5+ Reasons Why Startups Fail

5+ Reasons Why Startups Fail

There are always good reasons to built different startups as well as there are some reasons that may cause that startups fail faster thank you think. We have previously mentioned some of the reasons in our article Top 10 reasons of “Why startup fail?” How to avoid it? 2020. We don’t want anything from this to happen to any newbies in the startups’ world, either to any professionals. That’s why we want to bring attention to these five points that you can easily avoid while growing your startup.

5 Reasons Why Startups Fail

Having a great idea is a wonderful feeling. In the beginning, it feels like you can conquer the world. Then you think you have something unique in your head, which might be able to change your life completely. When you start to believe in it – this feeling comes quite fast – then you start to make moves towards this goal = your project. Unfortunately, together with this “WOW moment – I know what will be the next gold goose with the golden eggs”, those feelings cover the ability to see the market reality.

Market dark/pink glasses – idealist mode

This happens most of the time when investors are sending to my office those potential Elon Musks. Mainly to evaluate the market potential of their projects and ideas. Some of them have similarities. They feel very self-confident in their intentions. They feel strong in managerial skills and have the feeling that they will save those suffering potential customers.

But they do not have even yet. I am not saying this is bad. Actually, this is needed to enter the wild oceans of the market economy, but – to be a realist at the same time helps a lot. You have to have a big and even unrealistic dreams and goals in your business plans. That is needed to be able to move forward. But – you have to be able to see the market in true colors.

Whenever when those young future entrepreneurs are coming into my office saying: “We have something no one does and everyone needs”, I start to be suspicious. There are always your competitors out of there. Even they didn’t reveal themselves yet, but they want that all similar startups fail. But remember they might occur anytime.

Not knowing the customers as one of the most common reasons why startups fail

Our customers are restaurants, and if we do not bring what they have expected from us, they will not return back. Plenty startups fail because they forgot to identify the target audience. I remember those boys coming once with a great idea of 3D product pictures. They were skilled engineers, won the worldwide Itel competition with their beer serving robot, and with a few machines already functioning in several places.

The idea was good. The operation and production were easy, fast and cheap. That combination was impressive for most of the investors around. But the focus was wrong. Their visit was a bit about the technology but mainly about the promotion of a plate full of a delicious meal in restaurants. The idea was simple. You would like to visit the restaurant you probably do not know. You will check their web page, where you will find all the 3D pictures of all the meals on the menu. You can turn them, zoom them (not to smell them). That was silly. For many reasons.

But the technology, its operation and output were high quality, innovative, the competitors were only a few in that time on the market and the most important – the whole thing was not expensive. Not at all. The investors had the feeling “this is it”, but who might be a good customer for that? The restaurants not, because they change their menu regularly, the one restaurant needs only a few 3D pictures which are impossible to use anywhere else. Lots of work and almost no margin.

Customer – golden goose

Important is to see the market from the customers’ perspective. To try – in the first place – to help the customer, to solve their problems, cure their pains. Not the profit. But how should I be able to think like my customers, when I don’t know who my customers are? Easily. You know what your “idea” or project can do. In our case: who would like to see the 3D pictures of something. Someone who wants to buy the stuff.

Which stuff would you like to see in detail, be able to turn and zoom, and most of the shops are selling, so your business model will have a high margin? The answer was – the e-shop with electronics. Then, you can produce the 3D pictures photo stock and sell those 3D pictures to many different players on the market.

It is only about the team – terrible management that makes startups fail

I know lots of great people with wonderful intentions. But some of them just have horrible management. They simply have a mess in everything. To run the project, you need to be structural, to do all you promise to do, to keep records, to be able to talk differently with different people, to be well organized and talkative. Sometimes I wonder, how those business-messy friends of mine are still managing their business over several years, still have negative cash flow, anything so innovative there. But they still keep going on. However, that is just not the world-conquering winning strategy, right?

If you do not feel yourself of being a good manager – or most of the people around you are saying so – find someone to manage it. Why do you think we have all the roles in the business such as president, vice-president, the board of directors, the chief strategy officer or simply co-founder or entrepreneur? Play the role that suits your character.

Timing – be at the right place in the right time

This makes me sad every time I see this happening. You have a good idea. Develop it to a nice project. You do know your customers. You do have good management. But it is just too soon on the market. I am not talking about the situation when you start to sell instead of before the X-mas time in January. I am talking about the situation when you have such good technology, that you overrun the market demand for years. That might happen mainly in the IT field and in B2B business where many startups fail daily because of bad timing.

Then your project is great and should stay at the academic sphere where you will have time and sources to develop it until the time will be the right.

What happens if you are just too ahead? There are only two scenarios.
a)      Wait for the right time
b)      Educate your market – became an evangelist

To wait for the right time might be risky because you will be losing money month by month. And the progress is fast and changing its direction. So what might look as suitable once there will be 5G everywhere might be not, because in the meantime the direction of market focus will change. This strategy is a big risk of losing it all.

To educate the market costs lost of money and might be exhausting. You need to create an evangelist persona, some kind of celebrity, make a blog, publish a lot, be active on conferences, talk and talk, write and write, explain and explain, again and again, sometimes even for years. Usually, that is not a money-making activity. Plus, you still have the risk, that the scenario a) will happen anyway. Do you remember how fast world change from stable phones to cells, from cells to smartphones? And what about the digital cameras? The VHS, DVD, Blue-Rays and minidisks?

Luck – all you need is luck

But sometimes, all you need is luck. Some startups fail having a completely unique product to sell. You can have an average product but great management and become successful. You can have already strong competition on the market but still, succeed. If you have luck. That means to meet a high-value investor with great connections, entry right on time in the market, connect your marketing with and event which helps it etc. Such as the increment of tourism in Puerto Rico when the Despacito song became famous. That was huge. Simply – the luck.

Are you still worrying and struggling with your startup growth? Our article about 7+ tips Before Approaching An Investor may help you to be prepared.

If you have any doubts or comments, visit our LinkedIn or Facebook page and send us a message.

If you are interested in keeping updated with the last Tech Startups News, write a comment below and we will contact you.

Do not let your startups fail! Lots of luck in your businesses 😊

Jitka Sladkova

Jitka Sládková has a strong experience with  SME ICT companies, dealing with corporate governance and understanding the pains and challenges of new ventures in managing the first level of investment, future growth up to international trade sale or IPO. She was over 5 years director of NSM Cluster, she is a Chairman of the Board of Directors of Technology Park Brno. She has a doctorate in competitive strategies and she participated in several international clusters project (C-Plus, CNCB, Clusters-Cord etc.) and R&D projects regarding the SMEs.

Leave a Reply

KEEP UPDATED with our latest Tech Startups and Tips.