Why Most Startups Typically Fail

why most startups typically fail

Startups are entrepreneurial ventures at the early stages of operations seeking to effectively develop and solve a real-life problem with an innovative product or service. However, most startups end up collapsing at early stages without a chance to validate scalable business models. Sometimes though, they evolve from the idea stage to the product development stage but fail to penetrate the market with the product, and they eventually collapse. Most startups fail because of mistakes they make at the early stages of product development. Here are a few of the most common reasons that lead to startup failure.

Lack of market demand for the product

Most startups fail because the founders and the entire startup team fail to conduct a market research to find out if their product/service will be sellable in the market. Hence, they take most of their time in product development, and by the time the product is ready, it becomes too late to conduct market research. The common mistake that most startup founders make is thinking that their invention will be so appealing to the target market without even doing a market research. It is much wiser to take time and validate the product in pilot projects or beta testing before launching it to the market. This will prevent a market rejection risk and significantly reduce failure at the end of product development.

Ignorance of the real problems people face

Beta testing allows startup founders to find out the 'real' problem that people face and if their product will solve that or not. Also, startups should be ready to take in both negative and positive feedback to grow. Hence, whenever a startup faces market rejection in the early stages, it can re-invent and provide solutions that work for the target market. It is much easier to deal with market rejection at the early stages of product development than at later stages. Knowing the real problem that the target market faces allows the startup to incorporate changes in the product before the final release.

A weak or unbalanced team

A weak team doesn't necessarily mean that the team is ineffective or cannot carry its duties efficiently. Instead, it means a team consisting of professional experts of the same school of thought. Let's say the startup has five people, and all of them are developers. Even though they might be trying to solve a real-life problem through the use of technology by creating an app or website, the team is unbalanced. A good startup team should consist of people with different skills, and this will boost the odds of success for the startup. A team of people with different skills will give the startup business an upper hand against its competitors. Since the team will be able to complement each other and get the company going.

A good team should comprise of not less than five members. There at least five key areas and skills needed to make the team complete or balanced. A good team must have a good manager/leader, a marketing guru, an efficient product developer, a salesperson, and a good accountant. In the initial phase or early stages that may seem to be the complete team, but once the startup develops, there will be need to add more skilled personnel to the team.

If the startup manages to develop a scalable business model and begins its operation as a small company, the number of team members must grow too. To compete effectively with other existing companies, there will be need to look for a legal representative and human resource manager. Startups that have and maintain a balanced team have a good success rate compared to startups with a poorly organized team.

Failure to raise adequate capital

Funding is one issue that most startups attribute their failure to. In fact, in a recent conducted survey, 24% of startups admitted to failing due to running out of cash to sustain their businesses. While other startups struggle to stay in the market and get adequate funding. Even a startup with the best idea in town and a successful business model can collapse without proper cash flow. The most reliable ways of funding a startup take some time since investors need to be sure their investment won't be swindled. As a result, startups need to make sure there's a market need for their product and have a detailed business plan to present to investors. Other means of securing funding include crowdfunding and taking small business loans. The latter is very risky, especially for a startup, and should be avoided at all means.