Why Instead of Going for $150k Further Funding, FoodHotLine was Shut Down

Why Instead of Going for $150k Further Funding, FoodHotLine was Shut Down

Food based startups are on roll. Daily we hear name of few new startups which come on the horizon of Indian startup ecosystem. They shine within limited time and give a hope of being next big thing of the ecosystem. But then time tests everything.

FS Team has brought for you the exclusive analysis of FoodHotLine – a Gurgaon based food-tech startup providing solution for healthy and affordable food option. It went on to expand its base to entire Gurgaon within just one year. Its marketing tactics were fabulous. It had everything for being a success. And what more – it was in line to get a funding of $150k. That was the time when reality check forced its founders to think about the future strategy for FoodHotLine. Quit was what they opted for.

FoodHotLine – How it was born?

FoodHotLine was born by the problem faced by one of its founder – Affordable, Hygienic and Tasty Food availability in Gurgaon, India. No doubt thousands of options are available for foodies in Delhi-NCR but the combination of affordability, hygiene and taste is difficult to find. Street food is affordable and tasty but for health conscious people, this option is not appreciable. To spend 200-300 bucks per person in a good restaurant for the majority of middle class population is not affordable on a daily basis. So, he decided to solve the problem of healthy food in Gurgaon by his startup “FoodHotLine”.

FoodHotLine – Typical Timeline

  • November 2014 – Concept of “Affordable, Hygienic and Tasty Food: was brought into reality by “FoodHotLine” in Gurgaon.
  • March 2015 – Received first round of seed funding ($ 50k ) and enhanced the operational excellence.
  • August 2015 – Further round of seed funding ($ 150 k) initiated with investors
  • November 2015 – Instead of expanding their business, founders decided to shut it down.

FS Labs FoodHotLine - Food Tech Startup

FoodHotLine – Brilliant Combination of all the Factors required for Success!

[A] Founding Team – FoodHotLine founding team was the perfect combination of all the required skillsets to plan and execute a startup. The key skillsets required to run a tech-food startup are managerial skills, marketing skills and technical skills. The details of founding team is as follow-

  1. Sanjay Tudu –Mechanical Engineer by degree, Graphics Designer by interest, Marketing Expert by experience and a die-hard chaser of dreams
  2. Priyank Jha – Chemical Engineer by degree, Manager by nature and Born Entrepreneur
  3. Shubham Sanghal – Manager by degree and Entrepreneur by choice
  4. Akshay – Electrical Engineer by degree, computer and coding addicted by interest

[B] Seed Funding – FoodHotLine arranged the required money for initial setup by them and then received the seed funding of around $50K in March’15 that was sufficient enough to run the operation for couple of years at no profit generation.

[C] Startup Concept – The concept of FoodHotLine was as follow:

  • Problem Solved: To provide healthy homemade food to people at affordable price – 100 Rs/Person.
  • Target Customers: Bachelors and office going singlets and couples who thought Rs 200/person was too much of spend and wished to avoid little unhealthy food for lunch or dinner.
  • USP: The concept of FoodHotLine was different from aggregators. They had kept few cooks who made food as per orders from customers. Quality of food was as good as homemade food.
  • Different from Others: FoodHotLine did not follow the route set by all other food based startups. They did not follow the aggregator based model. Main reason for the decision was – aggregator model was tight in terms of margin.
  • Faster delivery: They had tied up with RoadRunnr for order delivery. That ensured a time-bound express delivery to customers.

[D] Marketing Strategies – The marketing strategies developed by FoodHotLine were suitable enough for capturing the market–

  • Social Media – FoodHotline used social media to reach the maximum number of targeted people at optimum cost involved in marketing.
  • Local Outlets – This was the fantastic marketing concept opted by FoodHotLine. They marketed their startup through local kirana and grocery stores. FoodHotLine team used to convince the brick and mortar store owners for helping them acquire new customers. In return these store owners were given some commission.
  • Targeted Canopy Marketing – To capture the market volume of office personnel, FoodHotLine did the targeted canopy marketing at those offices where strength of bachelors was more. It helped them in acquiring the loyal customer base.
  • Press Media – To capture the nearby market volume, they used press media by distributing their pamphlets in daily newspapers.

