Top 6 Reasons Why Startups Fail and How You Can Avoid Them

Startups are popping out left and right. Everyone wants to become the next unicorn or the next Facebook. We’re living in a time where profitable ideas overflow and people are becoming more courageous to enter the entrepreneurial world. But the reality is that the journey to becoming a successful startup is challenging and bleak. The harsh truth is that 9 out of 10 startups don’t make it. Are you wondering how to become part of the 10% who succeed? In this article, we share the top 6 reasons why startups fail and how you can avoid them.

Why Do Startup Businesses Fail

No to Low Market Need

This is the top reason why startups fail. Around 40% of startups end up realizing that nobody wants their product. It’s hard doing business when you don’t have a market big enough to cater to. You need a sizable number of customers who are willing to pay for what you have to offer. Got a bright new idea and you think that’s enough? WRONG. 

Not all bright ideas will make money and while successfully launching a product depends on many factors, a big chunk of it is the product itself. Just because you think your idea is great doesn’t mean everyone thinks it’s great too. The first thing to do to avoid this pitfall is to accept that you’re not your target market. 

You must be answering a legitimate market need. Assess what problem your product or service is trying to solve. Then evaluate if your target market is big enough to make a business profitable. Test your idea by prototyping and allow a select number of people who represent your target market to try your product. This will help you get feedback faster and help you refine your product offering into something that your customers want. Not only will this help you create a great product. It will also increase your chances of success. 

The future outlook for entrepreneurs looks bright as long as they have a good idea of who they’re selling to. We recommend looking to Millennials and women when addressing your product’s market need, as they’re the two demographics with the highest earning potential.

Insufficient Funding

Coming in second place at why startups fail is the lack of capital. There are many reasons for startups running out of funds. This could be because of:

• Wrong product pricing
• Overestimating sales projections
• Lack of proper cash flow statement and expenditure monitoring and control
• Starting with too little money

Proper financial planning should be in place to avoid cash flow problems. And while you can get investors, you must not rest on your laurels and think money will always be abundant. Financial marketing agencies can help maintain a bootstrapped mindset and ensure efficient use of funds. Focus on growing your customer base and revenue streams through strategies like PPC advertising service. It will be easier to secure funding when investors see your business is profitable in the first place. You need a CFO to take charge of ensuring the company’s finances are in order.

Not the Right Team

One of the reasons why startups fail is because of the people in it. Why is that? It’s because they are not right for the job.

When startup founders start hiring, they would often go for the smartest applicants. There would also be instances where founders hire someone to fill in a role just because they’re friends with the person. There are times when founders try to do everything thinking they’re the best for the job. Having the right team with the right skill sets is important for your startup’s success. 

Go for a team with diverse expertise and skill sets. Have all the bases filled. Who’s in charge of business strategy? How about product development and technology, finance, marketing, and operations? Each person in your startup brings something to the table. Hiring right from the get-go is important. To facilitate your hiring process and make things manageable and trackable, you can build an Agile recruitment process using Kanban.

It’s equally important to set the right culture and mindset in your startup. There should be openness and trust. Having healthy checks and balances among team members will help ensure you’re all paddling in the same direction.

Tight Competition

Competition runs high in the startup scene. One of the more common reasons why startups fail is because they get outcompeted. Some startups join an overcrowded market while some don’t track their competitors at all. If you think you can “do you” and let your startup survive without proper market analysis, you better think again. 

Study your market to a tee and see what competitors are doing and what they’re not doing. If you’re entering an overcrowded market, you need a solid value proposition that will set you apart from the competition. Explore Lean and Agile methods so you can deliver your products faster. The only way to be ahead of the competition is to do it better and faster.

Pricing Issues

Another top reason why startups fail is inappropriate pricing. It could be because the price is too low that it causes the business to operate at a loss. It could also be because the price is so high that no one wants to buy it. Pricing is not an exact science. But you can be methodical about it. Research is crucial when it comes to pricing. See what your competitors are charging. Find out how much your target market is willing to pay. Don’t forget to factor in your costs when planning your price structure. You can test your prices to see how elastic the market is.

Poor Marketing and Sales Execution

The lack of a marketing and sales strategy is a common reason why startups fail. Founders think that business is only about product development. Customers won’t come to you unless they know about your product. So if you’re not getting the word out there, you won’t be getting any conversions and revenue. You need a proper marketing strategy in place and a plan to execute it.

Marketing and sales need to work hand-in-hand. Getting the word out there isn’t enough. You need to reel your customers in to close the deal. There are various marketing and sales strategies that you can explore for this. For example, brand deals for influencers can be a great way to generate buzz for a new product or service. You can plan your marketing and sales activities using Kanban for easier collaboration among your team members. It also makes planning more effective. If marketing and sales aren’t up your alley, then hire an expert or outsource your marketing and sales operations to an agency.

Utilizing email marketing is another option. For instance, if you run an e-commerce business, getting to know your potential customers better is a cornerstone of effective ecommerce email marketing. Tailoring your messages to individual customer preferences and behaviors will not only enhance customer satisfaction but will also substantially increase sales, as customers are more inclined to respond positively to offers aligned with their interests and needs.

Avoid Startup Failure and Aim for Success

The road to startup success is challenging. It can be an uphill battle but you can gear up and prepare for the fight ahead. Proper business planning, market research, and the right team are some of the important components of your success. Knowing the top reasons why startups fail will help you future proof your startup and work towards its full potential.