Six Reasons Why Startups Fail And How To Avoid Them


by Arsalan Sajid, startup community manager at Cloudways

After spending a good amount of time researching about the benefits of having a startup, you are ready to open your own startup.

WAIT!

I have got a shocking statistic for you, startup enthusiasts.

Almost 90 percent of startups fail within the first five years of their inception. There are a good number of published research studies that back this claim.

BUT WHY?

To get the answer to this WHY you must read this blog in full to understand the very reasons behind startups falling out so early. Remember that there is no single reason responsible for this debacle. The failure of a startup accounts to a combination of different reasons that are interrelated to one another. To curb down any chances of going further down the spiral, I will highlight the problems and their potential solutions in the subsequent paragraphs.

1. Failure to Conduct Market Research.

Launching your startup is a BIG decision. You must cover up all of your bases before the final launch. Most of the startups fail because their owners fail to do their homework completely. What’s the point of your startup, when you are only offering a product or a service that nobody wants. This is where conducting a thorough marketing research comes into play.  

Do remember that there are a lot of products available already. You can only succeed if you have a very unique product or service. Otherwise, you must concentrate on adding value to the user experience, if you want to play in an already saturated startup landscape. Remember that today people want solutions to their problems.   

Solution.

If you have decided to go ahead with your startup, carrying out an adequate market research will go a long way in benefitting you. Learn about the potential customers of your product or service.

For this, you can develop industry-specific buyer personas and market your product to them.

Buyer personas will help you gain valuable knowledge about your target audiences’ behaviors and preferences related to using your product or service. You can conduct interviews, surveys, and use other online tools to get information about your potential buyers.

You can also keep a close eye on the latest trends. Do not feel any shame to ask other people for their inputs during this phase.

2. Failure to Launch at the Right Time.

Time is money. You, being a budding startup owner must use it wisely. Many of the startups fail because the bosses at the helm don’t know what is the right time to announce the launching of their startup. This is where planning plays a vital role.

Launching your startup too soon – without any homework – can be disastrous. Likewise, launching your startup too late – looking for perfection – will lead you nowhere in your journey. Again remember that if you take too much time to launch, your customers will find alternatives, thereby robbing you of an opportunity to pitch your product or service to them.   

Solution.

Remember, time once passed can never be recalled. You surely will not want to compromise on the quality, but losing out on attracting potential customers will not be a good idea either.

To solve this conundrum, the startup owners must find a quick balance between the quality of the products available and the speed of launching a startup.

Striking this quality-speed balance will go a long way in the sustainable growth of your startup. Trust me. It is a no mean feat.    

3. Failure to Adapt the Change.

Change is the only constant in the business world. Men have evolved so have the businesses. One of the biggest reasons why startups fail today, relates to the fact that their owners don’t want to change anything. They just want to stick to their old-school procedures.  

With this rigid mindset, they fail to take advantage of the technological developments that have become an integral part of business processes. Consequently, the startups suffer due to this stern and never changing thought process.

Solution.

Survival of the fittest is the name of the game in this digital age. For startups today, staying relevant and functional is important. It’s high time that startup owners realize the importance of technology, and implement user-friendly processes with modern digital tools available.

Leveraging technology – with a user-centric focus in their products and services – will help startups remain relevant with constantly evolving their strategies in the long run. One of the advantages that digital technology provides is the much needed competitive edge to your startup against your competitors.       

4. Failure to Delegate Responsibilities.

It is a fact that most of the startup owners are stubborn. They tend to discourage anyone – even their subordinates – aspiring to help them out in critical situations. They just want to keep control of everything – processes included – to themselves. This urge to remain the sole authority is one of the major reasons why startups fail so early.

According to a research study, published on CB Insights blog, 23% of startups failed because they did not hire the right individuals for their teams. Now, you can directly relate this statistic to the authoritative behavior of the startup owner, as (s)he will want to exercise his power to reject or hire people based on his own criteria while interfering in the recruiting process, which is purely the job of Human Resource Department.  

Solution.

Startup owners must be well aware of their strengths and weaknesses. A quick realization will help them and their startup flourish in the long run. They must also understand that success of a startup hugely depends on teamwork. Startup owners must delegate responsibilities to people with the right attitude towards work.

I want to share with you a famous quote:

“You don’t hire for skills, you hire for attitude. You can always teach skills” – Simon Sinek

A simple solution to this problem is to hire the right people for the startup. Once you have the right people in your team, start delegating responsibilities to them, giving them adequate “powers” to implement and execute the processes that will eventually lead the startup to new horizons of success.

Moreover, don’t forget to work on succession planning. Over time, employees tend to leave for better opportunities. Therefore, having a good succession plan in place is really important.

5. Failure to have a Growth Plan.

Here is a scenario for the startup owners. You are running a startup with a good reputation in your home country. Now, you have decided to scale your startup in order to capture new online customers. What will you do? Develop a plan for this, alright? But there are no customers for your product?  That is where having a startup growth plan becomes absolutely vital for sustained operations. Most of the startups fail because they don’t really have a growth plan, or you can say, a scaling plan to work on.

Solution.

To address this issue, startups must work on trend jacking and growth hacking practices to attract and win more new customers. Rigorous planning and working on result-oriented hacks will certainly prove beneficial for new startups. It’s better to run after customers, rather than investors. Startups must always strive to scale up by finding new customers and larger markets to sell their products and services.

6. Failure to Manage Finances.

It is a fact that most of the startups run out of cash too early, as they find it hard to manage their finances adequately. Consequently, they shut down. This is one of the most common reasons that account for a startup’s failure. Cash flow provides the fuel for startups, and if you are facing a financial crunch, you won’t be able to take strategic business decisions. This is why managing financial resources is the key if you want to grow your startup.

Solution.

Startup owners must learn to control finances, meanwhile ensuring a constant cash flow to the organization. Startups can manage their financials by taking calculated yet manageable risks. Implementing a robust financial literacy program for startup employees can go a long way in making people conscious about financial decision making. You can leverage online tools to manage finances as well, without bothering about the manual handling of the financial data.      

Summing Up.

In this post, I have elaborated about six of the most obvious reasons that account for a startup’s failure. A number of startups shut down within the first five years, due to any one or a combination of these reasons. Therefore, startup owners must focus on implementing strategies to address these reasons in a practical way, keeping in focus the working philosophy and capability of the employees working therein.

I have also presented solutions to tackle minimal issues with pro-tips. I advise the startup owners to implement the solutions and curb down all the shortcomings that are forcing them to think about their startups’ closure. Doing market research well ahead of your startup launch and timing your launch perfectly, hiring the right people and delegating relevant responsibilities, using growth hacking tactics, and above all maintaining a healthy cash flow will help startups scale up and make strides in the right direction.    

If you are ready to go ahead with your startup, we have got you covered with a comprehensive startup launching plan guide.  

I do hope that these solutions will help your startup remain healthy, growing and functional in the long run.

 

Arsalan Sajid is a digital marketer by profession and works as startup community manager at Cloudways. His job is to create value for startups by connecting them with mentors and providing them tailored growth resources through the Cloudways Startup Program. His content marketing skills and love for the startup ecosystem derives him to write and publish content about startups and entrepreneurship on Cloudways blog and on other platforms.

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