It takes a wise man to learn from his mistakes, but an even wiser man to learn from others.
The chances of getting a head on flipping a coin is 50%. The chances of succeeding in your venture does not necessarily follow the same probability. In fact going by numbers, more than 90% startups fail. While the reasons vary from technical issues to legal problems, hiring and firing troubles to mismanagement, the fact remains that you should think these through to avoid these mistakes.
1. Product-market misfit
There are products that appeal and you buy them, and there are products that just appeal but no one buys them. This basic difference determines whether the product or service being offered by the startup is a good fit for the market or not.
An example of this happens to be Quirky whose tagline was “making inventions accessible”. Honestly it is (was) a great platform for users to submit innovative ideas. These ideas were turned into products, like an wi-fi controlled air conditioner. But the sales did not even come close to the amount of money that was put into making them.
2. Worrying about being profitable, early
It is great to have a good business model from day-1. But it is a tad unrealistic to see overnight success in real-life stories. Did you know: Rovio’s ‘overnight’ success with angry birds came after 51 failed attempts?
3. The vicious discount model
Gawd! There could be a whole thesis on how the discount model is as good as a one-night-stand. Most e-commerce companies are still heavily reliant on honey-trapping customers with heavy discounts (no complaints from the customer!), but as time goes on and profits seem nowhere near the horizon, investors already seem to be a in a puddle of sweat.
The worst thing about the whole get-customers-with-discount-forever thing is that if you can offer 50%, your competitor can offer 51% off; and the customer goes whooshing to the competitor.
If you are planning to launch a startup and get customers this way, please give it a second thought and focus instead on giving the customer something better.
4. This brings us to the next issue: Lack of loyal customers / users
Any product or service becomes great only when your users / customers vouch for it. Unless the startup is giving something of real value to the modern-age, review focused user, chances of survival seem bleak.
Tip: However awesome you (founder) think your idea is, always listen to the user and make improvements along the way.
5. Hasty products → Faulty products → Botchy updates → Pissed off user
What is a bucket with a hole? Useless.
In the competitive era, a faulty product is worse than no product. Not only will the user elaborately smother your reputation online and in media, it will be a big hiccup in your future plans.
6. Failed investment rounds
If you belong to the “I am bootstrapped and lovin’ it” school of thought, you don’t have to worry about this. However, if your startup is relying on grabbing investment, a failed investment round is the first push towards the gates of hell.
7. Unable to beat competition
If you are in an industry that has lots of competition, it is a good sign. If there is no competition for your startup, chances are that there is no market either. The game depends on whether you are able to beat the competition soon.
The cab giant Uber is an excellent example of a mammoth competitor that has refused to buckle down and led to the shutting down of many small startups who tried to do something along similar lines.
8. Co-founder issues is among the most heart-breaking reasons of why startups fail
Some of the common pain points are:
“This was my idea”
“You can’t take all the decisions”
“You do nothing”
“How much do I own?”
“I have a personal life, so I will be out at 6”
If co-founders bicker, there is no cohesive ideation, team spirit breaks down, investors steer clear.
9. Hiring the wrong people is the beginning of reasons why startups fail that involve bad HR decisions…
10. … Next is Firing the people you shouldn’t have fired
11. Then comes Overhiring
12. And to top it all, comes Mismanagement. Several wrong HR level decisions play a vital role in the downfall of a startup.
13. Legal issues
A legal problem can come in unannounced. Most startups do not consider taking legal opinion before launching their products and often end up in a legal mess before they can claim the land. Several companies like Grooveshark shut down after running into legal troubles.
14. Not addressing a problem, is a huge problem
Say you are running a local e-commerce company that aggregates products from local vendors and delivers groceries to doorsteps. You see that the cost going into getting different products from more than two vendors is costing more and the transaction isn’t profitable. What do you do? Do you cut out that trip? Do you keep your own stock? Do you cancel the order? One way or the other, the problem has to be addressed at the earliest.
Several startups rely on “scale” and forget that the short term losses could keep running for ever. If there is a problem, sort it out at the earliest!
An entrepreneur is a brave being. Someone who has not let others determine what he / she is worth. Hats off to the brave men and women who relentlessly try to make a change by picking up the tools and creating their own resources.
Once in a while, they fail, like all human beings.
It is from the failure of others and own lifetime, that we can improve and work ahead. These 14 reasons of why startups fail is not meant to discourage you. Instead, it is to serve as a lighthouse, to guide you towards your goal. Believe in yourself, work hard, and make this world a better place! 🙂