Being a startup founder myself and with a prior experience of building a startup from scratch and sharing both successful moments and moments of failure one great learning has been that we can’t pin point any specific reason for the startup failures. There can be more than 50–100 reasons which can lead to startup not able pulling it off and eventually have to shut the shop or pivot to different business model or restructure the entire startup business.
Let’s first understand what actually startup looks like , One of the most practical and relevant definition of startup has been given by Eric Ries. He said
A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.
So one thing is very clear that startup comes into existence with a purpose to solve . They not only have to define the problem statement but also need the financial support to experiment with their business model and reach the right market-fit stage till then it’s all the test of founders and team members character and coordination with each other, how the entire team allign with a startup’s vision plays the pivotal role in sustaining the bad phase which is unavoidable.
What stats say about startup failure:
As per stats related to small startup failures are
- A bit more than 50 percent of small businesses fail in the first four years.
- In fact, of all small businesses started in 2011:
- 4 percent made it to the second year
- 3 percent made it to the third year
- 9 percent made it to the fourth year
- 3 percent made it to the fifth year
But being a founder you don’t need to give too much thought to numbers , yes it’s important but as an entrepreneur we need to be prepared to hustle hard and need to have first-hand failure experience.
We can only succeed when we successfully learn to handle our failures
CBInsights compiled the list of startup failure post-mortems, after studying many startups against certain failure post-mortem points and concluded that , One — there is rarely one reason for a single startup’s failure. And two — across all these failures, the reasons are very diverse. They listed 20 reasons for startup not able to succeed out of which we will discuss Top 5 relevant reasons which results to startup failures based on my personal experience and the research CBinsights team came up with.
Top 5 Reasons for Startup Failures:
- Product Market Fit: Product/Solutions built was not what a market needed in that phase of market context. To be more precise startup built the solutions which wan not solving the problems relevant to the existing market. Their Idea or solution were not competent
- No Financial Fuel: This is a common problem when any startup starts without having a clear cut financial bandwidth to start and also they have the lack of financial backup to sustain the phase where they were building the product and testing it to make it market-fit.
- Wrong Team: Startup lacked in right founding team combination with the diverse field experience and skill-sets to pull the first MVP themselves. Founders conflict pops out due to lack of clarity in purpose and with ability to sustain financial challenges leading to separation and the death of the startup in first 6 month itself.
- Can’t sustain the competition: After passing the litmus test of first 12 months, and finding the sustainable revenue model they struggled to compete with their peer competitors who entered into the same market with more preparation or with more financial power to outcompete them. Due to ignorance & lack of pro-active measures to outcompete their peers , lack of competitive and market analysis in being future proof lead to their demise.
- Product Pricing Was Not Right: One of the biggest mistake the product marketing team does is that they don’t price their product right enough to suit the market in which they are competing. Due to lack of consumer need analysis and some abrupt decisions to quickly capture the market startups ignores the essence of pricing their product/services right. As per CBInsights
“Pricing is a dark art when it comes to startup success and startup post-mortems highlight this difficulty in pricing a product was not too high or too low to make money in context of the particular costs of a company. Delight IO saw this struggle in multiple ways, writing, “Our most expensive monthly plan was US$300. Customers who churned never complained about the price. We just didn’t deliver up to their expectation. We originally price by the number of recording credits. Since our customers had no control on the length of the recordings, most of them were very cautious on using up the credits. Plans based on the accumulated duration of recordings make much more sense for us and the number of subscription showed.”
There is no denying the fact the success ratio for any startup or small businesses are 1 out of 10, but still the success of 1 startup should be an inspiration for any entrepreneur to give it a try, there will always be an option to pivot and try news way of doing a business, failures are inevitable but that experiences will play a vital role in shaping you as an individual and will prepare you for much bigger risk and even bigger rewards .
So don’t be bogged down by what is written instead follow your heart and write your own chapter of failures and successes.