Top 10 Reasons Why Startups Fail and How to Avoid Them

Starting a startup is not child’s play. The fact that a majority of them fail in the first 3 years makes it even more terrible. Smart entrepreneurs always learn from their past mistakes and learn from others mistakes too. This is what helps them to hustle! After analyzing and examining why startups fail, we identified the top 10 reasons why startups failed. 

Here is the list of reasons for failure and methods to avoid them:

1. No market need:

Startups fail when they are not delivering the goods and services that the market needs. 

It’s of no use if you have a lot of money, a good idea and good reputation but not fulfilling the needs of the people. 

How to avoid:

  • Essentially, customers should be interested in the model you are pitching. 

Lawyers want more clients. Not a swanky office.

2. Running out of cash:

Cash is like fuel to your business. If you are running out of cash, then your business is in trouble and you will not be able to take it any further. 

Cash flow helps in keeping the business alive. No matter how passionate you are or how great your idea is, you still need to pay your bills, clear your dues and pay your employees. 

Many startups run into problems when they have insufficient funds to run their operations resulting in loss for the company. Or the exact opposite scene is also possible, when a startup receives massive funding and they misallocate the funds. 

How to avoid:

  • Keeping a track of cash inflow and cash out flow. 
  • If funds are required, work well in advance to explore all the funding options and not delay it to the extent that it’s too late.  

3. Market problems:

Every company is driven by the market. It is essential to identify the correct market and find the right solutions for the needs of people. 

The success of a product also depends on the timing of it. 

The e-commerce industry wouldn’t be booming in the early 2000’s like today because the internet speed was really slow and the smartphone industry was still picking up. 

How to avoid:

  • Go out, talk to people and understand the market needs and demand before building a product. 
  • Research and understand your industry properly. It is easier to make changes in the initial level. This will help you save money too. 

4. Business model failure:

Business model is the backbone of every business and it contributes to the commercial and economical success of a business. 

Some companies are so involved in the idea implementation process, they overlook the business model.  

Lacking the skill to analyze and strategize business model is a major drawback. A bad business model can reduce the life span of a business drastically.  

How to avoid:

  • Analyze if your customer acquisition strategy is expandable. 
  • Analyze and estimate your sales and return on investment. 

5. Poor marketing:

Good marketing is understanding your target market and knowing how to get their attention. 

A great product can fail if it is not marketed well.

Knowing how to convert them to leads and ultimately into customers is very essential for the success of a business.

How to avoid:

  • Marketing should start at the initial stage of a product and not wait till it is completed.
  • Hire a good marketing agency that understands your vision. 

6. Poor management team:

Management is like the brain of the company. Having a diversely skilled group of people is essential for the success of a company.

Poor management can represent poor strategic decisions, communication gap between the top management and bottom level employees and bad hiring system.  

It is important for the team to be united and agree around a common vision and long term goals of a company.   

How to avoid: 

  • Communicate well with your employees.
  • Decisions should be backed by statistics and not experience always.

7. Loss of focus:

Founders are usually idea oriented and they mostly get carried away with ides. This could make them lose focus on the other key aspects of the business. 

There should be a fine balance between micro management and macro management as this could also be a reason for the employees to lose focus. 

How to avoid:

  • Don’t get carried away with new ideas. First concentrate on achieving the main goals of the business.  
  • Have a “To do list” and “To not do list”. This will help in eliminating the unnecessary things that are making you lose focus. 

8. Legal challenges:

Sometimes a startup could be doing really well but a legal complication could be the cause of shutting down the company. 

Every field can have different laws and it is important for startups to at least be aware of them. 

How to avoid:

  • Consult an experienced lawyer if required. This will save you a lot of time and money in the future.
  • Make sure your company and employees are compliant with the laws.

9. Disagreement among team members:

Conflict among team members is the last thing any startup would want to see. 

Everyone have their own opinions and their emotional behavior could lead to conflicts. This can destroy company culture and ultimately lead to the failure of a business. 

How to avoid:

  • When it comes to making a business decision, you should make decisions that are best for the growth of the business and rely on the collected data rather than going with the majority.   
  • Shareholder agreement and employee agreement should be in place to handle the matter professionally.

10 Burnouts:

Doing a startup is not easy. Even the most ambitious people burnout in the process. 

Because of the hectic schedule, they don’t have a good work-life balance. Hence, the risk of burning out is high.

Watching your buddies making good money in corporate jobs, posting pictures of family outings and parties could make you rethink about your decisions. 

A majority of the founders cannot take these burnouts and eventually quit.

How to avoid:

  • Make sure you have a good work-life balance.
  •  Health should be your first priority. 

Bad health = No peace of mind = Bad decisions = Downfall of company. 

A startup can experience several challenges presented above. However, it is better if the founders keep an open mind and learn from the failure of others. This can help them save a lot of money and time. 
So these are some of the reasons why startups fail. Hope you liked the article. ☺   


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