Top Reasons Why Startups Fail

Today we thought we’d look at the negative side of the spectrum that is startups. Startups are the most popular form of business these days and everyone is starting one, but we’re here to give you a reality check. Just because you have a good idea doesn’t mean it will translate to a rapidly scaling model of business. Let’s take a look at the critical issues that cause a startup to fail.

Product market fit

When conceiving an idea for your startup, it is critical to analyze the market in detail, one has to be sure that the market wants and is ready for your product. One school of thought popularized by Apple is that potential customers don’t know what they want until you show them, but this model is not practical for everyone. Until you’re sure this is the right approach and right market, you shouldn’t kick your startup into production mode.

Lack of funds and burning of money

Another critical problem with startups is a lack of proper budget planning. Startups have two sources of income: investments and revenue. Without proper planning, one would burn up all the money from the revenue earned, and failure to perform would cause investors to withdraw funding from one’s project. It is critical that a startup has a proper plan in place before taking the leap into the business world.

Lack of the ‘right’ team

One of the biggest problems faced by startups is the notion that they need to find the right team before kicking into the production gear. Instead, startups should quit waiting and hire a serviceable team that they can mold into team players. Primary to achieving this goal is employee retention, so one has to give employees a reason to stick around. After all happy employees are productive employees.

Poor business model

If one does not start one’s business with the right model there can be no scalability and consequently no production. An important metric here is that of the Cost of Acquiring a Customer (CAC) and Lifetime Value of a Customer (LVC). One’s Cost of Acquiring a Customer should be less than the Lifetime Value of Customer or one’s business model will not be profitable and will consequently cause failure of the startup.

Arrogance

Entrepreneurs tend to be overconfident and that’s a good thing or no one will believe in your product. However, when it comes to arrogance, the problem is that young entrepreneurs can have a tendency to have their head in the clouds and not think rationally. They don’t do proper research for their market and have blind faith in their product; this can only take you so far as some degree of foresight is required.

These are the primary reason startups fail, however, there is a multitude of other reasons as well, but getting into them won’t be productive, so we’ll stick to our list. If you want more insights on the matter, startup founders write a post mortem analysis of their startup when it fails, a kind of black box if you will, which could be worth checking out. So get out there and analyze!

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