Why do some startups do not succeed?
There are numerous reasons a startup could fail, which makes sense, as most will. According to a survey, about 90% of startups fail.
Such a high number should not discourage entrepreneurs. It just shows that the vast majority of people have no idea what they’re doing. Do you due diligence and get the fundamentals right, and you have a far higher chance to succeed.
Let’s discuss more.
Obviously, one of the easiest explanations is a bad business or product idea. Something that people didn’t want after all. Market research is incredibly important. Not all ideas are winners, and most startup owners are idea-driven or product-driven, not customer-needs-driven. Sometimes the idea is customer-focused, but not the customers of today. Meaning, the market is not in a good place for this idea, either in the short term or years off. For instance, it doesn’t matter how awesome of a revival of Blockbuster I come up with. It’s never going to happen.
If you make something and the market decides that it doesn’t do anything good for them, or that it doesn’t cure a pain point of theirs, but you take it on the chin and research what they want instead, no problem. You can often implement elements of your own idea in this adjusted product. But most startup owners don’t do that, because they began their journey with rock-solid, unfounded confidence that their idea is the most original, necessary thing ever.
Another main reason for the failure of a startup is the availability of funds. Running a business can be expensive, and competing with other businesses even more so. Capital is more difficult in certain business models, such as physical products, and if those products are low-priced as well, such as T-shirts, there’s just not that much earned per sale to thrive without being very popular. You have to be willing to compensate and work around disadvantages like this. If your business model isn’t the most profitable, how do you make it more profitable?
Beyond that, it’s largely down to an unwillingness to risk money, in my experience, rather than an actual lack of funds. I know that sounds oxymoronic, but it’s true. I’ve seen people who go into debt doing the same old things for advertising, product design, etc. with no regard to how those could be done differently with minimal effect on the customer experience. Why not make the change? Because it costs money. Short term fear of loss causes long-term actual loss.
Inadequate planning and mismanagement, probably due to lack of experience, is also a reason for the failure of startups. Most people are used to being told what to do by a boss, not striking it out on their own and making firm decisions, and then living with the consequences. This is why mentors are so valuable.
Whenever anyone starts a business, there is usually a shortage of resources, and as a result the entrepreneur does not want to take much risk. This is wise, in theory. But there is a line between wanting initial results as quickly as possible and creating a false dichotomy where if you don’t get great results immediately, you quit and try something else. That desire to quit and try again to find something that works the best is a huge detriment in business. Just pick something that works even a little and stick to it. Try to find more things that work after making at least one thing work.
Another serious shortcoming for any startup could be its team. There are plenty of stories of entrepreneurs failing to fire people who were not good employees, team members, partners, etc. out of fear of confrontation. Your team is a lot bigger than you, so they are going to have a substantial influence on the progress of your business, and while you can’t control others, you can control who is on your team and who is not. Friends of mine have failed in their startup ventures by simply working with each other, assuming that as friends, they can work well together. That never turned out well. It’s best to take extra time and be very picky about every hired position and partnership, because the cost of a mediocre or bad fit is extremely high.
Let’s now discuss the other side of this question. For startups that manage to succeed, I think the five main reasons are:
1) Passion and commitment
2) The adaptability of the business model
3) Patience to view results, a positive outlook that can handle short-term setbacks
4) Proper planning and budgeting
5) Prior research of the market, product, and competitors
And so, in the same sense, a lack of any of these things could be the reason a startup fails. Out of them all, I’d honestly say it’s a mix of #1 and #3 that are the biggest causes. People who don’t care enough, or people who are too skittish and impatient, or a mix of the two.
In conclusion, failure and success are the two sides of any business. The graph goes up and down, always. One should not consider failure demotivating. Rather, it should be considered an opportunity to learn something new and do better. Even if someone does not make it big in the very beginning, I say be positive, someday they may make it. The essence is to stay positive and keep on doing your part.
Please feel free to reply to me if you have any questions. If you are interested in some of the mentors I follow and the basics of my business philosophy, you can check out the review of two famous books: “4-Hour Work Week” and “Dotcom Secrets” on my website. These books are a must-read for anyone who has an entrepreneurial mindset, and I explain why.