Why Start-Ups Fail

Start-ups have been the talk of the business world for years, but where there are successful start-ups there are also countless failures.

If you are planning to become a start-up or already in the process of one, read these most common reasons why Start-ups fail.

#1 Don’t need a Market!

One of the major reason why start-ups up fail is because the product or service they are offering is not in demand or the demand is very little. The simple reason being that the proposition isn’t a compelling enough value for a buyer to invest in.

According to Treehouse logic, most start-ups fail when they are not solving a ‘large enough problem’ that ‘could universally serve with a scalable solution’. No matter how great your technology, data, reputation, expertise, etc. are, if these are not going to solve a pain point in a scalable way, then unfortunately you’re on your way to decline.

#2 Uh oh! Where’d my cash go?

Ran out of Cash.

Another understandable reason for start-up failure is running out of cash and not being able to have continuous funds. The reason for this is being that they lack the skills needed to effectively manage expenses. A key role when managing cash, especially for a start-up, is to determine how much cash they have, how much is left over and determine how the company can achieve a successful milestone that can lead to increased funding.

#3 My competitor has got nothing on me

Outcompeted.

Not getting distracted by the competition doesn’t mean that they should be ignored. This is where start-ups go wrong; they believe that they are the only one with this amazing idea and they go into the market without suitable competitor research. Once the idea that they have gets positive market validation, there may be entrants in a space.

Obsessing over competition is not healthy and ignoring competition is a recipe for failure.

Think about what your USP (Unique selling point) is that something different that you’re doing compared to everyone else.

#4 How much should I sell this for

Price/Cost Issues.

When it comes to start-up, pricing/costs can be quite difficult. It’s hard to determine the right price when selling a product. The pricing of a product/service shouldn’t be too high that it’s difficult to makes sales from it, and it shouldn’t be too low that you’re barely making a profit.

It also could be that the development of a product is very great but costly, leading to underperformance in sales and revenue

#5 My product is good “enough”
Poor product/service.

Another reason start-ups fail can simply be due to poor product execution or failure to achieve product/market fit. In most cases, the first product a start-up brings into the market won’t meet the market need, and that it will require a few revisions to get the product/market fit right.

In the cases that leads to start-up failure, the product is completely off base and re-work is needed. This then indicates that poor research ideas were carried out before, and during development of the product.

#6 Who needs a proper Business Model?
Business Model Failure.

So, an amazing idea has come to your mind, you think you already have the resources that you need, but where’s your business strategy?

One of the most common causes of failure is being overly optimistic about how easy it will be to set everything up, from creating a cool product to acquiring customers.
Perhaps with the first few customers, you may be successful, but as time goes by it becomes increasingly difficult and expensive to gain more customers. In most cases, this results in the cost being higher than the lifetime value of a customer.

#7 My product can advertise itself
Poor marketing.

Today, marketing has significantly developed; everyone refers to social media or digital marketing in comparison to traditional offline marketing. You’ve got to market using the right channel to be able to reach your market.

Knowing your target audience and attracting their attention and converting them into a customer is a vital skill for success. Not following latest marketing trends or inability to market to the right audience causes failure rapidly.

How is your target market supposed to know you are selling this solution to them if they don’t even know about it? Your product isn’t going to advertise itself.

#8 My customers don’t know what’s best.
Ignore customers.

So, it may not seem logical but start-ups go wrong when they don’t talk to their customers first and then go to develop the product according to their market need. When you don’t measure, trust, validate, track and optimise the data from customers, it becomes difficult to create a viable high in demand product. It’s important to validate your market to an extent that you can build a good product.

#9 The time is now! Isn’t it?
Product Mis-timed.

Doing anything at the right time always leads to success. When releasing your product, it’s got to be a time where the demand rates are high and that’s your window of opportunity. Releasing your product too early or too late can be equally detrimental.

Releasing your product too early can result to it not being good enough or something is missing from it, and releasing it too late means you missed your opportunity and the demand has passed or died out.

#10 What was I doing again?
Lose Focus.

Losing focus is a partial contributor to start-up failure. This could be with personal issues, distracting projects, changing visions and ideas, or just general loss of motivation. This results to losing focus on the purpose and idea of the proposal.

#11 Discord with Investors/Co-founders

Disharmony with a co-founder or investor was a fatal issue for failure. Ignoring investor demands or yielding them can harm the company. Unresolved tension or conflict can lead to slower decision making, frustration, shifted priorities and reduced staff commitment and performance.

#12 Plan A. Onto Plan B!
Pivot gone bad.

‘Pivoting’ is an accustomed word in the start-up world. It simply means when plan A is no longer working out for the best, you move to plan B.- This is a practical change to the business model.

Pivots can go extremely well, or it can be a completely wrong path to take. If Pivots go wrong, it’s because the company failed to take the pivot as an opportunity and they just pivoted for desperation. The pivot should be a calculated issue, where changes are made, hypothesis are tested, and results are measured; or you can’t gain anything from it.

#13 Passion, where?

Start a company because you have passion, a high interest in what you have to offer, not because your motivation is to make money.

I say this because, to be successful, you will need to invest A LOT of your time every week with little pay. It is impossible to dedicate your time and work that hard and be effective unless you believe that it’s your life’s mission to provide your products to potential customers in need.

Direct your start-up to be solution to problem that you are so concerned about. If you start a company because of a problem you and many others have, you’re off to a great start.

#14 This location is right for me
Bad location

So here are a couple reasons why location contributed to failure…

There has to be compatibility between your start-up idea and location. A good location would an environment surrounded by your target market, accessibility, people you want to meet, supporting industries etc. These are some factors that start-ups fail to consider.

Also, if your team works remotely, make sure to find effective communication methods and great planning.

#15 No one’s interested…
No financing/investor interest

These closely ties in with running out of cash. Lack of financing and investor interest can mean that your idea has very little potential or was not presented in a way to capture interest.

#16 Is this legal?
Legal challenges

In some cases, a start-up idea can seem so simple but can have so many legal complexities that can lead to a start-up shut down. Legal challenges could simply be not choosing the right entity, not making things legally clear with co-founders/investors.

Whatever business it is that you start, there will always be legal requirements to meet; therefore, to avoid any challenges, its best to know what they are before moving on to launching the product.

#17 My team sucks
Poor team

What makes a successful business is the different skills and competences that a team can deliver. If you hire a team that lacks expertise, motivation and common vision leads, then where exactly are you headed?

To the pit of doom, that’s where.

#18 I don’t need any help, I’m more than capable!

Start-ups often fail to utilize their network properly, which is a big mistake. It is important to use the connection of your investors as well as your own advisors because that’s what they’re there for; to help! The mistake most start-ups make is that they try to do everything by themselves thinking they’re more than capable, but in most cases, this is a mistake.

#19 Work. Work. Work. Life? Work.

It is well recognised that an imbalance of work and life leads to a stressful environment which leads to decreased happiness and bad decisions. Most start-ups fail here as they tend to operate in a continuous crunch mode which imbalances their out of work life. This imbalance decreases focus and can lead to a quick ‘burn-out’.

Of course, in the beginning, Work life balance is not something start-ups often get and that’s why burn-out risk is high.

Cut losses when necessary and draw attention to dead-ends. Have a solid diverse, driven team to share responsibilities with.

#20 Pivot failure

Taking your time to pivot from a bad product, decision or hire is one of the mistakes contributed o failure. Dwelling too long to a bad idea can gradually reduce resources, money and leave employees demotivated.

Avoid these common failure tips and you’ll get further than you thought you would.
Do what’s right and not what you think is easy!

 

Lucidica is the IT support team for London businesses.