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.
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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Few mistakes by failed startups are:
- Poor business model
- Lack of funds
- Developing a product with no specific target audience
- Over-promising and under-delivering
- Trying to replicate the competitors
Most successful startups have always focused on finding solutions to real-life problems
But finding the solution for real-life problems can’t be the only way to come up with an idea for a startup.
An individual can even use their academic background and skill set also to come up with an idea of a product and then turn it into a business. Your personal assets can provide you great support while setting up your business and minimize the expenditure. You can use your social network to create a team and customers for your business.
If one does not start a business with the right model there will be no scalability and consequently no production.
An important metric here is the Cost of Acquiring a Customer (CAC) and Lifetime Value of a Customer (LVC). One’s CAC should be less than the LVC or else the business model will not be profitable and consequently fail over a period of time.
Startups have just two sources of income: Investments and Revenue and the critical problem by startups is a lack of proper budget planning because, without proper planning, one would burn up all the money from the revenue earned, and fail the business. It is critical and necessary to have a proper plan in place before taking your startup into the business world.