Did you know 90% of startups fail? If it wasn’t already difficult to begin from scratch, making it just sustain itself is already difficult enough.
Many startups fail because they usually don’t have a sustainable business model or can’t compete with the competition. Some struggle to survive even after successfully captivating the market.
We wanted to understand why startups truly fail. There surely must be more to why business failure rates are increasing more than the chance of success for tech startups these days. So we did and of research by going through reports and articles written by founders, investors, and journalists on more than 200 startup failures.
Here’s what we found:
Every startup is different. Their ideas are different, and the markets they target are different, even their target audiences. Starting a business is no piece of cake, let alone gathering the venture capital to fund it.
One thing we found is that startup failure rates have increased because startup owners forget to build a product that provides value to customers. How startups go from planning to execution determines their success rate.
So what are other reasons why startups fail? Let’s find out.
Here are the top 10 reasons that can kill a startup.
1. Impulsive Scaling
One of the reasons why startups fail is scaling too early on. When you initially launch your business, you’ll have to invest heavily in essential software and development to keep up with the latest trends and also other essential things.
Spending large capital on the product before it has proven to be sustainable and successful can put a halt to the growth of your business. People want success quickly and that’s where the trouble arises.
Scaling too early on is the most popular reason why startups fail. It is essential to establish steady growth over a period of time, before thinking of scaling quickly.
2. Using Unproven Technology
While working with the latest technology is key to providing your customers with a great experience with your brand, it is important to work with trusted and proven technology. When you work with unnecessary technologies, you increase the risk of having a monetary loss.
Startup founders are excited to work with new technology to gain a competitive edge, while that’s a great idea, it isn’t feasible until it’s proven. Rather using proven technology solutions that are much simpler and reliable can help save valuable time and help achieve results that matter quickly.
Technology that is relevant to the current market, but not to your business can cause problems down the line in creating market fit products. Implementing technology that is relevant to the market, but is not relevant to the business can lead to engineering difficulties later on.
3. Team Burnout
A startup environment can be chaotic at times. Having to deal with so many aspects of a business; from branding, marketing, product development, and more, it can get quite stressful at times to follow the laid out business plan.
With a small team at the helm, taking care of so many things, at times can get overwhelming in achieving progress. It is not exactly a technical problem, but after all, we are humans.
Startup mentality relies heavily on teamwork, the better coordinated and motivated the team is, the better the output you’ll get. However at times, there will be uncertainty you would have to deal with, and instead of overwhelming your team with more workload, the better option would be to hire a team of remote talent who can help you solve your tasks on time.
4. Not Having a Clear Vision
Understanding your business goals and how you plan on achieving them is the foundation on which your company’s future relies on.
It’s important that as a startup founder, you communicate your goals clearly to your team and customers to ensure that everyone knows why you are doing what you are doing.
You need to be clear about your vision or you will dwindle in a spiral, struggling to make any sufficient progress.
5. Cyber-Security Problems
In this digital age, cyber-attacks and other unauthorized attacks on the web have become a great threat to companies and end users. In 2021, cybersecurity software spending is set to reach $230 billion dollars in 2021 from $183.2 billion dollars in 2019.
The threat is real. Securing your business infrastructure to prevent any unauthorized access and secure your employees’ and users’ data is essential.
Startup owners often underestimate the risk of having a secure infrastructure earlier on. It can turn into a serious security threat and hamper normal business operations, affecting your startup’s growth drastically in the process.
6. Lack of Financial Management
Yes, the main reason why startups are found is when startup owners have a great idea to solve real-world problems and make money from them.
While that’s understandable, it is essential to manage your finances first. Keeping track of investments, spending, revenue generation, and how you are going to use it for your startup’s growth is key to ensure not run out of cash and maintaining a steady cash flow.
Figuring out new ways to manage and make money is a good way to boost your business growth.
7. Not Enough Clients
If you’re running a business the right way, then you are sure to increase your customer base with time and turn them into your main source of revenue.
But at times, a lot of influences can throw things out of order for your business. It can be anything from customers’ changing preferences too there being better products in the market. You need to be product-market fit ready to increase your chance of success.
It is necessary to notice your customers’ changing behavior and make changes to the business model accordingly to serve your customers right.
8. Strong Competition
Across all industries, startup failure rates seem to be almost the same.
Startup failures because of competition seem to arise in 2-3 years after the startup is established. Competition in the market is natural. Startup failure rates seem to be rising because startups decide to scale resources in an effort to compete, which at times isn’t viable since the startup doesn’t seem to be making adequate profits for it to survive.
9. Inefficient Business Model
A proper business model is important to help you figure out and successfully tackle all aspects of your business such as:
- Your business idea- what problem are you solving and for whom?
- How will you provide value to your customers?
- What will be your USPs? (Unique Selling Points)
- How will your product get to your customers in a timely manner?
- How do you plan to compete in the market?
- How are you going to carry out your digital marketing?
This is just a gist of what a good business model should cover. Startup failure rates increase because startup owners forget to consider many such important aspects, leading to business failures.
So make sure to take your time creating a business plan that will help you create success stories for your startup. Consider all possible aspects of concern there might be and play your cards right.
10. Bringing On Board the Wrong Team
When hiring a team of developers, engineers, marketers, or any other skill-specific professionals, it is necessary to know if they can actually deliver results that matter within the given timeline.
Time is of the essence and startups have none to spare. The faster it can prove the product is viable, the better chances of success it has.
Startups need a team that is efficient, smart, and can handle any new challenges there might arise promptly.
Whether you hire a team of in-house talent or a remote team of talented professionals, what matters is that you get high-quality output.
Hiring remote teams is a great alternative to quickly finding the right set of minds to work on your project.
What to do when a Startup Fails?
While it may sound terrifying, this is a reality check- any business can fail.
There will be constant hurdles you will need to overcome to stay at the top of your game and create a successful startup.
IT infrastructure and digital marketing are two main pillars that help fuel the growth of a startup. Outsourcing your IT & digital marketing needs can be the best way to tackle your software development requirements, and also connect with your target audience easily.
Communication Crafts has top-tier talented software engineers, web & mobile app developers, video producers, and digital marketing specialists you require in one place. With our state-of-the-art startup services, we can help you rightly grow your business and take your business to new heights.