When you start a business or startup, it’s easy to forget just how tough it can be. Data reveals that 8 out of every 10 new businesses can fail in their very first 18 months. When the odds are so stacked against you, it’s helpful to know exactly why new ventures fail.
Here are the top 10 reasons why startups fail.
Not Enough Cash:
You shouldn’t rely on getting funding as part of your plan to make it big. You need to have enough cash to get through the startup phase and sometimes, you have to bootstrap far longer than you first anticipated. Remember, if you have no war chest, there’s no war to fight in the first place.
Inability to Adapt:
The main advantage startups have over established companies is that they’re nimble on their feet. They can quickly adapt to market trends, change directions and better fulfill the needs of their customers much faster. If you’re entrenched in your way of thinking and don’t pay heed to what your data is telling you, you’re in for a bad time.
Flawed Business Plan:
The importance of a sound business plan and strategy is something we’ve talked about before. Whether it’s budgeting or deciding if your business is viable at all, you shouldn’t be afraid of asking the tough questions like ‘Are my projections realistic?’, ‘Is my value proposition unique?’ and ‘Will my product ship on time?’ among others.
You might have the best product or service in the world, but if you can’t market it to your consumer base properly, then it’s just you and a fast ticket to obscurity. Find business leaders in your niche, connect with the amazing accelerators and incubators in the country, find other like-minded entrepreneurs and do your best to get the word out there.
Failure to Monetize:
Getting a userbase and then thinking about how to monetize it doesn’t work. Just ask Twitter for the veracity of that statement. The fact is, you need to have a solid plan on how you are going to make money from your startup. Decide whether you have a hobby, an idea or a proper business. Then think about your target audience whether it’s customers, vendors or the government. And finally, will they pay for it?
This is something that we’re starting to see in Pakistan. There are thousands of ecommerce startups in Pakistan offering pretty much the same value proposition. Sure, some might capture a niche better than others but it’s a tough environment.
You need to do proper market research and see if your service/product will get enough market share fast enough to actually be worth anything. If you’re the 10th in the market, you might find that the leaders in the field can crush you simply by copying your unique elements and marketing to their superior customer base.
Too Much Growth:
It might be counter-intuitive but too much growth can sometimes be a bad thing. If you don’t have the market or the ability to scale well, it’s going to result in layoffs and that doesn’t look good for anybody. A slow, cautious approach might be better unless of course you’re Uber or Rocket Internet (though they might be considered a cautionary tale after the Foodpanda India and Tripda fiascos). The key is to know when you are at risk of burning out.
Just because someone founded a startup does not mean they are going to be a good leader. The lack of a clear and unified vision has claimed countless promising startups and introspection is needed on behalf of the starting teams to determine what kind of leadership style they should employ to ride out the tough times. Open communication and an ability to take constructive criticism are essential for self styled CEOs to make their ventures successful.
Lack of Human Resources:
The simple fact is that there are better people than you out there at some aspects of your business. Know your weaknesses, hire these people and trust them to make the right decisions. Bill Gates wasn’t the smartest person in the world but he had the ability to make it so that the smartest people worked for him. Be like Bill.
You need to be prepared well but if you can never ship your product or service, you don’t really have a startup or a business. There is the example of countless Kickstarters that fail after promising big things and failing, drawing the ire of investors and their customers. Don’t promise too much and plan to the best of your abilities. It’s easy to get tunnel vision when you have a great idea but you should never lose focus of the bigger picture i.e. getting your product or service in the hands of the customers.
To avoid these pitfalls you need to be honest with yourself, do your research, determine if your idea is valid, ensure you have the resources to build it and get it to the market. Not everyone is lucky enough to strike gold on their first try and persistence in the face of adversity is one of the most important abilities any entrepreneur needs to possess.