Entrepreneurs– India has the 3rd largest startup ecosystem, yet 80-90% of Indian startups fail within the first five years of their inception. So I was wondering why startups fail? We’ve found some of the main reasons behind this and the ways entrepreneurs can challenge these startup failure situations.
Table of Contents
Entrepreneurs: Here Are Nine Reasons Why Startups Fail
1) Lack Of Invention Of Entrepreneurs
According to a survey, 77% of venture capitalists believe Indian startups lack innovation or unique business models. In addition, a study by the IBM Institute for Business Value found that 91% of new productions fail in the first five years, with the most common reason being a lack of innovation.
Although India has the third-largest startup ecosystem, it lacks meta-level startups like some big names like Google, Facebook and Twitter. Indian startups are also known for replicating worldwide startups rather than creating their startup models.
According to a list of the world’s 50 most innovative companies, the most innovative Indian startups include startups such as SharePoint, Ola, Saathi and Swiggy.
How Can Startups Avoid This?
- Business innovation helps in many ways: beat the competition, differentiate yourself, solve problems quickly, and increase productivity. Here are some things startups should consider:
- Avoid imitating the successful ideas of existing global startups in India without adequately researching and understanding the Indian market. Entrepreneurs of Startups need expert technology and innovation talent.
- Think about the long-term preservation of the idea before venturing into trendy ideas.
- Find the right resources to fuel the startup with innovation.
2) Lack Of Money By Entrepreneurs
In 2018, bike rental startup Tazzo closed up shop. As one of its funding Entrepreneurs partners put it, the reason was a failure in the adjustment of the commodity market that caused funding to dry up. Although the startup had raised a significant amount of funding, the lack of a profitable business model led to the startup’s closure.
Millions of startup ideas are buzzing around. But turning ideas into reality requires financial resources. Investors need scalable and profitable models to grow the startup.
Lack of funds is a hurdle that puts many startups out of business. For startups that receive seed funding, the inability to raise follow-up funds is one of the main reasons they fail.
What Are The Most Vital Factors To Consider?
- Startups must have effective revenue and business models.
- Startups need to focus on revenue and profit as much as the product/service from the start.
- The funds must be spent wisely.
3) Lack Of Concentration
When Bill Gates and Warren Buffett Entrepreneurs remained asked about a factor responsible for their success, both answered with one word: focus. To know how focus can help, let’s look at an example.
Grubhub is a grocery delivery startup. From the start, the company decided to focus solely on food delivery. There are many other services that a company like this could offer: meal pickup, catering, etc., but the founders chose to only focus on delivery. The result? You could successfully manage and expand the business technically and operationally.
How Startups Can Stay Focused:
- Look for reviews, good and bad.
- Don’t do everything
- Adaptation to the product market
Many startups fail for the simplest reason: consumers don’t need their products. Does your product add value to consumers? Are there consumers for your product?
Does Entrepreneurs product match the innovative ideas on which your company is based? New companies often try to quickly develop products that are not in demand or try to expand the market for a product.
How Can This Be Avoided?
- Get a deep consideration of who your customers are and what they think of your product.
- Find new customers over word of mouth before embarking on expensive marketing plans.
- Build a relationship with your customers.
- You can’t please everyone, and you shouldn’t try.
5) Leadership Gaps By Entrepreneurs
Most startups are ambitious by the vision of their founders and core team members. However, having a good idea is much less important than knowing how to run a brand, a company and a team. A lack of vision and strong leadership are other common reasons for startup failures.
As the Harvard Business Review states, “While a principled founding team can create a great company, a sustainable company needs a governance system that is in place early in its history.” Some entrepreneurs may have leadership skills, while others need to develop them over time. This can be one of the details why startups fail.
How Can This Be Avoided?
- If you don’t have leadership skills, delegate the role to someone else who would do better than you.
- Learn leadership, and practice it.
- Find a mentor to help you develop leadership skills.
6) Lack Of Agility
Today we live and work in an always-on culture. So stay current with complexities and changes. In such a culture, agility can give startups a competitive edge.
In 2015, India’s largest consumer goods company, Hindustan Unilever Limited, decided to partner with startups. Why they did it might surprise you. They did it to regain agility. This move helped give the company the agility and adaptable mindset startups are known for.
Startups can face several startup issues. In addition, they constantly face challenges for which they have to find solutions. Change is inevitable, and therefore, startups must remain adaptable and agile to move forward.
Startups Can Ensure Agility Within The Organization By Practicing:
- Ongoing Learning
- Have a fluent workforce
- investigation and development
- Prepare to let your ideas change
7) Business Model Failure
A good product, an impressive website and high ad spend: Many entrepreneurs assume that these factors are enough to win customers and business. However, they ignore that attracting and retaining customers comes at a high cost and that the startup needs a foolproof business model to survive and generate profits.
Here Are Two Questions Entrepreneurs Can Start With To Build A Proper Business Model:
Does your startup have a climbable way to acquire customers? can you find one
Can you monetize these once acquired customers? For example, will the revenue from that customer outweigh the cost of acquiring that customer?
8) Lack Of Talent And Skills
Surprisingly, 23% of new businesses fail due to a lack of talent and skills. It is one of the easiest problems to fix, as you might suspect. Unfortunately, however, this is not the case.
1) they spend a lot of time and energy recruiting the right candidates. In situations of poor hiring selection, startups can challenge to replace the hiring with better candidates
2) Startups are mostly cash-strapped and cannot afford to hire experts or experienced staff who are expensive.
What Could Startups Do To Solve This Problem?
- Plan your hiring processes carefully.
- Create alternative ways of working, such as freelance or as a project model with experienced professionals.
- Make recruiting processes harder and more intense by giving candidates a real problem to solve.