The startup failure statistics floating around could be intimidating for entrepreneurs and aspiring founders. Starting a new venture is always an ambitious plan. But it takes a lot more than ambition to build a startup from scratch. If you aspire to build a startup from scratch, you must be mindful of the risks associated. You can start with figuring out why nearly 90% of startups fail. After going through hundreds of analyses, Zuvomo realizes that there is mostly more than one reason behind a startup’s failure. According to Forbes, 9 out of 10 startups will fail. You need to learn from the mistakes of these 9 startups to be the 10th one.
So before you embark on the journey of starting your dream startup, we are here to give you a reality check. A startup is essentially an experiment, and experiments may pass or fail. When starting a new venture, you are testing if your idea sells in the market. Every new business faces some challenges or risks. The good thing is you can always figure out the reasons contributing to a startup’s failure.
Why Most Startups Fail?
- Financial Reasons: It shouldn’t come as a surprise that financial reasons are one of the most common causes behind the failure of startups. As a founder, you need funds to hire talent, pay salaries, rents, source critical materials, and other necessities. Cash flow is vital to a company’s success. Some startups realize just months after starting that lack of funds is affecting their growth. As a result, most startups perish under the financial burden. Also, it could be difficult for companies to raise funds at different stages. In a nutshell, lack of enough funds is one of the key reasons 90% of startups fail.
- Poor Leadership: Leadership plays a huge role in the success or failure of a startup. A lot of entrepreneurs are generally experts in one field before starting a venture. But expertise in one field seldom guarantees success in leadership. Leadership is a trait only a few have. As a founder, you have to lead by example and understand the strong and weak points of your employees. Many founders lose their passion after failing to get the desired results initially. This affects the efforts they put into their venture severely. Others are unlikely to take your business seriously unless you do.
- Your Product Lacks Value: While starting a startup, you must ask yourself, what problems does your product solve. Investors put their money in products that offer some value. You might think that your idea is a game-changer, but it is of no use if it fails to solve a real-world problem. The market is highly competitive and brutal. The chances of survival for a product with limited use cases are really grim. Lack of market needs accounts for 35% of startup failures globally. Lack of value is among the top 3 reasons why 90% of startups fail.
- Poor Business Model: Starting abruptly is one of the biggest mistakes startups commit. Founders need to sort several key metrics, including cash flow, marketing, roadmap, and backup plans. Also, you need to collaborate with business experts who can review your business model and give feedback. Those ignoring the step are most likely to end up on the failing side. In fact, 19% of startups fail due to flaws in their business model.
- Team Problems: Having a team of skilled professionals is one of the fundamental requirements of startups. But a lot of startups commit the mistake of hiring ordinary people to avoid handsome payouts. But a little money saved on salaries may result in huge losses in the long term. The lack of a strong team is another reason why 90% of startups fail. You need to hire people with strong skills as well as different approaches to have healthy debates. Such debates give birth to insightful ideas, helping you grow.
- Partnership Issues: The urge to develop business partnerships with family or friends could be fatal. Business relations are completely different from personal relations. But a lot of founders forget the difference, and this is another reason 90% of startups fail. Lack of cooperation, pending disputes, and hierarchical problems are some of the issues that can emerge due to improper partnership. In order to make your startup a success, you must focus on partnering with like-minded people.
- Legal Problems: While starting, a lot of startups lack legal know-how. This is another major reason that startups fail to make a mark. Regulatory/legal challenges account for the failure of 18% of startups globally. Founders need to rope in legal experts from the beginning to prevent legal issues from affecting their growth.
Bottom Line
There is enough data in the market to assess the reasons contributing to 90% of startups failing. A smart founder would read into this data to learn from the mistakes that other startups make. You don’t always need to commit mistakes to learn from them. It is wise to learn from others’ mistakes and avoid doing them. From cash flow to a business model and team management, a founder needs to take care of several fronts to make their venture a success. If you are planning to start a venture from scratch, you need to be mindful of the aforementioned reasons to minimize the chances of failure.