We know Startups themselves are risky because the majority of startups eventually fail. In the startup world, a failure is considered a learning opportunity, at the least; a feather in the cap of the Founder, at best. There’s some reason
- Lack of focus
- Lack of motivation, commitment, and passion
- Too much pride, resulting in an unwillingness to see or listen
- Taking advice from the wrong people
- Lacking good mentorship
- Lack of general and domain-specific business knowledge: finance, operations, and marketing
- Raising too much money too soon
The other reasons of Most startups that fail, because the founders lack the self-awareness to do the following:
Fail to use their Network:
As an entrepreneur, you already know where your bread is buttered. It’s the customer, the follower, and the community. Without these people, your business cannot thrive, much less survive, in the online jungle of success.
We often hear about startup entrepreneurs lamenting their lack of network or investor connections so we were surprised to see that one of the reasons for failure was entrepreneurs who said they did not properly utilize their own network.
2. No investor/funding:
startups fail is because they ran out of cash. A key job of the CEO is to understand how much cash is left and whether that will carry the company to a milestone that can lead to a successful financing, or to cash flow positive.
A number of startup founders explicitly cited a lack of investor interest either at the seed follow-on stage (the Series A Crunch) or at all. but if you are looking for zero investment business there’re some options provided by Amazon:
If you have enjoyed aeromodelling as a hobby while growing up, you can take up your passion as a unique business where you can sell miniature Balsa wood models of various world-famous aircraft. Just create a catalog of the models you would like to create and put them up for sale online.
If your passion is designing dresses, you can easily look at it as a business proposition. A short-term course in Fashion designing for various segments would definitely help in your business. An understanding of the fashion environment, and the ability to track evolving trends, cultural dynamics and innovations of Indian and International Fashion Industry will be of great help in running your business.
If you love to paint, this is the ideal business for you. Create paintings of different genres and styles and build up an inventory of paintings made on different materials like paper and canvas before you start selling. Create an online catalog of samples of different types of painting and also offer custom portrait painting based on pictures given by customers. Good quality paintings are in great demand by corporates and individuals for decorating offices and homes; you can scale up by engaging artists when your business gets going.
Condiments and Pickles:
If you are a culinary artist and love to experiment with different tastes and flavors, you can think of starting a business of sauces, ketchup, pickles and other seasonings. Homemade condiments and pickles are in great demand by people who want to savor different flavors from different regions of the country along with their daily food. Starting this sort of business just means buying some extra raw material along with your daily groceries, but scaling up would need some investments.
Handicrafts are any of a wide variety of work where useful and decorative objects are made completely by hand or by using only simple tools. If you are of a creative bent of mind and are familiar with creating handcrafted decorative items, you can turn your interests into business with nominal expenses. All you need is the skill and patience. You can employ skilled people once your business picks up.
3. Product Problem:
Another reason that companies fail is that they fail to develop a product that meets the market need. This can either be due to simple execution. Or it can be a far more strategic problem, which is a failure to achieve Product/Market fit.
Most of the time the first product that a startup brings to market won’t meet the market need. In the best cases, it will take a few revisions to get the product/market fit right.
4. Poor Management:
An incredibly common problem that causes startups to fail is a weak management team. A good management team will be smart enough to avoid Reasons 2, 4, and 5. Weak management teams make mistakes in multiple areas:
- They are often weak on strategy, building a product that no-one wants to buy as they failed to do enough work to validate the ideas before and during development. This can carry through to poorly thought through go-to-market strategies.
- They are usually poor at execution, which leads to issues with the product not getting built correctly or on time, and the go-to-market execution will be poorly implemented.
5. Pricing and cost issues
Profitability is a simple equation of your costs against your pricing. If you set the prices too high, you won’t be able to compete, but if you set them too low, or your costs are too high, you won’t be profitable, like the 18 percent of companies that mentioned it.
6. Loss of focus:
Strong starts and passionate leaders aren’t always sustainable for the long term. When you lose your focus halfway through a development cycle, your team can crumble; 13 percent of companies cited a lack of focus.
7. Legal hurdles:
Whether it was getting sued, navigating legal disputes or trying to establish a legal operation, 8 percent of startups succumbed to challenging legal hurdles.
8. Lack of Business Model:
Unfortunately, 17 percent of startups failed because they didn’t learn this lesson soon enough.
“Create a business plan first so that you can stay focused and remain true to your long-term goals,” Deborah Sweeney, CEO of MyCorporation.com, tells Startups.co. “Business plans are typically 30 to 40 pages long, requiring time to draft up and objectively view the feasibility of your business. They cover everything from what your business does/offers to a (projected) timeline for your goals along with an analysis on your target audience and examination of your cash flow. Once you have the plan in place, you can really get the ball rolling on the business.”
9. Pivot gone South (10%):
Pivoting is another natural part of the startup lifespan: You launch a product, do some user testing, find out it’s not the right product/market fit, and you pivot to something else. In some cases, that pivot is what saves the company. But for others, the pivot takes Founders in the direction of one of those other reasons why startups fail listed above.
What frequently goes wrong, and leads to a company running out of cash, and unable to raise more, is that management failed to achieve the next milestone before cash ran out. Many times it is still possible to raise cash, but the valuation will be significantly lower.