[E] Revenue Model and Scalability – The revenue model of FoodHotLine was quite good in terms of its break-even point.

Fixed cost involved in the setup of FoodHotLine could be categorized in following verticals (approximate analysis) –

  • Kitchen expense = 50,000 INR per month
  • Salary of Supporting Staff = 80,000 INR per month
  • Office expense = 30,000 INR per month
  • So Total Fixed Cost per month = 160,000 INR

If the profit margin on each order is considered as 40 INR on average, the number of orders required per day to reach break-even point = 160,000/(30*40) = 133

So the profit on orders above 133 was the actual saving to FoodHotLine.

The scalability of the concept was quite large in terms of targeted market of the city as well as other locations. They covered whole Gurgaon just in one year of operations.

[F] Series A Funding Opportunity – Within one year of operation, FoodHotLine attracted enough customer traffic and Team started to look for expansion plans. They searched for the investors in the market and were successful in getting few investors on-board for series A funding.

FS Labs FoodHotLine - Shutdown Factors and Learning

Why Instead of Going for $150k Further Funding, FoodHotLine was Shut Down

After running their business model for 12 months, FoodHotLine was on the edge of getting $150k further round of funding. But, instead of going for it, founders decided to shut it down by analysing following factors –

[A] Stiff Market Competition – Market competition that FoodHotLine faced was quite high and was one of the major reasons of its shutdown. Cash burn tactics of direct competitors like Yumist, Faasos etc were sufficient enough to attract consumers and kick small players out of the market. Yumist was distributing food at 1 Rs per order or huge discount. Same cash burn tactic was being used by Faasos to attract consumer. Food aggregators like TinyOwl, FoodPanda, Swiggy were also attracting consumers by giving huge discounts, so consumers were getting high value items at lower cost.

Cash burn tactics of well- funded startups are unpredictable in terms of time span and percentage. So to burn the available and further funding amount for luring consumers and giving hundreds of explanations to investors for these marketing strategies to face the competitions was not a good option in front of FoodHotLine. Founders decided against this kind of marketing tactic as they were not sure about the extent to which market leader could burn the Cash.

[B] Demand Fluctuations – Another major driver was the demand fluctuations. Someday the numbers of orders were quite high while on the next day, the quantity was getting quite low. So it was affecting the everyday planning and leading towards massive wastage. For example, if the targeted marketing like Canopy was done well on a day, the numbers of orders were reaching up to 500, the next day due to less marketing it was only 150. So the food preparation done in by any of the forecasting method was getting wrong and leading towards wastage.

The major factor to run food startup is forecasting the upcoming demand and aligning the inventory levels as per need. For startups, it’s difficult to align the processes with forecasted market demand unless it has made a very loyal and firm customer base. So, instead of wasting food every day till a predictable loyal consumer based in built, founders decided to quit.

[C] Consumer Attitude towards Food – Consumer behaviour and attitude towards available food options was also a major reason of FoodHotLine shutdown. A lot of orders were getting cancelled or not initiated by people because they can’t wait for 30 mins for healthy food. Rather they prefer to go for the easiest option.

Convincing consumers on daily basis for becoming health conscious and making them understand the lead time concept (delivery time) was difficult for founders.

[D] Cost Concerned Mindset of Customers– Target of FoodHotLine was to reduce the food order cost by providing the quantity sufficient for one person but people were still concerned for the order price. Instead of spending 100-150 bucks for their single order, people would prefer to go for cheaper options like street food. Here in the battle of Cheap and affordable food choice, Cheap won and FoodHotLine was forced to think about its marketing and targeted customer strategy.

All these factors pushed founders to think about the future of FoodHotLine. And instead of going for more hard work and cash burn marketing, team decided to shut the shutter.

[E] Investors Mindset for Profit – Investors invest their money with major motive of getting profit out of it. Earlier experience of founders was in the same track only. They were being chased continuously to generate as much profit as possible. It was challenging to convince investors to spend the money on concept, competition and survival. So instead of repeating the same experience with $150k, founders decided to shut it down.

