Why startups fail and solutions!
Researches conducted on more than 150 failed startups over a period of 3 years [2020-2023] across the world, found out the core reasons of startup failures as follows:
1.?Ran out of money: As former Google CEO Eric Schmidt has said, “Revenue solves all known problems.” Revenue can also solve unknown problems, as the COVID-19 pandemic and economic downturns have illustrated.
2.?No financing or investor interest : If they managed to generate more revenue, spend less money, and/or raise capital through alternative channels, their startups might have survived.
3.?Product without a business model: Perhaps founders mistakenly believe that a business model will slow them down or limit their agility.
4.?No market need: If no one will pay for the solution, more financing won’t necessarily change that.
5.?Legal challenges: perhaps due to increasing regulation of digital companies. More recently, concerns around data privacy and security, the use of generative AI, and payment processing are also on the rise.
6. Was out competed: A Competing Business with an additional value addition in the market tempts the continuation of a startup, unless some unique value addition mechanisms are set in place to stay in the market.
7. Disharmony among team or investors : When there is discord and failing to come to terms with each other among the founding teams and investors, it poses a threat for failure.
8.?Pricing or cost issues: The top mistakes startups make with their pricing strategy are underestimating the cost of their product, underestimating the cost of customer acquisition, and overestimating their sales potential. Startups often overestimate how successful they will be if they price their product too low
9. User unfriendly product: It is always utmost important to keep users needs and demands in mind, as they say that the customer is the king.
10. Not the right team: If you wanted a Co-Founder, CTO, CSO or people of any other role in your startup, you have to make thorough investigation of what the person can bring into a table and whether your values match or not.
11.?Product mistimed: 10% of startups fail due to mistimed product launching. Releasing a service or product too early without considering the need in the market leads to product failure and loss of business.
The 2023 research output on Startups success and failure rates proven that US is home to most startups, yet it has one of the lowest startup success rates.
It is found out that there are of course several factors for this low success rates. Switzerland, the UK, Hong Kong, and Singapore have the highest startup success rate. See the following Figure to see the relative success and failure rates of selected countries of the world.
Startups in Africa have a better chance of making it than their peers in the US or India, according to a recent report called "Tracing the success and failure of African startups," by Greentec Capital Africa Foundation and WeeTracker.
African startups founded and operated from 2010 to 2018 had a 54%?chance of failing. That's lower than 67%?for the US and India's 90%?for firms set up around the same time period.
However, the situation varies significantly across the continet. At 25%, Mozambique was the African nation with?the lowest failure rate. In other countries, the likelihood of winding down operations were much higher.
The failure rate may be an indicator of the amount of activity in a startup ecosystem, according to WeeTracker's Nayantara Jha.
"One reason for a low failure rate on a macro level is the [high] number of startups in a market," she explains.
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It Seems there were more number of startups in Ethiopia during COVI-19 ( 2020) than any other country and also the failure rates was equally highest from Africa, just as that of USA from the world.
Whatever the statistics is, African Countries with high number of population Like Nigeria and Ethiopia has a long way to go. They need to see into their policies and funding strategies when it comes to Startups. Otherwise, their significantly high youth workforce may face challenge as government firms can't employ millions of youths that leave college every year.
Ethiopia has a great potential when it comes to prospective Startups success in the coming years from now. The reasons are:
1. Several Mega Dams, including GERD, the biggest in Africa, are on the verge of completion and the revenue generated by selling electricity to neighboring African nations, even from this 2024 itself, is a game changer for the thousands of startups that are booming in the nation, as this pumps a big sum of funding into these startups.
2. The attention Ethiopian government have given to startups since 2023, even to the point of Institutionalizing the endeavor by Establishing 'Next Ethiopian Startup' ( https://www.ena.et/web/eng/w/eng_3493694) is historical and something to be proud of.
Conclusions researchers have drawn for aspiring entrepreneurs are:
The odds are stacked against startups. However, by studying other founders’ mistakes, aspiring entrepreneurs can anticipate and manage preventable failures.
Studies have collected some advises for aspiring startup founders from successful founders:
1. Create a solid business plan.
2. Learn from mistakes that will be made.
3. Ensure there is a market for the product.
4. Listen to your customers.
5. Be passionate about your product.
6. Avoid burnout.
7. Don't be afraid to change product when necessary.
8. Focus on core product before expanding.
9. Get legal advice to ensure everything is set up correctly.
10. Pick goals which align with your business vision.