Top 7 Reasons Startups Fail !
Startup is a common term nowadays. Everyone seems to be starting one. Everyday we hear news that some startup raised hundreds of millions of dollars, or became a unicorn last night. We hear news of founders becoming billionaires before 30 as well.
But with this, we also get news of startups failing very badly, like WeWork. Its been one of the biggest startup failures. So why does it happen that some startups reach high heights but many fail on the path? Many or I should say that most startups fail in the very early days, and some fail even after raising hundreds of millions in funding?
We will find that soon. I will try to answer the questions on my experience in startups and also taking examples from other startups. So lets start.
Yeah, this is the most important reason. I know that most of you may be knowing of it but it needs to be mentioned as it is most important. The timing of launching a startup has a high influence on its success.
The latest example of this thing is Tesla. We know that Tesla has been producing great cars for very long. But recently only it is getting all that hype. But why is this happening?
Have they suddenly started producing superior cars? Have they suddenly started booking high profits? Or has the competition left the arena?
No, none of these things has happened. What has happened is that what they saw now could be seen by the public as well. They created Tesla thinking that in future that we may not have enough fossil fuels for running cars. Secondly, fossil fuels will increase air pollution and people would need alternative to fossil fuel.
Well, we haven’t really reached that level where public actually thinks so much, as is willing to change so much. This is the reason that Tesla is not really in great profits. But the investors are able to see what Elon Musk wants to show. Investors could see what Tesla saw years back. This is the reason of their high valuation. Some people may call it bubble and it may be a bubble for now, but future is great for Tesla.
General public will also understand it soon, and buy then their cars would cheap enough that everyone could buy them.
Being so visionary and future oriented, even Tesla had been on the verge of bankruptcy in the past. But why? Everything was good with them but the only problem back then was timing. That was just not the perfect time for Tesla. People were not really concerned of environment, we were not having any serious threat to fossil fuels.
So, Tesla was not really solving any big problem back then. It was just a new toy for the geeks. But now its serious. Governments are also for environment, and we all know fossil fuel may not be in surplus for long. So, now is Tesla solving real big problem.
So, you see timing is very important for your success. But if you have a vision then keep following. You will surely find success one day.
2. Business Model
Some of you may be saying that you don’t care about money. You don’t want to earn money. You just want to make the world better. You don’t want to be rich. Its not your motive, so why need business skills?
Not caring about money doesn’t mean not making money. If you want your startup to succeed then as a founder you must have business skills. If your startup will not make money, how will you fund R&D? How will you hire great people? Can you then even do philanthropy to help people.
Startup is a company and it should make money for survival. It needs to book profits to grow and expand. It should know that what are they going to do in future for money. This can’t be left for tomorrow. After product its the most important thing. If your product or service doesn’t make money how will it keep helping people for long?
Nowadays, many startups come with good products, if not great. But they fail because of business skills. They don’t know how to make money. They lose money and fail. Then later, a similar startup comes and wins the market. But why does it happen?
Its because the second had a business model with good product. Startups can’t come up without a business plan. I don’t mean that from the very first day they should make money. I mean that they should have a planned that when will they make money? How will they make money?
But lacking it means a failure only. Loss is not a problem as long as you have a plan.
For example, Amazon has been in losses for very long. They didn’t book profit for more than a decade since launch. But they have reached this far, why? Its because they had a plan. They knew how. They were not leaving an important issue. They thought about it too.
But many new startups just see that many big startups didn’t make money in the past and are big now. So why they worry about money and profit?
But they don’t think that they always had a plan. They were just waiting to reach the position to make money. But do you know when will you make money? How will you make money? How will you make profit? If you know, then great, but if you don’t know find out.
3. Passion and Emotion
Passion is the thing that’s most important. Its not only limited to startup but is applicable in everything that we do. If we don’t have passion into doing something then we can’t succeed in any thing. This is very true in startups.
But nowadays, many entrepreneurs start companies towards which they have no passion. They don’t have emotional attachment to the company or its impact on world. They are doing anything to solve problems of the world or which they faced. They are starting their company just because others who started similar companies are making money.
This is the reason that most of the companies fail. After the success of TIkTok, many other similar apps have been launched, But why? Do they have the vision what TikTok had? Is it solving any problem of the world? Or are they really passionate about it?
None of these. The apps and companies were started just because a similar company had made money and showed tremendous growth in the past.
These entrepreneurs started such companies just to try something trending. They may succeed little but what if they face problems? Will they really put efforts that they could give in a startup solving the problems they faced?
This is the reason that many startups fail. Just because others made money they want to do it, not because they have any passion or emotion towards it.
But the impact of such acts is not limited to them, and their companies. It has other impacts as well.
4. Intense Competition
These small minded entrepreneurs create problems for the first movers also. They do it for them. But they increase so much competition that no one has real monopoly. Then the chances of success of the first mover also decrease.
This is really one of the biggest reasons that startups fail. Some companies can tackle this, like TikTok, with their strategies and product, but many fail. So you should always be ready for competition. To avoid competition and win.
5. Loss leading strategy and Excessive Funding
Nowadays, all the startups use this strategy. They are ready to take losses to give discounts and rewards to their customers. For this they take excessive funding.
They go so much in losses that sustaining the company becomes an issue. They take so much funding that they even lose control in their startups.
This can be very much seen in OYO. This is an Indian hospitality startup. They have taken so much funding from SoftBank that now SoftBank has more influence in the company than the management.
The loss leading strategy forces startups to take such immense fundings, and the funding forces them to lose control. After losing control, the company often gets diverted from its motive and the problem its solving.
So, building sustainable future strategies is very important.
No doubt this can either make your company or break your company. The first few people are going to decide the destiny of your startup. But what’s seen nowadays is that people make their team of friends only. Its not wrong but you need to think properly.
Lets take my example. I tried creating a website where local sellers can list them for sales of their goods. Then we were to show that on the website, then do delivery of their goods locally. Then do this locally in many places. So I needed team. I asked two of my friends. We were into it. But we had one more friend who wanted to join. So we all agreed. But then the guy was just a mess.
He didn’t have much to do and was just disturbing us. Also, we needed someone good in web development. Me and my friends were good but we needed more people. But I didn’t ask the guy who was in our class and had good skills as well.
The reason, he was not my friend. He was not my enemy also, we talked less. But I just didn’t want to take him.
It became a huge thing for us. We took a lot of time in developing the site and then we failed at the delivery stuff. Yeah, it was horrible experience, but I learnt a lot. It was great experience but a good team could have made things easier. Learning from that I’m trying a new startup with my skilled friends and also a side youtube channel.
Now, this is bitter but true. Startups are risky, therefore called startup, and are meant to fail. Startup often does something that is not done before. So obviously, there is risk. The motive of startup is trying something not done before and see if it works. This is the motive and no one can stop startups from failing.
Startups will keep failing always. No person or guide can stop it from happening. Startup is an experiment. Few experiments succeed and many fail. This is the truth and entrepreneurs should be ready to fail.
Its like this only
We need to know what others did wrong so that we don’t do those mistakes. This article is about that only. But we also need to know the truth as well, as startups are meant to fail. So with this I think you got some help. Also, I hadn’t added a few things like idea. There are many reasons for it like the initial idea often get changed during development, or only a good idea isn’t enough. But the most important thing is that a good idea is needed for success, but even if you do everything right on an average idea you will not fail. This article is not about succeeding, but about failing. So thanks guys, I hope it helped.