FoodHotLine Shutdown- Learning from 12 Months Journey

Dedicated hard work of 12 months has created a new chapter of learnings for the founders of FoodHotLine. These learning shall be kept in mind by upcoming entrepreneurs while starting and execute their startup –

[A] Market Competition Analysis – The success of startup is directly dependent on the level of market competitions. So analyse the market competitions on the following verticals –

  • Direct players that are working in same domain as of your startup
  • Indirect players those are aggressive enough to capture the different business verticals
  • Marketing strategies of the competitors to infiltrate the market
  • Cash burn tactics of the competitors

These factors would help you in making decision about the areas where your startup should build its base. Those areas, where competitor penetration is less, are always a better for starting a business.

[B] Consumer Behaviour Analysis – To manage your inventory levels is quite dependent on the consumer behaviour towards your product. Product with long shelf life can be procured and stored for longer period while for short shelf life products; optimization is required as per consumer behaviour –

  • For initial study, check for the source of motivation of consumer buying
  • During execution, check for the frequency, motivation and pattern of consumer buying Keep a track on the data which you are building about the customer behaviour

It would be the best guide for forecasting and inventory planning.

[C] Customer Relationship Management – A proper channel of CRM must be deployed to mold the consumers’ mindset as per your projections. Since the numbers of startup, working in same domain, are increasing day by day, so the winning strategy for entrepreneurs is to keep their customers motivated towards their product. Following CRM strategy should be kept in mind for product based startups –

  • Reach out your targeted consumers as soon as possible and formulate plans to retain them
  • Get the needs of consumer and align your offers accordingly

This would act as a problem solver for customer requirement. Customer would be more than happy to get your service.

[D] Keep Patience for Success – Success never comes in single day. Facebook, that we find today, was not built in a single day. So keep patience for success. Just to cover one single city it took FoodHotLine almost a year. So keep patience, give your best and work continuously with the same passion every day to get sure shot success.

FS Outlook

First of all, Team FS appreciate the efforts made by FoodHotLine founders and their level of success within a year. We appreciate the courage of FoodHotLine Team to come in front and share their shutdown story and learning in a public place like FS. Hats off to you guys. It requires a lot more courage to share your failures experiences with other people than telling the success stories.

Starting a business is easy. Anybody could give it a try and it will run fine for one day. To run a business for a month it requires a sound planning on every front – market competition, target customer, customer behaviour, marketing tactic, support services, CRM. To run business for one year it needs inventory planning, forecasting, market trend analysis, better customer acquisition tactics and some plan about how to avoid cash burn tactic. To run a business for more than one year it needs a founder who lets his idea live to its potential unfazed by the challenges posed by the market, customer and time.

Stay tuned with FS Labs to know more.

Startup Financial Failure

Startup Financial Failure

An expanding business offers the potential for numerous growth opportunities –

  • Employees benefit from – Increased earning + promotions+ recognition.
  • Customers benefit from – Expanded product & services.
  • Owners benefit from – Increased profit potential.
  • Society benefits from – New job being created.
  • Country benefits from – Increased investment of foreign investors.

Although business growth is rewarding, it may test founder’s financial management skill & financial resources. Financial management involves all the activities that enable a company –

  • To obtain capital for growth
  • Allocate resources efficiently
  • Maximize the income potential of the business activity
  • Monitor results through accounting documents.

Such management requires a well-written, comprehensive financial management plan clearly outlining the assets, debts and the current and future profit potential of your business.

“Financial Management is the operational Activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operation.” – Joseph Massie.

As per general surveys around 98% of the startups fail because of their business model; around 87% startups failures are driven by poor management, around 91% failures are because of financial issues. All the activities related to any business model leads to a final outcome – money. And management of this outcome is responsible for how any business will fare in long term.

As discussed with Jaze (changed name), founder of a brilliant startup (not disclosing the name), “We burnt our limited funds initially just to capture the market volume of our competitors by giving excessive discounts. But suddenly a stage came where we had to reduce the percentage of discounts to make our business model sustainable; hence we lose a large market share that was attached with us because of high discounts only. So, we had to identify the actual market volume and developed the market capturing strategies just for that volume base.”

