The Real Reasons Why Startups Fail

Here's a look at seven factors that contribute to startup failure and what we can learn from them.


In theory it is really easy to launch a startup, but in practice, most of them fail. Many startups fail horribly and in a really short period of time.

In order to be successful in business, every startup should have solid research that backs up absolutely everything we do. A large part of the necessary research, when preparing to launch a startup, should be focused on why such a business fails.

Here’s a look at seven factors that contribute to startup failure and what we can learn from them.

 

  1. Wrong Market Positioning

    You might believe you have a very good business idea, but you cannot be sure without market research. An investor will never offer money for a startup that is the tenth one launched in a micro-niche or in a city. Generally, investments go towards first-mover companies that offer a service or a specific product. It is very important for startups to stand out and clearly differentiate products and services from competitors. At the same time, show you will be able to fend off future competition. If your startup is not properly positioned in the market, it is bound to fail. Every startup should learn how to determine business market positioning.

  2. Lack Of Market Strategy

    Many entrepreneurs tend to stay focused on their actual product or service. This can easily lead towards not thinking about the actual market strategy. This is problematic for two reasons: a) for starters, you can end up launching a business without knowing how to promote it effectively; and b) at the same time, it becomes harder to secure venture capital since investors want proof of suitable growth and traction. Investors will only give you money when they are convinced they will make money. So create a successful market strategy before you launch your startup.

  3. Lack Of Focus

    One common mistake entrepreneurs make is focusing on different customer segments instead of just one. For example, if your company offers cloud hosting services the competition in this market is huge and often owned by more well-established companies. So, in the beginning you should focus on one part of the market; such as offering specialized hosting services for restaurants. As your business grows, you can tackle other customer segments. When you want to service everyone from the start the monetary restraints make it difficult to make an impact or hire specialized staff necessary to adequately market your offering.

  4. Lack Of Flexibility

    In business, unexpected things happen. This is why startups should analyze everything. When you see something does not work properly, make changes. Cutting losses is especially important for a company that has recently launched, especially when available capital is limited. Successful entrepreneurs are not afraid of making changes and will keep making them until the company is profitable. In most situations the necessary shift is linked with the market where you sell products or services. For instance, if you offer IT management services and you cannot make profit in healthcare, you might want to focus efforts within the food packaging industry. Flexibility is crucial for the success of any small business.

  5. Lack Of Passion

    There are situations where entrepreneurs do not actually endorse the products and services they are attempting to sell. It is very important to display passion and belief that what you do will be successful and profitable. This type of passion builds trust and credibility needed to bring in a qualified management team and interested investors.

  6. Lack Of Industry Experience

    Every startup should have an experienced team built around it that knows how to think, operate and act as a startup. Even if your team is great, if there is no industry specific experience, you are bound to fail. For instance, if you want to promote your business to restaurants and know nothing about how restaurants operate, you need the help of an advisor or a mentor. Should you decide to launch solo, seriously consider an internship or a position in the industry you want to eventually tackle with your startup. The experience you gain can be fundamental to your future success.

  7. Not Enough Capital

    Every startup should have enough capital to build the product or service and obtain concept proof. Also, the money you raise should be enough to keep the startup running for approximately one year. In the event you plan to bootstrap and fund the business as you go, failure rates increase because when an unexpected problem appears, you may lack the funds to course correct.  As a simple rule of thumb, think about how much capital is necessary and try to obtain double the amount.

 

Simon Brisk is passionate about blogging. He uses SingleHop cloud servers for his own sites. Connect with SingleHop on Twitter.

 

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