Why Startups Fail?
The world is today the world of startups. The emerging businesses are emerging every day
in the corner of the globe and market their products and services. But how many percent
of these startups can go from the initial stage and continue to operate in the competitive market today?
How many startups fail?
The fact is that the number of startups that fail in their path is very high. According to
statistics, 50% of startups will fail in the first five years and 70% will fail in the first
10 years of operation. Other studies have announced the failure rate of startups up to
90% and another study up to 75%. Apparently, the actual number is between these two numbers.
But what are the main reasons behind the failure of the startups, and why is it so high?
Many people who start a new business, have energy and capital at the beginning
of their work, and they never think that they are the first, and there may be many obstacles
on the way.
Failure is in fact a kind of opportunity for learning, but it is possible to
avoid the irreversible failure consequences by using the right strategy and using
efficient methods. In this article, we first look at the main reasons behind
the breakdown of startups based on real-world studies and statistics,
and then we propose for each one.
Top 5 reasons startups fail statistics
CB-Insights has analyzed 101 startups after their failure. According to their study 5 top reasons that startups fail are:
- No Market Need —- Accounts for 42% of Failures
- Running Out of Cash —- Accounts for 29% of Failures
- Not Right Team —- Accounts for 23% of Failures
- Get Out Competed —- Accounts for 19% of Failures
- Pricing and Cost Problems —- Accounts for 18% of Failures
Almost 50% accounts for the first reason: No Market Need.
Knowing other reasons would help you to be more successful.
There is a short video explaining these top 5 reasons:
#1 No Market Need
It’s worth mentioning that this is the biggest and most important reason behind
the failure of startups. According to CB Insights, many start-ups (42%) fail because
of the product or service that there is no market need for that.
Many people find a solution to the problem and start a business based on it,
but after a short time they realize that their product or service can not be used
by anyone. It is important to pay attention to market requirements before
launching a startup (Read more about New Product Launch).
If you have an idea to set up a startup, first research the market. Talk with people
(as it is mentioned in Business Model Canvas in the Customer Segments) around you
and people about this startup. Perhaps this is not a matter for others at all,
which is of concern to you. Maybe even better and better quality products or
services to meet this need in the market. It is likely that the market is still not
ready to accept this product.
#2 Running Out of Cash
Statistics show that 29% of startups fail due to financial problems and their cash end.
Many startups do not have enough information and experience on managing financial
issues, tax laws, and so on, and even if they have started working with enough money,
there is no guarantee that they will be able to afford their business expenses.
On the other hand, since most startups can not afford wages of financial advisers and
accountants, they do it themselves and therefore focus on solving related problems,
but due to their lack of experience, they ultimately can not do their core work, such as
examining the business model, team management etc.
From the beginning, you should consider managing your finances and making
the most of your cash flow. Otherwise, you will have to sell your company assets
to resolve your financial problems, and your business will soon be liquidated.
If you do not have enough money to hire a financial advisor, you can outsource
and provide your startup finance to companies that provide accounting, tax services,
financial advisory services and tax advice at a lower cost.
If you’re comfortable with financial issues, you can better handle your business.
Do not overlook the tax problems, as ignorance of business tax has always been
one of the most important reasons for the loss of capital and stealing.
#3 Not Right Team
23% of the startups are failing because their team members. Behind a successful startup,
there is a coordinated team whose members have different skills.
The team members must be properly selected and all work towards the main goal.
If the startup is set up with more than one founder, this coordination and coherence
should also exist between them. Because many startups have failed due to
inconsistencies and the existence of conflicting opinions between founders.
#4 Get Out Competed
19% of the startups are failing because they do not have enough knowledge
of their rivals and the inability to compete with them. These startups imagine that
their products or services are unique and unmatched in the market.
While today it’s hard to find a product or service that does not even have a rival
in the market. So keep thinking that you are the only person who has provided
this product or service, even if you are the first you are not going to be the last.
Do not be upset because of your opponents and do not ignore them. Instead,
try to provide a high quality product and service.
Another important point is that you do not think that your competitors are
just startups, sometimes a major or credible company or business may be in front of you.
#5 Pricing & Cost Problems
According to statistics, about 18% of startups are failing because they are not aware
of the correct pricing methods on their product or service. They assume that
price changes in the market will always progress linearly. Price fluctuations
in the market are quite normal, but if you do not know how to price your product,
you should close your business.
The best way is to first market your product or service at a prime price according to
its cost and market. Then wait to see what happens. Some people think that
if their product or service is welcomed, it should increase its price, and vice versa,
if someone does not want their product or service, they should lower the price.
This is totally incorrect. Think about it, if your product is priced at a moderate
(Not expensive or inexpensive) price, the company will pay for it. Unfortunately,
many startups are not able to balance this. For the correct pricing, you first need to
know the customers, the product and the market well, and pay close attention to
the price of the products or services of competitors.
You can read the whole article in its website.
Why Startups Fail Book
There is a book talking all about the reason of startups failure.
Why Startups Fail Book is for the aspiring entrepreneur who
wants to avoid the key mistakes that have caused hundreds of thousands of companies to fail.
Why Startups Fail Book will appeal to venture-backed technology entrepreneurs.
This book has a rate of 3.9 out of 5 in Goodreads.
It has 185 pages explaining top reasons that a startup fails and ways to avoid them.
It is published in 2012.
You can browse it in google books.
Top 4 Reasons Startups Fail According to 14 International Accelerators
According to results of a 14 international accelerators as entrepreneur website mentioned,
there are 4 top reasons that a startup would fail. Here they are:
- Inadequate Testing
- Team Incompatibility
- Lack of Persistence
- Everything Else