“Leadership is working with goals and vision; management is working with objectives.” – Russel Honore

Here is FS labs Analysis on startup financial failure-

FS Labs Startup Financial Failure

Liquidity Failure –

Liquidity means how quickly you can get your hands on your cash. In simpler standings, liquidity is to get your money whenever you need it. In case of startups, where the business model keeps fluctuating as per several factors like – market need, competitors’ strategies and business model need etc, financial liquidity becomes quite important to ensure the long term sustainability.

  • What would happen if the cash outflow and inflow are not balanced?
  • What if the funds are not distributed as per the need of activities?
  • What if the funds are not managed as per the actual cost estimation?

The major reason of startup financial failure is the liquidity crisis. Inexperienced entrepreneurs block major portion of their funds in few activities and hence the requirement in critical activities gets affected. The situation can easily be avoided by proper planning of funds utilization against the requirements.

  • Forecasting of upcoming potential market demand combined with the market capturing strategies and competitors penetration helps in determining the cash in and out flow management.
  • The need of funds should be aligned with the expansion plan of business model to avoid the upcoming liquidity crisis. In case of limited funds, the business model should remain in the liquidity limits benchmarked for that industry.
  • Flow of cash should be monitored regularly to avoid the cash problem.

Profitability Failure

Profitability means how much profit you earn against the expenditure for that profit margin. It’s a metric that is used to access a business ability to generate earnings as compared with its expenses and other relevant costs incurred during a specific period of time. Again profitability is not a 1 day or 2 year journey. Sound planning for achieving breakeven well before your competitors will give you an edge. It will ensure that you have seen the light at the end of tunnel earlier than others. In long term your profit margins will be higher than others.  In case of startups, the profit margins might not be a concern for short term targets of infiltrating the competitors market, but essential for long term survival.

  • What would happen if the expenditure on each of the activity is not optimum?
  • What would happen if the selling price is not aligned with the overall actual cost?
  • What if the profit margin is not optimized?

One of the major tactics of startup industry is to try to cut down profit margins at initial stage to capture the market. If the competitors are strong enough to stand against your strategies, the startup business model starts struggling before survival.

  • Proper controlling of cost to ensure the optimum operational cost is essential to generate the best fit selling price.
  • Aligning the sales strategies to avoid the losses is a good practice to manage the cash flow.
  • The profit margin should be kept within the allowable values determined by fixed and variable cost combinations.

Financial Management Failure –

Financial management is the identification of cost including activities, planning of cash flow, monitoring and control of cost baselines and altering the baselines as per actual need. In case of startups, where all the resources are limited, financial management decides the success probability.

  • What if the cost is not being utilized as per the defined baselines?
  • What if the cost baselines need to be redefined as per fluctuating needs?
  • What if there is no control on the funds flow?

FS Labs Startup Financial Failure Analysis

There are two aspects for better financial management –

Persistence: In a growing business, financial resources are often viewed as the major factor limiting growth potential. There are two methods of improving financial base:

(1) Grow gradually and allow profits to fund additional growth and

(2) seek outside funds (i.e., debt or equity funding).

Both approaches will consume time and energy, and one will experience some rejections. This is where persistence is important.

Balance: The financial and operational aspects of growth must be balanced when you expand your business. During a growth phase, for example, the marketing function of the business may extend beyond the business’s financial capacity to sustain growth. To avoid this dilemma, devise policies to balance the operational functions of the business with the financial aspects of growth. Growth should be attempted only in businesses already profitable. To attain profit potential, a balance must be maintained between asset and liability items that are on the balance sheet and operating items that are on the expense and income reports.

Inexperienced founders with little knowledge about the sanctity & proper routing of funds often grow impatient and seldom look for maintaining balance in financial and operational aspects. Startups face the issue of financial managerial skills. Proper monitoring and control on each of the cost vertical helps in achieving long and short term targets.

Read here more about the business model failure of startups.

Read here more about the management failure of startups.

Wish you luck for your startup. Stay tuned with FS Labs for more updates.

