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 you will be aware of the facts why new businesses fail.
When you commence googling on startup failure, you’ll find hundreds of blog posts on the same topic – almost all are similar. They all have identical lists of reasons to tell you why most companies fail. And also they provide, similar solutions to you to 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 essential reasons for startup failure that we can apply to all business types and domains? In fact, none of these is a source cause for which any business has ever failed or will be.
Let me make it clear.
Let assume that ‘Startup A’ couldn’t find adequate customers to sell its product in the market. Gradually, the company ran out of cash 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 issues and bad management.
Now, let’s ask –
- Why ‘Startup A’ faced the market problems?
- Why ‘Startup B’ faced heavy competition?
- Why ‘Startup C’ faced pricing issues?
To find out the answers to these questions, you’ll surely search the roots of the problems. And hence, let’s go to the origins.
Let me tell you why, exactly, businesses fail, and why you aren’t going to be a failure.
For a startup, either to succeed or to fail, the following five reasons 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
Failure of a business starts with the founder(s). Entrepreneurship is not everyone’s cup of coffee. It requires a competent person(s) behind it. To make a business successful, the founder should possess:
Practical Vision: This is a must. I found that 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 the 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 it. Any previous experience of business handing, even of failure, can help startups to succeed. Be sure that a high school graduate is not going to build a great company.
Skill: To be the CEO of a startup is one of the hardest jobs to do in the business world; because you need to be an expert in a wide range of skills. Never think that your employees will do it for you. This is why many startups fail. Follow the golden principle – ‘You can do it, and 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 be many frustrating stages in running a startup. For a few years, a lot of problems will be all around you. You need a strong will-power to face the challenge. But never think of a Plan B.
Leadership: All we know, it counts.
You can blame many things for the failure of your startup – no market fit, not enough cash, team problems, pricing issues, etc. But all of these reasons boil down to one cause – a CEO is 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 fail. An idea fails because it’s just an idea, not a valid idea.
It’s not surprising that many people find their ideas while they are in bathrooms. It seems that bathrooms are the production centers of ideas. While you are under the shower, or even on the potty, naturally, you may 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 have 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 who 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 a 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 is in your idea.
3. Invalid Method of Validating the Idea
People told me that they had a 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 that dream to be an entrepreneur do research in their drawing rooms. Their research ends in googling and reading a few blog posts. They complete it just within a few hours.
Be mindful that no blog post can help you in knowing the ground realities. That may be helpful, but up to get some preliminary information only. Your context is not only different. It is unique too. Anyhow, you have to hire a good researcher that 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 a first-hand analytical report on competition, customers, demand, and finance. Your business model must be based on a proper survey and analysis.
4. Lack of Planning
Many startups fail because they don’t possess a proper plan document. Planning is everything. A business plan is a handy document that describes – the business model, potential customers, potential market and competition, operational model and organizational structure, pricing principles, marketing and sales strategies, financial and legal aspects, and all other major issues. It works as an axis, around which all business activities revolve, with proper control. Without a concrete plan 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 activity, you should have a proper action plan. You should have your road map to act – how, when, and in which direction. Failing to do properly is failing severely.
Mindfulness is the first necessity for the success of any type. It is neither the idea nor the opportunity nor even your big ability. The golden rule is – act mindfully and act properly.
Bad fortune affects many businesses, but that is not an external impact. It can come out of your 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.