10 Reasons behind failure of startups
In the startup sphere failure is considered as a learning opportunity. A quote says “Startup Ideas are effortless but implementation is effortful”. There are various reasons behind failure of startups
Startup organization is one of the prominent forms to make the world a better place. The founders have great idea, they start their company with a lot of passion yet 90% of the companies dies.
So the reality is that more than 2/3rd of startups works go out of business within the first few years. Startups melts down due to over hiring, squeeze on investments, high case run rate and massive decline in consumer demand.
According To SEOJaipurX there are top 10 reasons behind failure of startups-
When you start a business then you need to figure out that market is the biggest platform where you are gonna introduce to your product.
When you start the business you evaluate the market first. Overwhelmingly 40% of startups suffered from lack of market demand that results in prevented them from gaining the sufficient traction.
So just think about your product that this is what customer really need?
Like you are offering shampoo that reduce hair fall people will going to buy it because they really need it.
But if your product is air conditioner and you’re doing it’s marketing in cold places they will surely not going to buy it, this is an example but the most important thing is to analyze the market properly that what it really wants.
When it comes to building a business there is five different types of financial models that need to be understood things like the operating model, financing model.
But again in a day as you build your product you gotta figure out whats the price, how i bring it to market, how do i service the customer.
Something you get poor response in your business. So whatever the product you need to find out what business model applied to that market.
3.Lack of persistence
It was the most commonly mentioned reason for startup failure. According to Jason Cole, CEO of Da primus Consulting “The leadership is powerless to set a plain strategy for the
business and stick with it, occurring in lot of wasted energy and money from continuous changes in direction.”
According to Keith Hopper who is the CEO of Danger Fort labs ” A lack of persistence in working by unavoidable challenges of introducing a new business.” Most of startups failed due to lack of persistence.
This is key even if your plan changes. You have to be passionate about what are you doing. It means moving forward on the way you’ve selected for the life.
4. Team Incompatibility
Team incompatibility is about how members of a team work together and how they face challenges. According to research approx 23% of startups fail due to this.
In this you require a manifold team that includes members with various skill sets.
An ideal team is not just about choosing a group of genius people, it’s all about appreciating each other’s strength and alleviate each other’s weaknesses.
As an inventor you have to keep the right people to build the technology and raise your company.
5. Lack of Investment
This is the major reason behind 29% of startup failure. We know that cash flow stay the business alive no matter how impassioned you are or how amazing your idea is but still you have to pay salary to your employees and submit your bills.
Some businessmen fail to maintain a record of money and that results in shortage of money. The entrepreneurs should be especially aware of KPIs they require to show for next investment.
As a businessman you should have connections with more than one investor to increase probability of funding and make a network soon.
Timing is the one factor controlled if a startup can be successful. It doesn’t about luck. In most of cases with the start of a new service in a startup so there’s a large ecosystem that must be appearing or in place for your business chance to have a bright future.
Here you have to analyze the market that what is the right time to start your business. We can’t predict the accurate time when a market will ignite, we just have an idea within a couple of years.
So it is necessary that we have knowledge about particular ecosystem factors that influence our customers keenness and capability to acquire our solution.
7. Too much competition
Approx 19% startups fail due to too much competition. So if you launch better product than the existing then it’s beneficial for your business. The large companies or startups will automatically get away from your market share.
8. Poor product
This is the main reason that startups fail because they launch the product that doesn’t meet the market needs. So this strategic problem due to which startups fail.
Sometime you just build a product without realizing that it is not user friendly. According to research approx 17% of startups failed due to this.
9. Ignore Customers
For every startup or business first priority should be their customers. If you ignore them or if they are not satisfied with your services, your company will be in loss.
Approx 14% startups are in loss due to this reason. If you don’t know what customer need then why will they going your product, so all you have to pay attention to your customer requirements to grow your business at a better level.
Customer and product are the two major thing on focus you have to focus. If your customers are happy with your services, they will become your permanent customer which is beneficial for you.
10. Pricing issues
18% startups fail due to pricing issues. This is a compromising act among pricing high enough to keep healthy margins and to cover operating cost while requiring to price enough to attract customers.
There are some promising startups that went bust:
It was an online grocery business and considered as one of the biggest failures ever that has been bankrupted in 2001. It comes first in failed startups list.
WebVan was founded in 1966 by Louis borders and was headquartered in California, United states. WebVan’s first day of trading it raised to $15 billion capitalization. And it raised a total $800 million that happened so fast.
It’s dream team was included experienced senior executives in board range of industries with companies like Golden Sachs, Oracle and Border books etc.
Just before 6 months before it closed WebVan posted a gross margin of 27% and it has been voted for the best online grocer in a survey.
