As per statistics by a renowned organization, only 80 % start-ups survived after one year of its inception.
The reasons for failure include wrong start-up ideas, wrong product, wrong market, ineffective marketing and consequentially draining finances.
Starting a business is not as easy as it may seem and once launched, it rarely happens that the business floats with minimum effort.
But why do many start-up companies fail?
Money is the first and most critical factor to start a business. Most startups or small businesses face financial crunch and the inability to raise more money to sustain in this volatile market. Many renowned start-ups had to shut down business after spending more than their pockets could manage and failing to raise new funds from investors or banks. Add to it the substantial challenges from competitors. Some companies fail to see the warning signs and by the time they realize it is too late to take the necessary action.
You may have great start-up business ideas, but you need to check if there is a need for your product or service in the market. Market research is an integral part of any business. Before embarking upon your dream business, thorough market research is a must. If there is no need for your product or service in the market, then can you create a need for it? Many successful businesspersons have created a market need if there wasn’t any. But this is not everyone’s cup of tea. If you are unable to create the need then you need to work on other business ideas. Failure to produce something people want is the biggest reason for startup companies to crash.
Though start-up entrepreneurs are told that they just need to think
out-of-the-box and they would be a hit in the market, one cannot rule out
competition. And sometimes this competition leads to the start-up failure though
the idea originally was yours. Once your unique idea becomes popular among
people, many would replicate it. Hence, even if a start-up is very successful,
ignoring the competitors who newly came to the market is not a wise thing to do.
Few good start-ups had to close shop after being unable to make it in the hypercompetitive market. This is particularly true about tech start-ups.
A solid business model is extremely important for a start-up to be launched. A
faulty or weak business model will not trigger off in the first place and even
if it does, it will not last for long. Your model should be compelling enough
for people to use your products or services which in turn will pay you rich
Failure to find a viable business model will lead to financial losses and inability to secure funding.
Pricing a product is a dicey situation for start-up companies in India. If it is high enough to cover costs, it will be low enough to bring in customers. One needs to strike a balance between quality and price and also be able to cover up the expenses.
Hiring people to save a few bucks or hiring the wrong persons is detrimental for
a business. A company’s inability to make key hires is one of the important
reasons for its downfall.
Lack of experience and mismanagement affect the success of start-ups, whether new or established ones. The team should relate to the vision of the company’s founder and work towards a common goal.
Burnout is another reason for failure. The ability to cut your losses where
necessary and redirect your efforts when you see a dead end, continued passion
for the project is important to succeeding. Also, if the team loses the zest, or
is not cared for, burnout rate becomes even higher among employees.
Stagnation also contributes to losing interest, shutting down and looking for new ideas to launch a start-up.
Falling apart with partners or investors is a fatal issue for startup companies. Under such circumstances, things get murkier. Attrition rate also increases and ultimately the entire business gets affected. Employees also lose trust in the company.
Setting goals, accurate market research, having trustworthy partners and good team, raising money continuously till the start-up business is well-established setting aside budget for a rainy day, loving the work, and not quitting are some of the ways to avoid failure .