So, why do most of the startups fail?
Small Business Association claims that about 50% of the total start-up fails after operating for five years. There is an array of reasons as to why this happens. Often, there is never one factor at play. A number of factors combine to bring about a downfall.
Let us go through some of the most common reasons why startups fail:
- Product Failed to Solve A Pressing Problem
It is important to understand the market and create a product that would solve a pressing problem. Often the founders do not test the market and start off by investing in the product or the service. This is risky. The best way to go about it is to get thorough research done on the market and then start off with the product build-up process.
Due to a lack of data, the product fails to solve a pressing problem on the ground. Theoretically, it may have appeared to be a disruptive product but in reality, it misses the mark.
This is by far the most common reason for a failing start-up.
- Lack of Cash
This is no rare occurrence. More often than not, a good company with a great viable product runs out of cash. According to a Forbes article by data journalist Niall McCarthy, this is the second most common reason for failure amounting to about 29% rate.
- Going over-board with the Launch
Third on the list is a mistake that a lot of founders are guilty of committing. Instead of putting a minimum viable product out, they go overboard with the launch hiring an expensive launch management team and whatnot.
Why launch for a big audience when a small one would be enough to collect relevant feedback?
- Bad Luck with the Stakeholders
Tom Eisenmann, a professor of entrepreneurship at Harvard Business School cites problems in the board of stakeholders as one of the reasons why start-ups fail. The board of stakeholders includes employees, investors, and strategic partners. So, does it mean the founders play no role in the demise of a start-up? Yes, it is 100% possible. Sometimes, a start-up fails because of a bad core team, uncooperative investors, and a faulty business operations team.
- Legal Proceedings and Expenses
Starting a business gets one into innumerable legal proceedings and formalities. Needless to mention, this comes with a cost. The larger the scale of launch, the more expensive legal formalities become. This creates a cash depression hampering other areas of business operations. Unclear and hefty legal proceedings are a big reason for the start-up failures in India.
These were the top 5 reasons why a startup fails. Apart from these, the state of the economy also matters. Start-ups thrive when the economy is stable, as a stable economy fosters creativity and innovation.
