No matter how sad it is, let’s face the music: around 90% of all startups fail (that’s what statistics say). Moreover, it is essential to know that 10% of startups across all industries fail within the first year, others – during the first two or five years of development.
The lack of investors, giving up because of your burning out, disharmony among investors – these things happen. However, the most common reasons why most startups fail are others (read further to know them 😉 ).
In this article, we’ll focus on the top cases when startups don’t survive. Whether you feel that you’re about to be among them, or everything is cool, but you want to be forearmed – you’ve chosen the right place to read.
Let’s take a look at those reasons, starting from the very end…
#9. You Ignore Your Customers
Engaging with your customers is crucial for the business survival since they are both your end users and the source of your ideas to improve your startup. No matter how great your product is and how fascinating the features you’re rolling out are, if your end users don’t like/need them, you’re doing the whole work just for fun.
We encourage you to talk with your customers, ask them to share their opinions, and – what’s even more important – enable them to leave their feedback again and again, so that you could understand what things need improvement and how to better develop and test your product.
Many founders prefer not to make others see their prototype until it is done and dusted. However, that’s a mistake that leads 14% of startups to a failure. If you don’t know what your potential customers think of your startup – be it because of the fair that someone will steal your idea or the understanding that your prototype is not perfect enough to present it to people – you’re wasting a great opportunity to improve your product before they start using it.
To find that balance, the first thing you should do is identify your pricing strategy. Whether it’s competitor-based pricing, a value-based model, penetration pricing, or price skimming, choose the model that fits specifically your business. At the end of the day, your target audience may share the same pain points, however, their budget opportunities may vary greatly.
#8.You Don’t Do Enough Marketing Activities
Marketing is often underestimated by many founders, especially the technical ones, who prefer to spend money on R&D services rather than on sales.
However, if you want people to know about your product, you need to promote it. Here’s where marketing comes into play. Besides, the COVID-19 pandemic has clearly shown that online marketing is a must to keep your customers interacting with the product. As statistics say, 14% of startups fail due to the poorly conducted marketing.
Of course, in the very beginning, you don’t need a separate team to promote your product for you can do it by yourself, but make sure you start forming a marketing team as soon as you get fundraised.
#7. Your Business Model is Wrong
There’s no need to explain that a successful startup should be based on a profitable business model. Usually, founders get too optimistic about how easy it will be to attract customers (thinking that just building a website will automatically bring customers) and might choose a business model that typically works for many startups but does not really suit their case. Think thoroughly if you need a product/service business model, a subscription-based one, an on-demand one, a freemium type, or any other model. Choosing the wrong business model is an expensive mistake, as the cost of acquiring customers will simply get higher than their lifetime value.
#6. You Build a Poor Product
Statistics say that more than 17% of startups fail to survive because of the low quality of their product. Here we talk not just about the bugs that your product has, but also about how easy/intuitive/comfortable/understandable it is. If the product doesn’t fit your customers’ needs and expectations, if its UI is not friendly, and it enables a poor UX, no one will eventually use it. Again, to avoid this mistake, make sure you engage your customers in the process of the product’s QA – get feedback from your end-users, conduct A/B testing, offer white hat hacking opportunities, etc. Spending time and money on making your audience help you fix your product will save you tons of time/money and create proper sales opportunities in the future.
#5. Your Pricing is Way Off the Mark
Surprised? This seems to be easy, since you can look at your competitors and put the same price, however, the main point here is to calculate a reasonable price for your product (which 18% of startups fail to do). Remember that your price should be high enough to cover costs but low enough to attract customers.
#4. You’ve Got Outcompeted
The next crucial factor that makes more than 19% of startups give up is strong competition in the chosen market. Having some competition is actually a good and healthy thing that shows that your industry is popular, and the product you’re offering is in demand. That said, the thing that matters here is a sound estimation of both your competitors and your capabilities.
When entering your market, try to analyze and understand what companies you’ll have to compete with. Check how many people are already doing what you aim to. Then, consider what could help you add more value or bring something different which will make your business stand out.
#3. You’ve Built the Wrong Team
Building a weak team is one of the top reasons why startups fail (according to statistics, 23% do). That is why it is highly important to start with a team of people whom you really know and trust to avoid misunderstanding and inner conflicts that may lead to the termination of business relationships.
The first employees you hire are the most important ones – those are people who undertake many responsibilities and are likely to advise/invite other employees who share the same values. In other words – they have much power to either grow your company or break it at all. Thus, we do recommend that you establish a team of potential builders you are comfortable to work with. Check our tips on how to build a winning team and whom to hire in this
#2. Huston, We Have a Problem: You’ve Run Out of Money
This reason seems to be more than obvious, still, more than a half of startups fail to avoid it. The lack of capital resources is commonly caused by the following:
- You burn your cash.
If a founder lacks budget management skills or allows personal emotions (a strong desire to grow fast) to get in their way, they can easily end up blowing money in different directions and on things that are not urgent, like providing their employees with cool perks, building departments that you can deal without in the very beginning (like a sales department or a recruitment team of several people), etc.
What we say is before you reach the next round of funding you have to operate on limited resources – spend money only on essential things and save whatever and wherever you can.
- You hire people too fast. This is actually a mistake most startups make. You want your team to consist of many skillful developers – that’s for sure. You want it to grow fast, and hiring new people is something you’ll do when your startup develops. However, hiring lots of people before the need arises is what you should definitely avoid when you’ve just started your business.
Focus only on people you really need and add more employees when you have the proper budget for it. Find out what positions are best to cover while setting off a startup in “Building Your Startup: How to Make Your Startup Go Live”.
- You start fundraising too late.
Very often, founders start both fundraising and – what is no less important – preparing for it too late. More often, they choose the wrong investor – the first one to agree to give funds – in order to finish capital raising fast. Keep in mind that fundraising is a long process that needs at least 6 months of active meetings and even more time for good preparation for them. Besides, remember that before you succeed in raising your capital, you’ll get rejected dozens of times which also takes time. 😉
To make things organized and really work for you, we recommend that you a) start approaching investors before you come to ask for money b) prepare a killing pitch deck (learn our secrets on pitching investors successfully here), and c) select at least two people who will be in charge of raising funds and reporting to your team regularly (every 2 weeks).
#1. There’s No Market Need for Your Product
As statistics show, the major reason why most startups fail is that the market they build their product in does not really need it.
It happens when:
- You haven’t clearly identified your end users’ needs and what pain they have. Thus, the product you offer does not interest them or offers a value that is not big enough to make them want to buy your product.
Taking into account all that, we do recommend that you determine whether your product has a value and what exactly it is – a product that is good to have or the one that is a must – before you even start making a prototype and pitching investors.
- The market size you’ve chosen is very limited. That’s why the people who might have the pain your product solves and the funds to buy it are simply not enough.
- It’s not the proper time for your product: the market and/or the needed technology have not actually been formed yet. You might be several years ahead of your market so that your customers are simply not ready to buy your product.
Hope, we’ve made things a bit clearer. 😉
To avoid many of those failures, at VentureRocket, we help startups find proper fundraising resources and build business opportunities. We deal closely with many investors, innovation ecosystems, and governments that support startups from all over the world.
Explore your opportunities and join the VentureRocket network here.