Startups: Failure and Success
During the pandemic organizations have adopted the fast digital across the world, easing the flow of investments as investors worldwide, can now quickly access information on foreign startups and their operating environments.?
India has the third-largest startup market in the world, with over 60,000 startups and 65 unicorns (those that reach US$ 1 billion in valuation) in multiple industries.?
Let’s know What is a startup?
A startup is a newer company that's founded by one or several entrepreneurs. The goal of a startup company is to offer a unique service or product to the market and in doing so solve a particular problem that consumers face. Startups are typically shoestring operations or operations that have only a small amount of money for funding. Once the startup is more established, funding is often provided through investors and lenders.
Some startups boomed and some faced failure.
But, here the question is, Why do start-ups fail?
However, 90 percent of these enterprises are likely to fail within the first five years, which makes it a difficult market to break into. There are many reasons for the failure of startups such as:
Failed to understand/gauge the market:??
Many entrepreneurs go into a startup pumped about a new idea, with grand visions of selling a million units in the first year, but without an accurate understanding of the market need for their item. ?
Changing market conditions:?
Sometimes those involved in a startup have an accurate view of the market, but then market conditions change before they are established enough to weather those changes.?
The coronavirus pandemic was a perfect example of changing market conditions that caused many businesses to struggle or fail. Shutdowns and capacity restrictions caused many retail businesses and restaurants to see their volume decrease dramatically, and it took many months for some customers to feel comfortable enough to come back.
For some startups in their early days without much profit to fall back on and without an established customer base, the huge market changes were too much for them to weather and the entire venture amounted to not much more than a series of false starts.
Now, small businesses are being hit with labor shortages that have forced some to cut their hours or make due with fewer team members to handle vital aspects of the business. These challenges will no doubt lead to failure patterns that could be long-lasting, especially for some brands that were already struggling before the pandemic.
Bad market timing:
Sometimes a startup has a great idea, but doesn’t time a major product launch or marketing push well. Unfortunately, it may only take one ill-timed move to cause the startup to fail, if investors get wind of the poor decision-making and decide to bail.?
Some ideas have just been ahead of their time, like Google precursor Ask Jeeves or grocery delivery service WebVan. The concepts were great, but not enough people saw the need for the service, or it just seemed too “out there” because nothing else like it existed yet.
Other ideas have been poorly marketed from a timing perspective, such as launching a holiday-themed marketing campaign after the holidays or trying to do a major product launch without building any buzz around the product first.
Cash flow issues:
Another reason for startup failure is simply running out of money. Most startups rely on investors and venture capitalists to fund them until their product or service starts making money, and if that doesn’t happen fast enough, investors often balk at continuing to fork over cash for an extended period of time.?
If the startup doesn’t make sufficient efforts to find new capital as the original capital dries up, it will soon find it can’t meet operating expenses under the business model envisioned.
Cash flow problems are extremely common among startups and are one of the top reasons for startups to shut down. Even if the problem isn’t investors backing out, new businesses can fail if they don’t meet customers’ needs or if their pricing is too high or too low.
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Flawed business plan:
Having a business plan is Startup 101, and just about everyone knows you’re supposed to have one in the early-stages of any small business. But just because you have a business plan doesn’t mean it’s a good one.?
A flawed business plan doesn’t take into account factors that later become important, and can cause business failure rather than startup success. Some common business plan flaws include being too vague, miscalculating costs, underestimating timelines for production or marketing, and getting key facts wrong when researching the market, as stated above.
You don’t have to go to Harvard Business School to make a successful business plan, but it does help to get assistance from those with real-world experience who may be able to point out your flaws so you can correct them sooner rather than later.?
Poor recruitment practices:
Entrepreneurship only works when startups can hire the right people for their venture. Most successful startups will credit their team for much of their success because unique people with creative ideas are better at figuring out how to make things work in the best possible way. The personality and character of your top team members are often reflected in the organization in crucial ways.?
A weak foundational partnership:
When co-founders of a startup don’t work well together, it often makes startup success difficult or impossible. Communication can be a major problem for partnerships that are not built on a shared vision and values.?
They need to be on the same page and want the same things for the company. Otherwise, it will cause conflict eventually. Partnerships don’t usually start off badly. As time goes on, however, some partners learn that their interests and goals for the startup don’t align well, and at that point, the startup is at risk for failure unless its leadership can find a common path forward together.
Failure to learn from mistakes/make adjustments:
One of the most common reasons for startup failure is that the startup was unable to learn from the inevitable mistakes and make adjustments to become more successful.?
Persistence is very important for startups, but if adjustments to a better way of doing things doesn’t also take place, a startup may persist itself right out of business. Persistence only works if the business model is sound and the right decisions are made along the way.?
Burnout/loss of passion for the startup:
When the leadership of a startup loses its passion for the concept or product, or burns out on the idea too early, the startup will likely fail. In some cases, founders can sell the startup to someone else who can take their idea and run with it or fold it into their own concept.?
Unfortunately, few business owners that burn out or lose their passion ever regain it Unforeseen market crisis:?
Unforeseen market crisis:
Covid-19 Pandemic impact on the global economy was a classic case of a black swan event: completely unforeseen, and devastating for a lot of small businesses and startups.?
Some were able to survive—even thrive—through the crisis. Because they had invested in tech stacks that helped them operate, and communicate, 100% remotely.?
Now that we know why startups boomed while other businesses struggled, here’s a roundup of what all small businesses can do to be more like a startup:?
Regards,
Kinjal V.