About 19% of failed start-ups agree that a dynamic business model is required to run a business successfully, and over 5% of start-up businesses refer to burnout as their reason for failure.
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- 3 minute read
In recent years, start-up businesses have gained increasing popularity, especially amongst the youth of India. However, not all start-ups succeed. After the soaring success of renowned startups like Nykaa, Zomato, etc. everyone wishes to be an entrepreneur. Let’s delve deeper into the factors that lead to the failure of a startup:
1. Burned out
Around 5% of start-up businesses cited burnout as their reason for failure. Stagnation in growth and team interest, improper work-life balance, and lack of innovation are possible reasons for a start-up business to experience burnout. Start-up founders find themselves overworked, which leads to an eventual fall in drive and enthusiasm.
Thus, it’s imperative to know when your efforts are heading towards a dead end, cut your losses, and redirect your energy toward a more productive venture.
2. Pivot went wrong
One of the most famous examples of a successful pivot is from Burbn to Instagram. When done right, pivots can be a shortcut to success. On the contrary, even a high-profile start-up business can suffer unimaginable losses due to a pivot if done wrong. A whopping 6% of start-ups have claimed it as the reason for their failure. Thus, pivots should be well-planned and executed to avoid unfortunate results.
3. Poor product
Often, it is not the people but the product that brings about the end of a newly established start-up – as was the case with 8% of the businesses in the survey. Using aggressive sales tactics is only successful when you have the reassurance that your services won’t fall short of the quality they’re promising.
Similarly, ignoring the needs and demands of consumers in favour of applying your innovation leads to failure. A good start-up business requires the ability to read trends and adjust products.
4. Product mistimed
The timely release of a product is an essential factor in determining its success or failure. However, having a good product doesn’t guarantee success. Releasing it too early into the market may lead to the public disregarding it, while releasing it too late might make you miss your window of opportunity. This issue was faced by 10% of the start-up businesses, who mistimed the release of their product and suffered for it.
PayU is a well-doing startup enabling other businesses to grow and find accessible payment solutions.
5. Not the right team
A myriad of skilled individuals is required to keep a start-up business afloat. Around 14% of failed start-ups have regretted not being able to accumulate the right personnel for their ventures. A new start-up frequently fails for the following reasons: poor management, hiring inexperienced workers, and frequent leadership changes.
6. Pricing/cost issues
Striking a proper balance between pricing a product high enough to generate a profit yet low enough to attract customers is a delicate art. A business in constant loss will eventually lose its investors and possibly risk bankruptcy. 15% of start-up businesses were shut down because the cost of running the company was simply higher than the revenue its products brought in.
7. Regulatory or legal challenges
Some start-up businesses sound perfectly plausible in theory. However, on implementation, they can encounter various legal complexities that might lead to their eventual closure. Changes in government policies, inability to meet consumer demands, and financial trouble are common factors from which legal challenges might arise.
8. Flawed business model
About 19% of failed start-ups agree that a dynamic business model is required to run a business successfully. Therefore, a single rigid business ideal is not conducive to running a successful business venture. Failing to capitalise on opportunities or coming up with new ways to make money at scale may leave investors hesitant to invest further in your business.
9. Got outcompeted
Sometimes, the market is too saturated with similar products for a new one to succeed, as was the case with 20% of failed start-up ventures. While new and emerging businesses are often advised not to pay attention to competition in the market, ignoring it also spells disaster as others try to capitalise on your opportunities.
10. Ran out of cash or failed to raise new capital
According to 38% of failed start-up ventures, the most common reason for failure was being unable to raise new capital to support their business. Money and time are two precious resources for a new business, and being unable to secure financing from investors is the end of a business. Thus, it is crucial to have an attractive pitch and solid figures displaying your future success rates. If you cannot convince the investors of your potential, your start-up will sink before it begins.
Frequently Asked Questions
Does team bonding affect the success rate of startups?
Disagreements among co-founders and discord among the members reflect instability in the company’s foundation. It is seen as the reason behind over 7% of failed startups.
How does the market need affect startups?
As noted by 35% of businesses, the lack of requirements by consumers is a big reason behind many failures. Innovative solutions to complex problems often don’t guarantee market success.