 

Startup Management Failure

Startup Management Failure

Successful startup business model requires sound and diverse management skills to ensure its long term sustainability against existing and emerging competitors. Any brilliant concept becomes successful by having a proper vision and better resource management to accomplish those visions. Hence sound managerial skills are crucial for every entrepreneur to convert  an small idea into a big business opportunity. A good entrepreneur thinks and plans future ahead of its time and ensures the proper infiltration of vision into potential market.

“Good management is the art of making problems so interesting and their solutions so constructive that everyone wants to get to work and deal with them.” – Paul Hawken

A general survey comprehends that around 98% of the startups fail because of their business model; around 87% startups failures are driven by poor management, around 91% failures are because of financial issues. Business model failure, financial failure and other issues all are related to the managerial skills of founders.  In spite of having concept with potential to infiltrate in the market volume, startup fails in lack of proper planning, co-ordination or commanding. If all the defences, explanations, rationalizations and justifications for business model failures are stripped away, the only reason of startup failure is poor leadership skills.

“Businesses don’t fail, leaders do”

FS Labs comprehended the major factors of startup failure and found that most of the brilliant startups fail because of management failure. Inexperienced founders struggle with the capability of analysing the potential of their idea and converting it into a big hit and it is always reflected in their startup journey.

As discussed with Amit (changed name), founder of a brilliant startup (not disclosing the name), “the biggest challenge for me during my startup journey was to convince the other founders to remain stick with our original idea and incorporate the changes gradually rather than in one day, as it would have wasted our entire efforts till date. So I took the mid-way, created a portal to suggest the changes with proper validation and impact and mean while kept them motivated to execute the original plan. So everyone felt mastermind of evolving business model, and we successfully develop our business model for further gradual changes

“Management is doing things right; leadership is doing the right things.” – Peter Drucker

Here is FS Labs Analysis on startup management failure:-

Startup Management Failure

Forecasting and Planning Failure – Forecasting is the ability of entrepreneur to decide the future plans of startup based on expected or targeted market volume. Planning is to align the resources with scope of all the required activities to optimize the revenue model as per forecasting. Entrepreneurs struggle mostly with the ability to plan on the necessary verticals of planning.

Startups fail because new entrepreneurs have limited experience of making future strategies. Internal conflicts in team at initial stage is one of the biggest issue for entrepreneurs  and at that too at a point when they don’t have the framework for future and everyone wants to execute as per their philosophy.

Working without having any plan is also a major reason of startup failure when the tracking of process is nowhere and hence the frustration comes into picture in consideration of short term success.

  • What if you don’t know what you need to do?
  • What if you are not utilizing your limited resources in optimized way?
  • What if you have not defined baselines to decide the completion level of any activity?
  • What if your expansion is not pre-planned?
  • What if you have to struggle each day during your startup execution for fluctuating targets?

Planning-prior to execution and forecasting-to decide the future strategies are two key tools for ensuring the success level during further developments in startups. Estimating the market size of your startup concept and developing the required market capturing strategies based on the level of coming competition are the key elements for startup secured future.

Read here more about planning verticals of startup.

Organizing Failure – Organizing is the ability of entrepreneur to align the resources in optimal manner. Since the fund flow of every startup is limited, so it’s necessary to align the resources with development plan and revenue model.

Startup fails when entrepreneurs are not able to utilize their resources in the best possible way. Uneven distribution of resources is the biggest challenge for every entrepreneur and failure in this finally leads to startup failure –

  • What if the scope of each activity is not clear to stakeholders?
  • What if there is no time plan for execution?
  • What if you have not estimated the cost associated with each of the activities and distributed the funds accordingly?
  • What if you have not defined a quality baseline to ensure the completion of activities?
  • What if the flow of information is not sensible and appropriate?
  • What if you have not estimated the upcoming challenges and estimated the mitigation plans beforehand?
  • What if all the manpower is not aligned as per the skills sets and requirements?
  • What if there is no integration among all the available resources?

Planning on all the knowledge areas – scope, schedule, cost, quality, communication, risk, human resource, integration helps to organize the resources in best way. Once you have decided the basic frame work for your work, it’s easier to track the progress meter and attention required at every stage.

