Getting into the startup world is easier said than done. Only 1 project out of 10 manages to conquer the market and reach sustainable income. 10% of startups fail in the first year, and 50% — within the next 2-5 years. Regardless of the harsh statistics, you still have a chance to get into the ranks of those lucky ones. To do this, you need to find out the most common causes of failure and be aware of how to avoid them.
Characteristics of failed startups
How do you know that a startup is likely to fail ? Experienced entrepreneurs assure that all unsuccessful startups have some common symptoms that inevitably lead them to failure. Let us elaborate on each of them.
No sympathy to the audience
If you are committed to spending years studying and serving people’s needs, you should love them. Successful entrepreneurs are not only involved in what they`re doing but also focused on the customers they strive to satisfy. In order to know your audience well, you should sympathize them.
Perfectionism
The best is the enemy of the good. Many founders struggle to make an immaculate project in all the aspects but yet fall short. The truth is it`s impossible to reach perfection when doing a business as there will always be something to improve. By trying to control everything you end up controlling nothing. Learn to delegate and be tolerant to some imperfections in your business.
No idea of the financial aspect
Many startups are thinking about how to create a product, not a business. The difference is that the company focused on the business earns enough to pay the bills. The reason is that creating a product is really exciting, whereas financial work is tiresome. However, it cannot be ignored until the business becomes sustainable.
Too many worries about what others think
Some worry too much about what your friends, competitors, or partners might think. While, in fact, it is worth thinking only about users`opinion and sticking to yout own vision. If everyone around knew what a successful business should look like, there wouldn`t be failed companies. Therefore, keep faith in what you`re doing and listen only to those who can share something really valuable.
Statistics
The information industry has the toughest coldest on failures: 63% of projects die in an attempt to conquer the market. Moreover, 25% of IT enterprises fail in the first year, and 40% — within the first three years. This industry includes publishing, software, film/video, audio/music, streaming, data processing
The construction industry takes second place. Due to the high level of competition and often unfavorable government conditions, half of the companies are unable to get back on their feet.
Next come the manufacturing industry and the mining industry. In them, 24% of enterprises fail in the first year, and 38% — within three years. In five years, 60% of mining, quarrying and oil and gas production enterprises close their doors.
Failure causes
Product mistimed
Sometimes entrepreneurs have a great idea but lack time to launch the product in time or, conversely, hurry too much. It may take just one untimely step for even the most potentially successful startup to fail.
Some ideas do not find a response as they are implemented at the wrong time. Other ideas don’t sell well, for example, because of the pandemic or holidays. 13% of founders choose the wrong moment, which is why their projects don`t take off.
Ignore customers
In order to conquer the market, a startup should offer products and solutions that people need. When developing an MVP and testing hypotheses, entrepreneurs collect feedback from users to improve the first version. However, if the company igonres customers` needs, it is likely to fall to pieces. Thus, 14% of startups close as a results of ignoring their customers.
Poor marketing
It is essential for a startup to know its customers and be able to spark interest in them. Many founders — especially if they like to write code and create a product – devote little time to its promotion. This is a huge mistake. If no one knows about the product, it doesn’t matter how revolutionary it is. Poor marketing and promotion was cited as the reason for the failure in 14% of cases.
Product without a business model
Entrepreneurs think it`s no trouble to create a product, service or website that will attract customers. However, it is extremely difficult to do without an effective business model. It focuses on finding a scalable way to get your audience and generate income. With poor quality of the business model or even its absence, 17% of founders doom their startups to a quick failure.
User-unfriendly product
Many startups fall short due to the fact they do not listen to the needs and wants of users. Whether it`s done on purpose or not, this is a recipe for disaster. For example, startups can make a product excessively complex and incomprehensible for their target audience. This mistake is mentioned in 17% of failure cases.
Pricing/Cost issues
Pricing is one of the key challenges founders have to cope with. On the one hand, the cost of a product or service must cover costs, and, on the other hand, remain affordable for customers. In this regard, few people manage to reach balance. Therefore, pricing led 18% of startups to closing.
Get outcompeted
Some believe that startups should not pay attention to competition. However, frequently this conception misleads entrepreneurs who forget about the competitor at all. When an idea becomes hot and receives a positive feedback from the market, a huge number of projects strive to outperform it. Although it’s not worth being too focused on competition you shouldn`t ignore it. This became the cause of failure in 19% of cases.
Not the right team
23% of startups face this problem. Ideally, your team should consist of highly-qualified specialists with different skills. It is believed, the more diverse your team, the more likely it is to succeed. Nevertheless, many founders hire incompetent people with similar skills and background which sets more boundaries around the project and prevents its growth.
Ran out of cash
Many entrepreneurs thoughtlessly allocate their limited resources which results in quick bankruptcy. On top of that, the vast majority of founders fail to find investors and convince them to fund the project. Investments are the fuel of startups providing their further development. Even the brightest idea won`t happen without a sufficient amount of funds. That`s the cause of failure in nearly 30% of cases.
No market demand
This is the most popular cause that leads 42% of startup to failure. Frequently, entrepreneurs develop products not for the market but themselves. The product might seem genius to them but be absolutely needless for people. The reason is founders neglect a thorough marker research and thereby fail to identify customers` needs and wants. As a result, their product is very far from the real needs of the market.
