Startups have become very popular in recent years. Many people decide to give up companies and found their own businesses. Unfortunately 90% of them fail, but 2% succeed, isn’t it tempting? Yes, it is – everybody would like to be Mark Zuckerberg (Facebook) or Michał Sadowski (Brand24). However there is one, or maybe even more traps, you must remember about – if not failure is sure. Below there are 20 reasons why startups fail.
PS. You’ll find an infographic below the article.
1. No market need
To whom the service is aimed? What problem does it solve? What makes the users use it? Startups succeed because they are solving a particular problem users are experiencing. If your product doesn’t solve any problem, it means there is something wrong with it (unless it’s a new product and it defines a new market need). Nevertheless you must know your product in order to sell it.
2. Ignoring customers or users
Many startups don’t test their products with users, don’t ask for feedback or they just don’t know their target audience. Unfortunately disagreements may lead to ignoring a customer and his needs. If you don’t have any knowledge about this, it’s good to create a person who will help you at the very beginning. Of course it’s worth asking your customers for feedback at every stage of your business, no matter what it is – prototyping or a final product. The sooner the mistakes are found, the better.
3. Poor product
If the primary focus of startup founders is not on the product, the end result might be disappointing for the user. Listening to users’ constructive remarks is very important, but more important factor is product usability. Experience of others can be very useful here. The better usability, the more satisfied customers. The more satisfied customers, the more profits for you. It’s worth reminding that this aspect is a never- ending story and even after launching the product it’s important to check how customers use it and make changes at the same time.
4. No business model
A good idea is not enough. Founders should have a monetization strategy from the very beginning. Unfortunately you won’t go far without a business model. One day you may be run out of money and you will have no incomes. And what then? You can test some options at the beginning, but don’t exaggerate. Talk to customers at the prototype stage – ask them what they would be willing to pay for and also find out how much they would pay. The more information you get at an earlier stage, the easier it will be for you to make an optimal business model.
„A business without a path to profit isn’t a business, it’s a hobby …”
5. Launching product at the wrong time
Launching too quickly or too slowly can be equally detrimental to a startup’s success. If you do it too early, you can have problems with implementation. If you lose your enthusiasm and energy at the first stage of implementation, you’ll do your competition a favour. They will take credit for it, unless you create a strong brand with which your customers will identify. On the other hand if you launch the product too late you can also have problems (if your competition is already big, your product will get lost among similar products).
6. Not the right team
Lack of motivation, expertise or common vision can all contribute to a startup’s undoing. Choose experienced people, and learn how to part with unsuitable ones. If you can, employ such people who aren’t afraid of challenges. If you want to develop your startup, you can’t employ only such workers who will have to learn everything. It can affects the whole startup! One of the most difficult things, you’ll have to learn, is dismissing unsuitable people. It’s not easy, but if you want to develop your startup it’s necessary.
7. Poor marketing
Some founders err by thinking a great product will advertise itself. They market it to the wrong audience or via the wrong channels. Of course if the product is unique (in a particular market segment), there is a big chance that you’ll sell it. However if you think about global sales, you won’t have chances without marketing strategy. Marketing should be constant. Look for the best channels, test, analyse and carry out experiments to achieve the best results!
„Doing business without advertising is like winking at a girl in the dark. You know what you are doing but nobody else does.” – Stuart Henderson
8. Get outcompeted
Sometimes even the smallest details can decide that you will lose the fight about customer. Try to do your job, but don’t copy others. If you have to copy your competition’s solutions, do it but better! You can’t forget about your competition, you must know them. Watch what they are changing, and if they start copying you, it means that you’re doing it well.
9. Pricing/cost issues
Some startups develop a great, but costly product, leading to underperformance in sales and revenue. Before launching product do a deep analysis. Estimate the value of your product and analyse price lists of your competition Decide whether you want to distribute your product in a testing model – sometimes it’s not worth it. The length of trial is also quite important. If you give too much or too little time for testing your product, the customer may not make up his mind and just resign from your service. Remember also that putting too many options in your price list isn’t a good solution. Make your price list simple and clear to help customer take a final decision.