Read here more about the knowledge area of organizing.

FS Labs Startup Management Failure

Co-ordination and Commanding Failure – Co-ordination is the ability of entrepreneur to ensure the execution as per defined baselines. Since its only human resource that align other resources with baselines and every human has a different set of thought process, so it’s necessary for entrepreneurs to involve in the major decision making processes and ensure what level of decision making power could be left with other stakeholders to manage the resources.

  • What if the defined baselines are not being met?
  • What if the stakeholders are chaining the baselines as per their comfort?
  • What if the major time is getting consumed in conflicts management?

Co-ordination among all the activities, resources and stakeholders is essential to ensure the proper execution of defined baselines.

Controlling Failure – Controlling is the ability of entrepreneur to modify the baselines as per market need and ensure the alignment and execution of resources as per fluctuating targets. Since the objectives require modification as per consumer behaviour and the competitors’ strategies, it’s compulsory for every entrepreneur to control the progress under inconsistent marketing need.

Startup fails when entrepreneurs don’t have the ability to decide the right future development of startup. Over expansion without control and limited business model without further expansion strategies lead startups towards failure.

  • What if the market demands change in the existing business model?
  • What if the market demands introduction of additional verticals?
  • What if the competitors are infiltrating the entire established market base?

Proper control of entrepreneur on the entire business model is essential so that the vision of startup is met.

If entrepreneurs take care of each of the above mentioned factors, the probability of management failure is considerably lower down. Wish you luck for your startup. Stay connected for more updates.

Read here more about startup failure.

Startup Business Model Failure

Startup Business Model Failure

At preliminary stage of startups, entrepreneurs get so much excited of their either new business model or improved concept of some existing business model, that the hypothesis of 100% success inhabits their concentration. The success of any of the business model is directly dependent on the acceptability of the innovative concept in the market. Hence the acceptability limits are critical to judge before investing time and money into a business model.

Read here more about the validation of startup idea.

FS Labs comprehended the major factors of startup failure and found that most of the newbie startups struggle with the proper validation of their startup concept at initial stage. What if my idea gets stolen”, “What if people would laugh at first are some of the initial phase symptoms that prevent founders to get the exact validity/acceptability of their startup idea. What if you work on an idea that has low chances of being accepted in the market or doesn’t have potential to stand against competitors?

Here are major reasons of startup failure due to deficiency of viable business model-

Startup Business Model Failure

Product Failure – A product or service has more chances of acceptance in the market if it solves some genuine problem and is within affordability limits of the targeted market volume. Success possibility is enhanced by targeting the large mass. Most of the startups fail because of their product failure.

  • Why would people love a concept that doesn’t add value to them?
  • Why would people get shifted to some concept that is quite similar to existing trust worthy business model?
  • Why would people pay money for some product which is not within affordability limits or if economical solutions already exist?

One possible way to avoid such scenarios is by making a prototype of your concept and has a proper feedback by the targeted mass. Based on the feedback on prototype, one can easily decide what changes need to be made in the existing concept. The chances of someone stealing your idea are quite lower than the chances of its improvement by discussing the idea with other people of same industry or the direct user.

Read here more about startup prototype.

Competition Failure – Good Entrepreneurship skills include the ability to judge the level of competition in the market and decide the business strategies to attract the consumers towards the new product to overcome the level of competition.

“New acceptable concept has the inherent quality of attracting other players who are working in same domain. Hence the expected level of challenge should be identified by the strength of potential competitors. Existing improved concepts has the probability of appealing the competitors to alter their business model to stop the penetration by those particular features. So the strength of competitor decides the chance of success.”

One major reason of startup failure is the lack of judging the level of competition that is being faced by the new business model.

  • Why would competitor allow you to penetrate their market volume?
  • Why would other players of same domain not change their business model to capture your market base?
  • Why would other players not stand against you in future

One possible way to overcome such scenarios is by properly estimating the market volume and deciding the market penetration tactics by comparative analysis of new vs existing models.

Read here more about the market size estimation.

