There has been a lot of research on why startups fail – and it is not only because it started with a bad idea. From not doing enough market research, to failing to raise capital on time to crushing skills gaps, when these enterprises fail there are often the same reasons to blame.
Here are eight common reasons why start-ups
fail, and some tips on avoiding falling into the same traps.
Solving the Wrong Problem
One of the biggest fundamental issues with unsuccessful
start-ups is that they think their products will solve a problem that nobody needs
solving. Too many founders suffer from the delusion that their idea is so
amazing that they can simply build their product and clients (and money) will
come rolling in.
However, unless your product solves a
critical problem that people face, and are looking for the solution, you are
unlikely to be successful. Most consumers are reluctant to try completely new
products, so you need to offer them something of unique value. The best way to
avoid this? Do extensive market research, product development and testing
before launching your product.
Not Enough Resilience
Resilience is critically important for any entrepreneur. In fact, resilience might be the most critical quality a successful entrepreneur will need. It means you can stay completely committed to your ideas, and don’t get overwhelmed by roadblocks or challenges. As a start-up, you will receive a lot of no’s and knock backs and resilience is crucial to stay focussed and on track in the face of much negativity.
While it is often the successful college
drop-outs that grab the headlines there also are many people who started small
and make it big in life. Santosh Palavesh’s story is one that demonstrates how
resilience and persistence pays off – and in his case lead to the creation of a
million dollar start-up.
Not Enough Feedback
Many start-up founders keep their
prototypes secret and are reluctant to get feedback on it for fear that someone
will steal their idea. However, this lack of feedback can be fatal to a
start-up. Getting extensive feedback on a cheap prototype will serve a new
company much better.
Making a start-up project too complicated
can also be detrimental. Being secretive will not help anyone. In order to
develop a strong marketing strategy you need to get your product out there and
share it with your audience. Having a website will help you test your product
and the market – but you have to budget for it. Here is a guide
to website costs.
Being Motivated by Money
The truth is that starting something new
will require long work weeks with very little pay. It is important to make sure
you are motivated by something other than money. Many successful start-ups
evolved from the founder or founders coming up with the solution to a problem
that no one else had solved, and usually something they personally cared about.
Keep in mind that starting a business isn’t
a way to make a quick buck – this is a long-term process. If you want some cash
fast, develop your career and look for a well paying job. However, if you’re willing to put in the
hard work over years, you can reap a big long-term pay off. And a passion for
what you are working on will drive you over the long term: see for instance
on how Indian start-up owners are inspired by the values of freedom fighters.
Another common reason for failure is that many
start-up founders do not have the skills to get their company off the ground. In
a paper published by Sustainability last
year lead author Marco Cantamessa wrote that frequently, start-up founders
“have hard skills and very technical backgrounds with a lack of cross-domain
and commercial knowledge” leading to a company with a well-developed product
but no good business model.
Failure to Budget
If budgeting isn’t your strong suit (or your priority) perhaps reconsider starting your own business. Having a strong grasp of finances and meticulously budgeting for the future is essential for the success of any start-up. Entrepreneurs should never assume that investors will make up any cash shortfalls. The most successful start-ups keep expenses to a minimum and are constantly fundraising and courting investors. As a rule of thumb, your company should have at least 6 months of operating expenses put aside as a buffer at all times to make sure you don’t run out of money.
Inability to Raise Capital
In the start-up sector, it is necessary to
overestimate the time and rejections it will take to raise enough money for a
start-up. Successful CEOs often consider raising capital a fulltime job, and
their first priority. Analysis on data reports on why
start-ups fail showed that one of the main reasons was a lack of access to
finances. Conversely the “Lean Start-Up” strategy of raising enough money to
hit a next key target was shown to be one of the more successful strategies.
A Lack of Leadership
The last major start-up-killer is a leader
who cannot recruit and motivate a team. Any new company must be driven by great
leadership, and needs someone at the helm with charisma and the power to
motivate staff with a compelling vision. This is critical for recruiting and
retaining the necessary talent to execute that vision.