Why Startups Fail

- By Cdr Ashok Bijalwan

No business can guarantee a 100% success rate and startups are no exceptions. In
fact, empirical data suggests that almost 90% of the startups fail to last beyond the
first year of starting operations. So, what could be the reason for such an alarming rate
of failure among startups? Let us analyze them one by one.

The foremost and the biggest reason for failure is designing products or services that
no one wants. Agreed, you may have a great idea or product but that does not mean
people will fall over each other to purchase it. Remember, the first prerequisite of
market demand is that people should have a need for the goods or services on offer.
So, however brilliant your idea or however good your product may be, people will not
buy it unless it solves one of their problems (or ‘pain points' in startup jargon). So,
before you start building the product based on your idea, please ‘go out of the building',
speak to people and check if they really need the product that you have to offer.
Without customer demand, your venture is a ‘No-Go' to begin with.

Once you have established that there is a pain point that your product can solve for
the people, give it to them and have them evaluate it. The biggest folly some innovators
commit is by thinking that they have the best brains in the whole of the universe and
will not roll out their product unless it has attained perfection. Well, I can only wish
good luck to such people. Remember, every idea and product has its time and that
time is NOW. In this age of rapidly changing technology and tastes, it may not be long
before your prospective customers today have no need for your product tomorrow. So,
prudence is in launching your version 1.0 ASAP and keep on improving on it based on
user feedback for it is they who are the best judges of what they want and not you.

This brings me to the next point of not taking your competition seriously enough.
Remember, you are not the only person with a brain and ideas. Those conversant with
the term ‘Multiple Discovery' will know that at any given time, multiple people are
simultaneously working on similar ideas, innovations and inventions. So, in terms of
startups, the one who can take the lead in building and launch a prototype will have
the first-mover advantage. So before you start building your prototype or beta version,
please take some time out and check what others are doing in a similar domain. It
does not necessarily mean that there is no room for more players in the market but
your chances of success are higher if you enter the market before it has reached the
‘maturity stage'.

The next reason for failure, in my opinion, is the inability to cobble up a winning team.
Here, I must remind the readers that most startups begin on shoestring budgets and
the founders cannot even dream of hiring the top brains in the industry. So, the need
is of identifying budding talent that complements each other in covering the core
business areas that you need to take care of as a startup and you have to make them
believe in your idea. Mind you, if they are not convinced of your idea, they are not
going to join your bandwagon for what it might fetch them in future for as we all know,
a rupee in hand today is worth more than the promise of ten years hence. Besides,
unless they believe in the idea, they will not give their 100% sweat and blood to make
it successful.
Another reason for failure that I can think of is the founders' inability to manage the
cash flow. Let us face it, you require money to run a business and unless you manage
your money well, you are going to lose it. It begins with raising initial capital from the
three F's (family, friends and fools) or later-stage funding and after you have the
operations going, you need to watch your cash. Unless the cash flow is positive, you
cannot sustain your business for long. Many failed startups have been guilty of
squandering money on non-essential expenses. While established businesses can
easily afford swanky offices and cars, the startups have to be very careful about every
Rupee that they spend. Remember the old saying, ‘a penny saved is a penny earned.'
Even if you are not able to raise seed or later-stage funding for scaling up rapidly soon
enough, positive cash flow will ensure organic growth and you can be sure of attracting
investment sooner or later.

But this does not mean that you should run for the money. Many founders are known
to have launched startups to earn quick bucks by selling out their stake after getting a
threshold customer base. But let me tell you, maybe only one in a million can succeed
in doing that because if you don't have the passion for the idea or the product, it is
nearly impossible to succeed in your venture. Without a passion for it, you will not be
able to go through the grind that a startup requires its founders to go through. God
forbid if you are unable to build on your product or customer base as per the envisaged
timelines, you are sure to lose steam and that may be the last day of that startup. So,
don't go for a startup unless you are 100% passionate about your dream of solving a
problem and are ready to sacrifice your sleep to fulfil it.

There are many more reasons why startups fail, but I have decided to discuss only the
major ones as these are the most common ones. So, before you start pursuing your
startup dream, take care of these issues and you will have a very good chance of
coming out with a winner.