Top 4 Reasons Why Most Startups Fail

Everyone seems to be bitten by the entrepreneurship bug, and rightfully so. The upsides seem fantastic- you are your boss, you can make a real difference to the world instead of just staring at excel sheets, etc.

Wonder stories of Flipkart, Ola, and Oyo make it seem that becoming a millionaire, or even a billionaire, is not out of reach. Startups surely can be rewarding.

I won’t be talking about things like lack of capital or market fit, or disharmony among founders, etc. Instead, I’ll talk about the mindset problems that come in the way of launching a startup, and this post aims to deal with some of these reasons and debunk some of the myths that newbie entrepreneurs believe in.

Myths that stand between you and your million dollar dream. Read on to know why a startup fails.

Why do Startups fail?

  • It’s all about the Idea

startup fails

Everyone is in search of the elusive ‘Million Dollar Idea’ without realizing that it is the execution that’s more important. A startup fails when its founders believe that the idea is everything. Facebook wasn’t the first to connect people; there was Orkut.

It wasn’t the last either; there was Google+. There is more to a startup than just the idea, which is why even Google couldn’t compete with Facebook despite being a tech giant.

It becomes especially problematic if the wannabe entrepreneur thinks his idea alone is a gold mine and falsely assumes that every VC in town will throw money his way, without a clear path forward on how to go about executing the idea. This leads to the next reason, which stems from a myth-quitting your job.

  • Quitting your Job

startup fails

Modern media has romanticized the idea of leaving your job to make it big in the startup world which leads to many people believing that once they have an idea, it is nothing less than a ‘Eureka Moment’ and they can quit their jobs the next day and make it large. There is no problem with being optimistic, but people do need to realize that it doesn’t end with the idea.

When they eventually get down and work on their startup after quitting their jobs, they understand that it is not easy to secure venture capital based just on the idea. They quickly run out of cash because of multiple iterations required to make the final product, and because they had no real feel of the market, they couldn’t come up with a product that’s market ready.

The notion that you have to quit your job doesn’t make sense. It’s better to work on your market research while still working in your current job.

This might lead to time constraints or you have to compromise other things in life temporarily, but it’s better than quitting your job and failing in your startup due to poor planning. A good strategy goes a long way.

  • Not knowing your customers

startup fails

Merely making a business plan is not sufficient. If you come up with a concept that you believe will be a hit among, say, 18-25-year-olds, then ask your target group whether they would be interested in buying your product.

If 8 out of 10 potential customers say no, then it’s best that you go back to the drawing board and rethink because if 80% of your ‘target audience’ doesn’t warm up to the idea, then apparently they won’t go for the product either.

A startup fails when it doesn’t do this and faces a hard time wondering what went wrong. This is because the product that you think the customers wants may not be what the customers want.

Another way of looking at this could be discussing your idea with someone else to get a critical third party opinion on your startup. This helps add another perspective and might alert you of a gaping hole in the business model/feasibility etc. A lot of beginners are skeptical about this because they fear the person might ‘steal’ their idea.

This fear is unfounded, primarily because of the first reason, that the idea in itself is not worth anything. So know your customers; after all, they are the ones who will make or break your business.

  • Not building something tangible

Do not get misled by the crazy valuations that you see in the papers. Most of these startups fizzle out because they aren’t really doing anything innovative.

For example, Foodpanda, a food delivery startup raised more than $100 million at an eye-popping valuation. Now it is struggling to find buyers for as less as $10 million and is planning to shut down its India operations. A startup fails when it isn’t about profitability or innovation, but instead about valuation. After all, what is really innovative about food delivery? There has to be value in what you do.

Another reason for such a mistake is that often, entrepreneurs don’t put in the necessary effort to understand their market and instead, blindly copy ideas from the west thinking if it worked there, it would work here as well.

Problem-solving is not a one size fits all approach. It requires a lot of work to pinpoint a problem that has the potential to be a real game changer. In addition to this, it is also important that it is a need amongst so many people that they pay for your product or service.

Catering to a problem that isn’t a problem faced by many is a futile exercise, primarily because it won’t have enough customers to make the kind of money that you want. It would also be challenging to scale such a start-up.

There are more reasons as well, but the most important myths have been debunked above.

To summarize, if you wish to call yourself an entrepreneur, you must:

  • Sell something real that has value
  • Find customers who are willing to pay cold, hard cash for the product/service.
  • Generate revenue. Don’t be misled by massive valuations hyped by the media; those startup fails before you know it.

Verdict

The startup eco-system is India is currently under developing phase. And we cannot compare it to other nations yet. But for all I know, when you find a company or come up with the new business idea, don’t just look for funding, remember you business’s first criteria should be to make money not to raise money!

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