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
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-
- 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.
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-
- 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.
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.
- 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.