The Real Reason Why Startups Fail

When a startup is sinking and it’s time to jump ship, its hard to admit defeat. Startups are risky for a reason and as of 2018, Forbes claims that 90% of them fail. But what exactly is a startup and how do you define one?

If you have a great business idea and a few motivated individuals working together toward it, congratulations – you are a startup. This initial excitement is what drives creative and brilliant minds to start a venture. Nevertheless without proper preparations, market and industry statistics show that its going to fail.

Know the bare bones of why this happens and how you can avoid these crash and burns.

grocery store aisles

There is No Market Need

The domino effect of a startup failure begins with the founder investing time and money into a fresh idea. He/she works hard toward building this bright and shiny solution, but without the consumer in mind.

Solving the consumer’s initial problem slowly becomes less important. Once he/she tries to sell the pointless solution and nobody buys it, funds run out and the startup fails.

This is why it is essential to stay focused on your target audience: your product user. When you make your decisions based on their need, you will constantly be making the right decisions.

man holding a piggy bank in his hands

Funds Are Out

The biggest reason for failure is the lack of sales generated. This makes up for about 42% of startup businesses failing.

It cannot be any more cut and dry. The fact remains that if you can’t get the sale, your business will fail.

Often times beginning revenue is highly dependent on a product or service generated from investors’ money. Depending on the metrics investors are using to measure your rate of growth, that money can and will run out.

Try spending as little money as possible. Despite investing for “return in the long run” startups are risky as they are, let alone forking out unnecessary cash to accomplish small tasks. Focus on investing your time, brains, and physical efforts on the product and its users, and less on financial investments alone – if you can stand to.

6 people sitting on sofas and chairs talking

The Staff Can Be Why Startups Fail

Your staff can make you wildly successful but they can also be the reason why startups fail.

In startup companies, family members and friends are hired on the spot and often in positions they’re not qualified for. When there is a conflict, complications are doubled.

Don’t forget that it can get sticky when your need for an accountant has grown to the need for a chief financial officer and your original members have become obsolete.

Sometimes you’ve just hired the wrong person for the job. You may have worked with that person in the past and assumed the two of you would gel with your new business, but they simply don’t fit.

This is one area where you can afford to be picky. Seek out the right individuals for your team, and not just the brains or talent. Just like any employer hiring candidates, go with the ones who are in it for the long haul. Choose team players with a positive attitude and who are committed towards the same goal(s) you have.

chess pawns

Competitors Bump You Out

When you get bumped out by a competitor, you simply failed to do a proper competitive analysis. If you think you have no competitors, either you conducted your analysis wrong or there is no market need for your product.

Spend at least a month analyzing your competition.

You want to gain your target audience’s attention. Before venturing out on this concept, find out who else is targeting that same demographic’s attention. This is your competition. Make a list of these companies and find out what their pitch is.

Poor Products Are Why Startups Fail

This goes back to what your product user wants.

Every decision you make and every question you ask yourself has to have the user’s desire in mind.

If you fail to understand what that is, you will be well on your way to developing an inadequate product or service.

Sometimes your product had all the right intentions in mind, but you simply miss your target audience or your price is not right. These also lead to lack of consumer interest and inevitably were the result of poor product development.

two people at a shop sitting across from each other and shaking hands

How to Avoid Failure

So what should the founder(s) concentrate on? There are only two important factors to focus on, and that’s the users and the product. Simply work on continual development of your product to make it better and communicate with the users – apply their feedback constantly.

As Silicon Valley entrepreneur Steve Blank puts it, “there are no facts inside the building.” Trust your users and their feedback.

At this point, there is no advantage to jumping around marketing your product on social media, networking, and creating partnerships. Focus on your product and its users to stabilize your startup from the beginning.

Eliminate features or services that are not essential. Concentrate on users’ frustrations and find the solution for that. That should be your big picture.

Entrepreneur Mark Suster said that “individuals don’t build great companies, teams do.” This goes back to hiring the right people to achieve your startup goal and collaborating in a productive way. Its nearly impossible to achieve success without the right help.

Many founders of startups envision themselves working less because now they don’t have a boss or corporate ladder to climb. On the contrary, entrepreneurs work seven days a week and to add to that, their reputation is constantly at risk.

If you are practical and expect that it won’t be easy, and that your hard work will not pay off for awhile, you have a shot at being a successful entrepreneur.

At all costs, avoid the destructive paths discussed above, and then ask yourself, “how badly do I want this?”

To avoid doing risky business wrong, find out more about why startups fail and how you can succeed with your company.


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