Why Do Most Startups Fail? But Why will You Succeed?
Knowing the reasons behind failure is the best approach to success.
78% of startups fail, but you won’t!
Many startups fail that goes up to 90% in some countries (in India and USA), but the average worldwide startup failure rate is about 78%. You know, it’s quite a desperate figure. But you don’t need to be worried. You’ll succeed for sure if you are or will aware of the facts why new businesses fail.
When you start googling on startup failure, you’ll find hundreds of blog posts on the same topic – almost all are similar. They all have same or similar lists of reasons to tell you why most companies fail. And also they provide similar solutions for you so that you can run your business successfully. Let me reproduce the list here:
- Market problem
- Business model failure
- Running out of cash
- Poor management
- Bad production experience
- Lack of marketing
- Lose focus
- Disharmony among the team members
- Legal challenges
- Bad debt
- Failure leadership
- Pricing issue
- Product mistimed and few other aspects
Do you think these are the basic reasons of startup failure that we can apply to all business types and domains? In fact, none of these is a root cause for which any business has ever failed or will be.
Let me make it clear.
Let ‘Startup A’ couldn’t find adequate customers to sell it product in the market. Gradually the company ran out of case and experienced bed debt. Finally it shut down. Likewise, ‘Startup B’ couldn’t sustain due to bad quality products or heavy competition or ‘Startup C’ failed due to pricing issue and bad management.
Now, let’s ask –
- Why Startup A faced market problem?
- Why Startup B faced heavy competition?
- Why Startup C faced pricing issues.
In order to find out the answers to these questions, you’ll definitely search the roots of the problems. And hence, let’s go to the roots.
Let me tell you, exactly, why businesses fail and why you aren’t going to be a failure.
For a startup, either to succeed or to fail, the following five roots are responsible:
- The founder(s)
- The idea
- The method of validating the idea
- The process of planning
- The way the action taken
Let me explain each root cause behind the failure of startups.
1. Incompetent Founder
In fact, failure of a business starts from the founder(s). Entrepreneurship is not everyone’s cup of coffee. It requires competent person(s) behind it. In order to make a business successful, the founder should possess:
Practical Vision: This is a must. I found most of the failed CEOs are over optimistic, self-righteous, crazy and irrational. They extremely believe in their innovative concept, in their technology, in their market fit, in their goal and in their ability to raise money. They never accept that they are wrong at some points. They see themselves as the wisest person in the room. They never want to see themselves as a student. In other words, they aren’t practical and therefore they fail.
Knowledge and Experience: All the books in the world can’t help you if you don’t have a working knowledge of the field you’re in. You should have knowledge and experience of what you’re going to do; otherwise it’ll be difficult for you to prevent failure. Knowledge of the product/field in which you plan to make your niche is a must. So is the understanding of the market, and the underlying currents of the market. Any previous experience of business handing, even failure in it, helps startups to succeed. Be sure that a high school graduate is not going to build a great company.
Skill: To be a CEO of a startup is one of the hardest jobs to do in the business world, given the wide range of skills required to excel. Never think that your employees will do for you. This is why many startups fail. Follow the golden principle – ‘You can do it; therefore your employees will do it for you.’
Ability to work hard: Building a business is a difficult task. It’s many times harder than a 9 to 5 job. Make it a strong note before starting a business.
Consistency: There will many frustrating stages while you are running a startups. For few years, problems will be all around you. You need strong will power to face the challenge. Never think of a Plan B.
Leadership: All we know, it counts.
You can blame many things for your startup’s failure — no market fit, not enough cash, team problems, pricing — but all of these reasons boil down to one cause: a CEO who’s not being managed properly. So fix that.
2. Invalid Idea
You’ve ever heard – ‘an idea can change your life.’ That’s true for less than 10% of cases only! 90% or more ideas really fail. An idea fails because it’s just an idea, not valid idea.
It’s not surprising that many people find their ideas while they’re in bathrooms. It seems bathrooms are production centers of ideas. While you are under the shower or even on the potty, naturally you feel relaxed. Good ideas with good vibrations may come to you. You may start brainstorming with your new ideas. One day you come out to make a loud declaration (though to yourself only) that you’ve a brilliant idea. You bet, it’ll work 100%. This is the actual point where failure begins. Many startups fail before the start.
I found the people those failed in their venture within a year are over optimistic. They dream a lot. Nothing wrong with a dream, but the dream should fill up with practicable vision. Ideas should be tested and retested against a solid market background.
You’ll not fail if your idea is valid. Adequate research is required to find out how much validity there’s in your idea.
3. Invalid Method of Validating the Idea
I’ve heard people told me they had solid knowledge of the market. How did you find it? Did you conduct any research? What was your methodology? Was it a valid one?
The answers I received were almost big zeros.
70% of people dreaming to be an entrepreneur do research in their drawing rooms. As it’s a common fashion, their research ends with googling and reading few blog posts. They complete it within few hours in a day.
Be mindful that no blog post can help you in knowing the ground facts. Those may be helpful, but up to getting some preliminary information. Your context is not only different. It’s unique too. Anyhow, you have to hire a good researcher who is well knowledgeable, experienced and skilled.
Knowing the fact is everything behind a success story. Before proceeding for a startup, do adequate research in the market. Prepare first hand analytical report on competition, customers, demand and finance. All business models must be based on proper survey and analysis.
4. Lack of Planning
Many startups fail because they don’t possess a proper planning document. In fact, planning is everything. A business plan is a handy document that describes the business model, potential customers, potential market and competition, operational mode and organizational structure, pricing models, marketing and sales strategies, financial and legal aspects and all other major issues of a business. It works as an axis around which all business activities revolves with proper control. Without a concrete planning document no start-up can proceed even an inch further.
There are only two aspects to consider – what’s real and what isn’t real. Reality is the ground, where we do live, do function and do operations. Please be mindful of it before going for any venture.
5. Improper Action
Starting from working with an idea, researching, planning, and up to selling, there are dozens of business activities to perform. For each activities you, should have proper action plan. You should have your road map to act – how, when and in which direction. Failing to do properly is, in fact, failing severely.
Mindfulness is the first requirement for success of any type, but neither the idea nor the opportunities nor even your big abilities. The golden rule is -act mindfully and act properly.
Bad fortune affects many businesses, but that isn’t an external effect. It comes out of the business itself.
You’re not going to be a failure because you can now decide whether to start or not, you can calculate the risk factors and you can know how to handle the risk. You might be a hero! But that can be possible only if you’re mindful enough.