at loss.
4.)Weak Feedback System
“FEEDBACK” plays an important role in the success of a startup.But,most entrepreneurs ignore this in the development stage of their product.
- They don’t maintain healthy relations with their customers.
- They don’t ask them,whether they liked the product or not?
- They don’t ask for the improvements to make the product better.
When they don’t take feedback,they don’t get to know about the changes to make the product better.These become the reasons for the startup-failure.
5.)Lack of Passion
What if,you did not want to be “AN ENTREPRENEUR”?,but you did it,because
- Your father or mother owns business.
- Your best friend is good at it.
You can have some other reasons too.But Remember,if one of these is your reason,the life span of your business is not going to be very big.Say it Sayonara (Goodbye in Japanese Language) ASAP & start doing what makes you happy.
6.)Lack of Focus
- You are having a lot of ideas,but you are not good at implementing them.
- You invent,but you don’t make complete products.
- There are huge gaps in your strategies.
Above are some of the signs that tell about your lack of focus.Due to this lack of focus,
- Products don’t come into reality,they are just ideas.
- If they come once ,they don’t meet the needs of customers and satisfy them for a very long time.
Hence,Failure is not far away.
7.)Don’t know How to Raise-Funds
This reason include two situations:
1.You don’t know how to raise funds:
If you want to become a big organisation,but you don’t know how to pitch an investor (even if your work is superb,no matter),you are doing no good to you.You might take help or do something on your own.
2.You raise funds at an early stage:
Suppose,its been 10 months to your startup & and its in No Profit-No Loss.Instead of capturing market share gain,you start raising you funds.Here,you will loose all your powers.After sometime,this will lead you towards failure.
8.)Don’t know Cash-Burn Rate
Cash-Burn Rate is an amount,which company needs to operate its business in a month before having any profits.
Example:Suppose Mr. X has Rs. 10 Lakh.Cash-Burn Rate is Rs. 1 Lakh.It means he can operate his business for 10 months.To continue his business,he will have to be in a profitable situation before the end of 10 months.
Some entrepreneurs ignore this factor before launching their startup.In the end,they loose this money also.
9.)Wrong Team Selection
Have you ever heard these phrases?
- One & one makes eleven.
- Nobody is perfect.
These phrases play very important part in Team-Selection.I tell you,How?
We all have our own strengths and weaknesses & we are not our perfect.But we can make things or startups perfect by blending those strengths (skills).So,No matter what kind of understanding we share with a person(it’s also important,but) until and unless that person has a skill which we need,we don’t add him or her in our team to avoid startup-failures.
10.)Lack of Skill
Suppose,You want to own a digital marketing,but you know nothing about Digital Marketing.You think,you are a good manager and you will manage the other people.You recruit them and they start working.When they get to know that you know nothing about it,they will take advantage of it.
At last,you won’t feel motivated & committed towards it.You will loose all the spark to take it to an another level.Your Start-up will be an ultimate-failure.
The best thing is having a failed startup doesn’t certify us not to be an entrepreneur again.In fact,failures gives us chances to learn more and definitely improve more.It tells us the true meaning of success,just like the famous Japanese Proverb does “Fall Down 7 Times,Stand Up 8”.Which means “No Matter How Many Obstacles You Come Across,Just Don’t Give up,Learn From Them & Never Repeat Them,Move On”.All The Very Best….
View my other blog post How to become any entrepreneur