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Top 10 reasons why start ups fail

By on March 14, 2018 in Editor's Desk with 0 Comments

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Start ups are probably the favoured career option of people these days. Moreover, unlike few years ago when preference for start ups was limited to young individuals who were below 30 years in age, these days, people of all age groups, including top executives at globally renowned firms are starting up on their own in the hopes of creating an organization that would bring a positive change to the society. This start up concentration isn’t just limited to 1 or 2 sectors specifically, but encompasses almost all major sectors, right from information technology & biotechnology to the energy sector. Going forward, favourability towards start ups is only expected to increase further amongst people.

Like all the major economies, India too is one of the booming markets as far as start ups are concerned. The easy availability of capital coupled with a large number of educational institutions from which talented youngsters graduate makes India an ideal place where start ups can blossom. India has the third largest number of start ups in the world and is the youngest start up nation in the world, with 72 percent of the start ups being founded by people who are below 35 years of age. Some of India’s start ups that have received global acclaim are Flipkart, Ola, Zomato etc.

In all this brouhaha over the success of start ups, a fact that is missed by many people is that there are still many start ups that aren’t successful, even start ups providing out of the box solutions to people tend to fail. Some times the failure is instantaneous while other times the failure comes after a few years of success. Although there are no fixed reasons due to which all start ups fail, two different start ups can fail for two very different reasons, there are some reasons that can be considered as a cause for the failure of a majority of start ups. We list those reasons below.

No market need

A lot of the times, many start ups make forays into sectors where there isn’t any requirement of any new solution or sectors that are already overly crowded. Both of the aforementioned cases result in the solutions that the start ups might be offering not appealing to prospective customers. This is one of the most common reasons for start ups failing across the globe. In fact some figures suggest that no market need is the reason for the failure of around 42 percent of all start ups.

Running out of capital

All start ups need cash to survive and thrive in the cut throat competitive sectors which they are engaged in. Whether it be advertising, product development, paying employees etc., cash is required by start ups. But some start ups, even after being adequately funded by financial institutions, venture capitalists etc. tend to get carried away in their rush for growth & expansion and end up selecting advertising budgets that are disproportionate as compared to their size and prospective market segment. In addition to this, instead of marketing and further improving their flagship product, many start ups undertake the development of more products, resulting in them running out of cash.

Lack of novelty in their products/services

The biggest requirement for a start up to succeed is that it should offer something better, be it products or services, than the products/ services being offered by it’s competitors. Sadly, this is also a trait in which many start ups lack. Start ups failing because they are offering the same product(s)/service(s) that other firms are offering are increasingly becoming common.

Lack of trained and able personnel

Perhaps one of the biggest mistake on the part of start ups today is not selecting the right team. It’s an old adage that any objective requires team work with the necessary planning. This is very true for start ups, as important aspects in it’s growth are things such as targeted marketing, effective after sales support, customer friendly staff and many more. All of the aforementioned and more cannot be achieved if founders of a start up err in selecting the right team. If wrong personnel are selected, it will surely result in incoherent working, lack of direction, disputes, all enough to put even the most promising of start ups into the disappointments category.

Lack of the necessary infrastructure

This is true for developing countries such as India. Leaving aside the start up centres in India, many other towns and cities also see a lot of start up activity taking place. A lot of these start ups do have innovative offerings of products and services which might be appealing to targeted customers in various markets. However, these are the start ups that also face issues such as a lack of reliable electricity supply, security issues, logistical problems and many more. These issues are perhaps the reason why start ups in India are still limited to a few cities who have come to be known as their hubs.

Getting out-competed in the market

A point that probably shouldn’t have been mentioned here, as the risk of getting out-competed is there in every sphere of our life. Some figures state that 19 percent of start ups fail due to getting out competed in the market. The reasons for getting out-competed are many, ranging to the competitor firm (s) offering much more to prospective customers with their products or services, competitors having a price advantage, competitors providing much better after sales support, more funding etc.

Loosing focus

A reason for failure that is increasingly becoming more and more common these days. A lot of the times, start ups do have a niche market segment to serve, and also an ever increasing customer base when they somehow loose focus and end in the red, i.e – having difficulty in surviving. Moreover, cases such as start ups finding quick success with their products/services and making profits before suddenly going in the red and never being able to reverse the trend are also happening increasingly. The reasons for this loss of focus can range from trying to grow too fast, not planning properly, aiming for short term profits over long term growth etc.

Poor customer retention strategy

Many a times, start ups, in their scramble for getting more and more new customers forget about fulfilling the expectation of existing customers who might be repeat or prospective repeat customers. It’s essential for all business to be able to retain customers for their long term growth. Things such as prompt & effective after sales services, constantly updating customers about new offerings and discounts are a necessity for all start ups if they wish to succeed. Having said this, another fact that has to be mentioned is that a majority of start ups seem to realize the importance of retaining customers and do work with this approach.

Failure to pivot/change course

Running a start up is a responsibility that includes being able to change course, action plans regarding product/services, prospective customers as and when need arises. Any start up faces stiff competition from competitors, some of whom might have much more resources for their disposal. To get around this problem, start ups need to be able to make the necessary changes to survive. Sometimes, founders also realize that their start up is offering a product not specifically suited to the target segment. The ability to change course here might differentiate between a start up being able to succeed and a start up failing badly.

Giving up too early

Last but not the least, some start ups just give up too early, shutting down their operations, when success might just have been around the corner. Although it has to be accepted that when running a start up, it’s almost impossible to know how long to continue in the face of adverse situations, with some start ups even going to the extent of being operational for far too long when realistically they had no chances of succeeding, there are some promoters of start ups who start thinking about other prospects far too early, sometimes as early as after a couple of setbacks. Starting up on your own requires the ability to persevere, the determination to succeed in the face of setbacks. Sadly, some start up promoters are sorely lacking in this aspect. However, it has to be mentioned that cases of start ups failing because of giving up too early are still very few.



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