10. Losing Focus
Changing visions and ideas can make founders too self-absorbed, causing them to lose focus on the purpose and idea behind the product. When you found startup you’ve got many temptations around you. You’d like to deal with all your ideas at the same time. Unfortunately it’s impossible. When you already launch well prepared product you can start realizing your other ideas, but keep the balance. Keep an eye on your main product, because it will take some time before this product will become “cash cow”.
11. Disharmony on team/investors
Ignoring investors demands or yielding to them too much can hurt a company. The same is true for tension between co-founders. However remember that dissents are necessary. If you work out one vision at the end, despite different approaches, you can feel calm. In other case it can be a beginning of any disagreements, which can be harmful to your startup.
12. Pivot gone bad
If pivoting is not done carefully and based on enough supporting data, it can irreversibly lead the whole company in the wrong direction. Nowadays everything is changing very quickly and in the case of different products it’s impossible to plan a strategy for a longer period of time. Of course prepare time-frame or milestones, but also remember that when a market opportunity will appear, you must be ready for strategy verification or its correction.
13. No financing or investor interest
Lack of financing and investor interest may indicate that an idea has small business potential or that is not presented in a way that captures interest. We can deal with the second problem by improving presentations or thinking how to present the product in a non-standard way. However it can be more difficult to deal with the first matter. We’ll have to verify one more time market need or improve business model. The most important thing here is not to give up – not everything goes down well at once. Third time lucky! (or fortieth ;))
14. Lack of passion
If founders are interested in a product merely for profit and not because they believe in the idea, they can quickly lose traction. There’s nothing worse than the startup founder who isn’t interested in his product. What’s more worse he doesn’t even use it. The most authentic startup founders are those who are absorbed in their products. They can talk about it for hours and customers also see their engagement in the product.
15. Bad location
Being in a place brimming with talent and ideas can help founders see their startup through. The right place will also have the audience most likely to use the startup’s product. As you know many present “giants”were founded in a garage. It makes sense, because huge costs (at the beginning) won’t surely be helpful for your startup. You should also consider your premises location, depending on the product you offer. It’s sometimes better to step out of your comfort zone and use coworking. Thanks to that you’ll get first business contacts and maybe even your first customers.
16. Legal challenges
Unexpected legal issues may arise when a startup starts growing into different fields or markets. Remember about that. You can’t underestimate this area, because this what is legal in one country can be forbidden in another. It’s worth having a trustworthy lawyer or lawyer’s office to consult your doubts.
17. Don’t use network/advisor
If startup founders do not use the connection of their investors, as well as their own, they may not be able to gain sufficient traction. Use your connection as well as the connection of your investors. Getting first customers isn’t easy. You’ll have to renew the connection many times, and to get a particular number of receivers you’ll have to make even several thousands attempts. So you must be creative 😉
„70% of a customer’s decision to buy is based on how they are treated as people and only 30% based on product attributes. ” – John McKean
Startup founders often have poor work-life balance and have to juggle between many tasks, causing them to burn out. The work-life balance is really necessary while running a business. The best solution here is to fix time-frame for work and for personal life. Don’t also forget about sport and oxidation of your body.
19. Run out of cash
Startups can run out of cash not just when they are underfunded, but when they receive too much and spend recklessly. Control and plan your finances from the very beginning. It’s good to verify costs as well as incomes at every stage of your startup. Even if you have a lot of money, think it over before you buy something. Ask yourself a question: „Do I really need it and will I use it?”. You can invest surplus money or assign it for company development.
20. Failure to pivot
Stubbornness and unwillingness to admit a mistake can be quite costly for startups, disappointing employees and customers alike. Everything doesn’t always go well. An important skill is admitting a mistake or defeat. The sooner you admit a mistake, the better for your startup.