6 Reasons Why Most Startups Fails
In truth, the majority of startups fail. This can be linked to numerous factors. However, most of these startups have market worthy ideas but not the right execution to implement it. Most startups begin with the mindset of not being like one of those failures.
Interestingly, the knowledge gap required to scale a business sometimes comes with a vast amount of experience and mentorship. startups have great ideas, no doubt, but the number of people that succeed at these ideas is grossly low.
However, you can still go forward to successfully scale your startup to whatever level you wish it to reach. You can tackle huge problems to increase the standard of lives. You can also help to turn other ideas into reality. However, the reason why most startups fail can be prevented.
Being aware of these common mistakes that lead to downfall can prevent a recurring chain of events. The total avoidance of these events will lead to the creation of value and the complete solution to different people.
Mistakes And Solutions To Startup Obstacles
One of the major reasons why most startups fail is that they do not have a market for the solution they develop. This, unfailingly, runs into a serious problem and finally crashes the startup. While developing a solution, it is important to consider the current market problem. Is that solution going to solve a market problem, or is it going to be useful for just a handful of people?
It could also be that your solution is a value that could be done without. This is also another reason why startups fail. Your solution has to be a must-have solution, not a solution that can be done without for it to scale at its startup phase.
Also, the timing of entry into the market is very important. Most startups have died as a result of the wrong time of entry into the market. There might not be proper grooming ground for your solution to thrive on. It is either that your solution Is either too early to the market or it is too late to market. Either way, you have to get the timing precisely and sell the right product for your startup to thrive.
Numerous business startups were over-optimistic about their approach to the market and were off with their business model. Sometimes, some startup hit gold and get to their target as they envisioned. This is rarely the case as observation has shown that a large section of this group of startups doesn’t hit it.
Essentially, the business model should be able to present a scalable method to gain customers. A business model should also be able to monetize the acquired customers to a degree than the initial cost.
Business startups need to be able to breakdown their business models in response to the above essential rules. The business model must also make sure that the cost of acquiring a customer is way less than the lifetime value of a customer.
The business model must also account for capacity efficiency. Following the capital efficiency directive, the business model for a startup that has a greater chance of scaling through must have recovered its cost of acquiring customers in less than 12 months.
One of the top plaguing issues attached to failing startups is a poor team in management. For several reasons, a good management team will be able to effectively manage the start-up and make an intelligent decision for the business. In failing startups, it is observed that the management team make mistakes in areas that involve
- Strategy and product building: Here, the management team neglect the duty invalidating the idea being planned before going to the development stage
- Execution: The team performs poorly in the execution of projects, which leads towards solution not properly built-in time for market and implementation.
- Hierarchy in the management team: The team members being incapable is also a determining factor in the scaling of a startup. If the team is sound in development and management, there are fewer chances of failing.
This is one of the biggest reasons why startups either scale up or crash down. Its significance cannot be overwritten. One of the major jobs of the people on the managerial level is to know and have a full understanding of how much is required to reach milestones. It is also part of their responsibility to source for financing and cash flow sourcing.
The financial status of most startups is not guaranteed an upward slope. To reach a level of bigger valuation, a startup company must have achieved certain milestones. This is common with software companies and they are the best example for milestone achievement.
From seed round evaluation to product beta test evaluation; this phase is set to achieve goals and get customer’s validation. The customer’s validation of the solution being offered is the main goal for this valuation stage. The business side valuation is also a huge determining factor on what kind of valuation the startup company will get.
Overall, most of the reason why startups run out of money and crash is that management did not push for the achievement of the next milestone. This is way before the cash flow ran out. In some cases, the cash flow is reintroduced, but the market validation might have moved on to something else.
Hence, it is very important that the management knows how to conserve money in the early stages of the business while the product is being developed, and the business model is being refined.
A Problem From The Product
Another main reason why most startups fail is due to a dysfunctional development in the product. This often time lead to the inability to meet market needs and solve the market problem. However, this could be as a result of execution or unrefined implementation strategies. This ultimately leads to the failure to achieve a fit between the product developed and the demand from the market.
In most cases, the very first product being developed by a startup does not usually meet market requirement. This leads to various revision and redevelopment to enhance refinement to strike a fit between product description and market need. In other cases, the product being developed does not even fit the required market need. This requires the startup to go back to the drawing board to rethink the requirements.
In the latter case, this totally points towards the fact that the team did not work on validation from their customers before development, during development, and after the product must have been developed.
This is a tricky challenge usually faced by startups. In most cases, a startup seems to be doing everything right and getting the right results. Then up scaling occurs and the negative impact hits. According to statistics, about 70 percent of startups scale up in their early stages when they are not supposed to. They go to early, and this results in their crashing down.
Startups that succeed already have their customer base and have a product that is in demand. They must have an increase in revenue generated and lowering in acquisition cost.
Startups are prone to making similar mistakes that can be avoided. A handful of these mistakes cannot be avoided, and they are worth learning from.
The bulk of these mistakes have already been made. Hence, it is very important that upcoming startups don’t crash on these mistakes too. If a startup can avoid these mistakes, then they are already building for major success.
Originally published at https://kenkarlo.com