Read here more about the new vs existing concept evaluation.

FS Labs Failure Analysis

Infiltration Failure – A successful startup business model has the ability to infiltrate the market base of other established players quite easily by its features. Combination of all the existing features available with the major players and the new unique features has the higher chances of success.

“New features have the ability to attract customers but the existing features make consumer reluctant towards new model. Hence startups should try to capture all the major features of existing players and enhance them with the presence of new features to ensure the sufficient penetration rate.”

Infiltration rate is also a major concern for new startups:-

  • Why would people get shifted towards one new feature if it doesn’t cover all the existing ones?
  • Why would people leave the existing model for completely new model?

One possible way to avoid such scenario is either by providing the enhanced features along with existing setup or by completely different but appealing model.

Scalability Failure – Business model should be designed in such a manner that it could be easily scalable either by enlarging the targeted market volume or by introducing new verticals once it reaches to funding stage.

Startups with less scope of scalability have more chances of failure. Hence the business model should be designed to keep the scope of scalability in it.

This was a small analysis by FS Labs on Startup Business Model Failure and the potential way to avoid them. Stay connected for more updates.

Read here more about startup failure analysis.

Startup Failure Analysis

At early stage, every entrepreneur can effortlessly visualize the success trajectory of startup, but harsh truth is that the success probability of startup is 1/10 i.e. 9 out of 10 startups fail. Survey shows that only 1% of startups get funds based on their distinguished business model, potential team and sustainability limits, around 80% of the running startups are self-funded and around 19% of the running startups are dependent of the angel investors, friends and relatives. This fund dependency rate of running startups when combined with success probability produced horrible results for overall scenario.

“Don’t read success stories, you will only get message. Read failure stories, you will get some ideas to get success.” – A.P.J Abdul Kalam

The above saying is 100% true as majority of the entrepreneurs get inspired by the success trajectories of efficacious entrepreneurs and start implementing their concepts into reality without knowing the entire practice. Initial stage of startup is quite promising as every co-founder has high motivation but eventually it comes on a down track once the actual hurdles start entrapping the market base. FS Labs did a comprehensive analysis on failed startups and the major factors of their failure.

Are there only few major factors of startups failure?

The answer to above question is quite broad as the major drivers of startup failures fluctuate as per industry. A general survey comprehends that around 98% of the startups fail because of their business model; around 87% startups failures are driven by poor management, around 91% failures are because of financial issues.

 

%

Business Model Failure

%

Management Failure

%

Financial Failure

%

Other Failures

Here are detailed analyses of potential showstoppers of startup success-

Startup Business Model Failure

A sustainable business model is the most critical requirement of any startup. Product or service of any of the startup would only be appreciated by mass if it addresses some problem and provides better solution than the existing ones. Successful startups are always driven by providing solution to major problem of large potential market. One of the major reasons of startup failure is a short lifespan business model. Here are few reasons of startup business model failure-

Startup Business Model Failure

  • Product doesn’t Solve Any Problem – The basic vision and mission of startup business model should be to solve a problem of mass. Large the volume of market base more is the probability of its success. A product or service that doesn’t address any of the problems have less chances of its success.
    Smart Electrical Switches is an example that didn’t solve any of the problems of startup and hence failed eventually.
  • Product doesn’t Stand Against Competitors – Startup concepts are generally driven either by a new solution of by extension in the existing solutions. A product that is just an up-gradation of existing sustainable business model have less sustainability limits as once its penetration rate into the market volume increases, the competitors also enhance their setup to lower down the infiltration.
  • Product doesn’t Infiltrate in the Market – To ensure the success of your business model, it’s important to capture the market at an accelerated rate. The marketing and capturing strategies designed for less penetration rate ensure the failure of startup.
    Housing infiltrated into the market at an accelerated rate by its improved UI and hence all the other competitors also upgraded their setup with almost same features to reduce the infiltration in limited market volume.
  • Product is not Scalable – Scalability of the business model is also critical as it decides revenue limits. A product designed for specific limited market volume have less acceptability limits in market and hence towards failure.

Read here more about startup business model failure.