Then who could imagine that WebVan would fail?
The reasons behind it’s failure are:
Enormous expansion to many cities without a business model was a main reason for it’s failure.
Didn’t understand the customer:
webvan advertise itself at safeway pricing which attract price sensitive customers. and it’s profitable audience were price insensitive who only consider quality product not price.
Webvan provides them luxury services to them that priced 30-40% higher but they were small in numbers. So a company must be clear what it is providing , a luxury which shouldn’t compete with safeway’s price.
It decided to build it’s own warehouses and infrastructure from scratch. If WebVan used existing infrastructure, it may be successful.
Basically WebVan needed 10 to 12% of total households as repeat customers for its model to be profitable so the obstacle is delivery density.
In 1999 there were two third of the tech savvy households and if all of those households were clustered together, It could have service them with appreciably less capital intensive model.
Unluckily in 1999, the tech savvy households were scattered all over major urban areas that needed enormous operative to give the level of service that Webvan insisted to be provide.
Orkut was founded on Jan 2004 by Orkut Buyukkoketen. It was a social networking site that was operated by Google. It affected the problem with user experience.
The content quality and UI of orkut was not that great that’s why facebook takes that place. In addition, the biggest reason for failure of orkut was it never concerned about user’s privacy.
It never represent itself as an advertiser platform.
Web TV was launched in 18 September, 1996 and it was ahead of it’s time. It was tech’s hottest startup. At that time people didn’t know about the internet and how to use it. WebTV allow them to surf the web.
Reasons behind failure:
It’s features were not updated.
Basically it focus on future product i.e. XBOX.
Web browsing was weak.
It used dial up connection while world moved on wireless network.
Out of competition : TV competitors like dish player, direct TV are the main reason of it’s failure.
Solyndra is the solar panel manufacturer that went bust. Basically it manufactures cylindrical panels of CIGS thin film solar cells. It was founded in 2005 and went bankrupt.
Now the house of representatives will vote on the energy and commerce committee’s no more solyndra act.
So here are some facts why it fails :
1. Team incompatiblity
The experts warned that solyndra was a bad idea from the beginning. One obama administration employee wrote an email that the deal is not ready for prime time.
Another employee warned that it will run out of cash that exactly happened and it was raided by the FBI in September 2011.
2. Financial condition
In 2010 solyndra had never reported any profit and was experiencing negative cash flows.
After that it laid off employees and in 2011 attempted to mislead members by producing a document ” Exceeding Expectations: Solyndra Today” which claimed that it’s financial conditions was improving.
3. Market problems
Solyndra was beaten by market as its high price products. The entire program was of $38.6 billion and it ordained to be lost $535 million given to the company.
4. Out of competition
Due to Chinese companies low cost mechanism Solyndra gets out of competition.
5. Primary data
Primary data can be considered as one of the biggest failure. Even it had Apple co founder Steve Wozniak in it’s management team and investors like Lightspeed Venture partners, Accel partners, Pelion Venture partners and Battery Ventures.
It’s burn rate was out of control and Future 500 companies were not ready to but primary Data’s technology
Shyp was launched to shipping items globally in just two tapes on a smartphone. So the lesson from this is that Don’t hyper focus on vanity metrics. And make update your services before it’s too late.
It received $41 million in it’s first round of funding. Basically it was an innovative photo sharing app which was lauched in May 2011. It comes in top 10 business failures.
Juicero was founded in 2013 well known for their wifi connected juicer. It failed due to unsuccessful nbusiness ideas. So after 16 months it was closed.
Juicero machines were costly even we can squeeze the juicero bags with our hands then we are exapnding too much money on it. This was the funniest failure ever.
The problem with juicero is that it can’t predict market needs. And the second thing is it’s price, no one wants to expand $400 for squeez fruits.
We can do it from our bare hands or traditional juicers.So the thing is there’s no need of this product in the market and that’s why it failed.
9. Abound Solar
Basically it was the manufacturer of cadium telluride thin film photovoltaic modules. Abound solar comes in top list of unsuccessful companies.
It’s investors were DCM Ventures, Technology partners etc and total disclosed funding was $614 million. It was considered as third costliest startup that failed in 2012.
10. ReVision Optics
It launched an implantable corneal device which is used to treat presbyopia. ReVision Optics total disclosed funding is $172 million.
ReVision Optics comes in one of the failed organization. The CEO said that it is very challenging and this business could not grow fast.
The reasons are market problems and negative cash flow.
So here you have seen top 10 reasons behind failure of startups and i think that is major part of failure startup.
So when you will start your own business than consider these major factor of failure. Before start a business you should have a great plan and marketing strategy and also budget and investment.