The majority of startups fail: More than two-thirds of them never provide a positive return to investors. But why do so many startups don’t succeed?
The CB Insights research portal created a list of the most common reasons for startup failure based on the 422 startup failure post-mortems. The post-mortem record has been expanded and now consists of 400+ failure stories. However, we decided to group the points and shorten the list to two main reasons for startup failure: Marketing and Team.
The majority of business books are filled with success stories. What if, instead of reading success tales, we study failure stories? Amid the enthusiasm, it’s easy to forget that most companies fail within the first three years of existence. When the dream fades, reality sets in. The startest thing an entrepreneur can do is research why startups fail, identify problems, and consider how to avoid them.
According to the latest facts and statistics, only 33% of startups make it to the 10-year mark, 40% of startups actually turn a profit, and around 20% fail in the first year.
Construction, transportation, communications, finance, retail, and real estate projects have the highest startup failure rates for new enterprises within the first five years.
However, these data should not be used to justify depriving oneself of the right to express yourself. Many things we enjoy today were never considered in the past, and creating something valuable from nothing is a difficult task.
In contrast to 20 or even 10 years ago, a business’s fundamental premise today is centered on gaining name recognition and increasing market share. The number of mobile apps in app stores has continuously expanded while entrance hurdles have decreased. It implies that getting started today may be easier than in the past. What’s difficult is breaking through the din and staying afloat for long enough. This is where studying failure stories instead of successful ones can be beneficial. So, what are the root causes for startups failure?
Lack of adequate marketing research can result in major problems with the product and users, such as poor product timing, competition, pricing issues, unsatisfactory products, etc. The greatest difficulty with startups, which affected 42% of entrepreneurs – no market need.
Most entrepreneurs rely solely on their own vision and the opinions of friends or family, or they don’t pay attention to the current market needs. The significance of market research cannot be overstated. Otherwise, it can result in an inability to meet market demands and a high failure rate.
The product-market fit needs a product that customers are willing to pay for and are accustomed to paying for in order to resolve a problem. Launching a new business should begin with extensive study or research, ideally before considering the specifics of the product itself. You should set up a landing page to promote early access to your product, drive traffic, and track engagement.
Businesses either promote their products or services in a way that does not grab customers’ attention or fail to understand what customers really want and try to sell the wrong features. You can have the best-in-class product, but it won’t sell if no one knows about it and it isn’t appealing to users. Many startup owners are so engrossed in their products that they ignore marketing efforts.
The most important thing to understand is that no matter what business you are in, whether it is flower delivery or a high-tech VR/AR set, you are always in the marketing business. The sooner you grasp this, the better your chances of success.
Startups, especially the tech ones, need to consider two principles: laser focus and the ability to pivot. The toughest thing is to do both simultaneously without losing balance. Identifying your business goal, avoiding becoming diverted by secondary duties, and delivering on your promises to users is important. It’s common for startups to restart with fresh ideas completely, and the original concept almost always changes in some way due to market realities.
Keep your focus on the basic concept of your business. You should have a clear goal with a solid 12-month, 2-year, 5-year, and 10-year plan and stay on that plan.
However, don’t be blinded by over-concentration on your primary goal at the expense of flexibility. Keep in mind that the strategy can change. If your 5-year strategy looks the same after 5 years, it is outdated. Things change quickly, and you should too keep up with the changes.
Usually, startups skip the UI/UX design stage to minimize expenses. Sometimes it is possible to build products from scratch without design. But, without the design phase, it is impossible to manage successful products. Even while working on flexible techniques, it is necessary to design first to avoid the predicament that occurred with the founder of the College Inside View startup.
Always design a product first and build an MVP. However, do not go too far in cutting off basic functions.
Sometimes, no matter how much skill a team member has, they are simply not up to this particular project. Indeed, startups need business-savvy employees. Or they may lack a crucial attribute to make their business or project successful.
The best option is to hire a highly-skilled and agile team to cover all aspects of your business. You may consider hiring an external software development company with startup-building experience if you’re a tech startup.
It usually happens that team dynamics kill seed-stage enterprises with multiple founders. Building a startup business can be too exhausting for entrepreneurs. To minimize disputes and misunderstandings, founders need to keep open lines of contact with each other.
Our proposed solution is team alignment.
Make sure to collaborate with your team, so everyone understands what is happening. Most employees will change over time, whether they choose to leave or are laid off for various reasons. Ensure new employees understand and agree on your company’s key goals. Even if you’re taking benefits of extended teams, as many startups do these days, it’s still crucial to unify your team around the major goals.
Finally, the financial issues that have doomed 37% of startups are no problems as such, but the result of poor marketing or a wrong team that was not up to the task.
Inadequate finance is not the reason for startups’ failure. Businesses run out of money when costs exceed income. But when can it happen? It usually happens due to a failure to market the product or management issues.
Although there is such a thing as the average web development cost, it is hard to estimate the cost of an app without an adequate amount of detail, just as it is difficult to estimate how much a car costs without knowing its features or functions.
Everything appears to be clear on paper, but when reality slaps you in the face, you start to wobble. That is why it is critical for your team, your clients, and other app startup owners to understand the cost of mobile app development.
In retrospect, everything may seem transparent. However, that’s not true in reality. There are numerous reasons for startups’ failure, but marketing and team are the main cause. According to the Five Whys method devised by Sakichi Toyoda, there is always a primary cause for everything. Learning how to resolve that one major cause is far more useful than trying to mitigate the consequences.
Failure does not happen by chance. It all starts with ignorance that can be fixed. With proper planning and determination, building a business that would make your goals come true is feasible.
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