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Why do startups fail?

Why do startups fail?

Feb 10 2021 | Article

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Read about the top challenges startups face and how to avoid them.

By Tracy Chau

W
hy do startups fail?: Read about the top challenges startups face and how to avoid them.

 

Recent research conducted by CB Insights indicates that the main reason, accounting for 42% of startup failure, is a lack of market need.

 

The purpose of a startup is to provide solutions. A business model that does not solve a pain point in a scalable way will fail. However, individuals tend to solve problems which are interesting rather than fulfilling a market gap, which leads to no fundamental interest in the product or service. As a consequence, even with the latest technology, data analytics, a great brand reputation, expert advisors and the like, the startup is likely to fail.

 

For example, Patient Communicator, a physician designed management platform, noted, “I realised, essentially, that we had no customers because no one was really interested in the model we were pitching. Doctors want more patients, not an efficient office.” As such, doing many things a startup should do well and correctly would be futile without first focusing on the right product or service.

 

The key takeaway? Make something people want.

 

Among the other common reasons startups fail is:

 

Insufficient cashflow. Time and money is finite. The problem of how startups should spend their money remains a large conundrum and is commonly cited as a reason for failure. This is often tied to other factors such as failing to find product-market fit and failed pivots.

 

Not building the right team. A team which is diverse and has a range of skill sets is commonly cited as being vital to the success of a company. Failed founders often lament “there should’ve been a CTO from the beginning” or wished that the startup had “a founder who did all the business side of things.”

 

Getting outcompeted. When a concept receives market validation, the natural result to follow is for there to be many other entrants in the space if there are no barriers to entry such as a patent. Hence, not being able to compete is and may lead to eventual business failure.

 

Poor marketing. Understanding your target audience and how to convert them into leads is one of the most important skills that every successful business has. Inability to market the product is a frequently cited reason for failure among founders who preferred to code or build their product but did not focus sufficiently on promoting the product itself. As failed startup, Overto wrote: “Thin line between life and death of internet service is a number of users. For the initial period of time the numbers were growing systematically. Then we hit the ceiling of what we could achieve effortlessly. It was a time to do some marketing. Unfortunately no one of us was skilled in that area. Even worse, no one had enough time to fill the gap. That would be another stopper if we dealt with the problems mentioned above.”

 

Although there is rarely one single reason for the failure of a startup, there tends to be a pattern to these stories. Anyone in the entrepreneurial ecosystem should use this sort of data-driven analysis to aid their future decision-making and ultimately create a successful business.

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