Startup Management Failure

Proper management is the major requirement for any of the startup. Since the strategies need to be modified as per market trends and competitors strategies, a strong management is necessary to ensure the achievement of fluctuating and demarcated baselines. Startups fail because new entrepreneurs have limited experience of proper management. Here are few reasons of startup management failure-

tartup Management Failure

  • Inexperienced Founders – Every startup needs a leads or group of leaders to provide the guidelines and framework for execution team. Since most of the new entrepreneurs have very little leadership skills to bind their team for startup mission, many startups fail due to lack of perfect leadership.
  • No Planning – Planning is required to define the basic frame work and track the success against those baselines. The proper sequence for your startup planning is to understand the problem, prepare a solution for it, know the market base, plan on each of the knowledge areas, understand the legal requirements, decide the marketing strategies, and prepare a revenue model, plan for scalability and at last look for funds requirements for expansion. Improper planning on any of the area definitely leads towards failure.
  • Disharmony on Team/ Investors – To keep all the team members motivated with one vision and mission of startup is necessary to achieve the targeted results. Most of the startups fail because of disharmony of team members, conflict of interest among founders and investors, lack of trust among stakeholders.
  • Improper Approach to Capture the Market – The rate at which a startup targets to capture the market is directed by the marketing strategies. Consumer attracting features and strategies combined with its market infiltration tricks defines the success rate of startup. Any approach that is not appropriate according to market needs results in failure of the startup concept.
  • Poor Management – Poor management of all the knowledge areas of startup is the major reason of its failure. Improper resource distribution to manage the entire scope of work leads towards failure of startup.
  • Over Expansion – Expansion of business model prior to its sustainability results in the failure of many startups. Once startups get funding, their aim shits from long term sustainability to large market capturing that leads towards unsustainable future.

One of such strategy is giving unreasonable discounts to capture short term market. Once the question of profit generation comes, startups can’t change their strategy of giving discount all of a sudden as it would result in loss of market volume.

Read here more about startup management failure.

Read here more about the planning verticals of startup.

Startup Financial Failure

Funds are the most critical need to run a business model in long terms. Success of startup depends on the proper utilization of its funds to generate a profitable business. Around 91% of the startups fail because of improper funds management. Here are few reasons of startup financial failure-

  • Not Sustainable Business Model – A model that is capable to overcome its fixed cost in definite time and starts generating profit is sustainable without funding needs. Most of the startup business models reach their break-even point in undefined limits hence eventually fails.
  • Ran Out of Cash – This happens when funding is utilized improperly among required resources. The cost planning of limited funds should be aligned with the profit generation to avoid the “ran out of cash” situation. Most of the startups miss this management.
  • Pricing / Cost Issue – A product or service has high chances of appreciation on large scale if it is affordable by all unless it’s a product like “Apple” with loyal consumer base. Most of the innovative solutions are not aligned with the affordability limits of mass and hence eventually comes to an end.

Read here more about the financial management of startup.

Other Failures

  • Legal Issues – Sometimes legal issues become major driver of startup failures. So all the regulations must be met for success.
  • No Passion – Generally, only one or two of the co-founders are passionate for their startup idea and gets very less support for the other team members. This lack of passion among co-founders at initial stage puts additional work load on motivated team members and hence affects the efficiency and motivation of those members.
  • Location – A product designed specifically for some particular location has less probability of success in other areas.

The failure reasons vary for individual cases but ultimately its results in the motivational loss of new entrepreneurs. According to worldwide survey, around 75% of the founders give up after their one failure, remaining 25% learns from there failure and moves forward with another model. The purpose of this whole analysis is to provide guidelines to new entrepreneurs to get success in one shot.

Stay connected to know more. Wish you luck for your startup.

Fuckedup is a phrase that captures all the emotions associated with the startup journey.

If no concept clicks in your mind, you feel frustrated. If you are not able to manage a proper team for your startup, you feel irritated. If funds, revenue, expansion etc don’t take place as per planning and expectation, you feel infuriated.

To keep you away from all these feeling, FS is continuously providing you to the best guidelines, practices and market trends. Please share your feedback at contact@fuckedupstartups.com