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Avoid These 9 Most Common Reasons for Startup Failures

Published On
February 24, 2023
Read Time
Jay Magdani

We live in the era of unicorns and startup success stories. According to research by CB Insights,70% of upstart tech companies do not succeed.  In general, 9 in 10 startups often go defunct without ever reaching their ultimate potential. Consumer hardware companies top these stats, with 97% of startups eventually dying out. 

A majority of startup failure develops from a lack of funding. Many fail because they do not meet the customers’ needs, unable to address their core problems. 

But there’s always more to the story. Several reasons may contribute to a startup's collapse. If entrepreneurs can note these reasons beforehand, they could potentially save their businesses from leading to an abrupt closure.

This article investigates some of the key structural reasons behind startup failures. Let’s get started.

1. Lack Of a Disruptive USP

One of the most compelling reasons for startup failures is that they make little to no difference in the existing market. They don’t usually build a compelling value proposition to trigger the buyer’s commitment. Modern customers look for the difference between nice-to-have features and must-have features. Hence, entrepreneurs should think of providing them with a strong USP.

2. Excessively Futuristic Products

Creating products or offering services that don’t fit the demands and capacity of the current market or are too futuristic is another standard reason for startup failures. You could be ahead of the market, and consumers might not be ready for a particular idea.
For example, EqualLogic’s product iSCSI did not get a headstart at the time of arrival. It was the arrival of VMware that kicked their market into gear. Luckily they had the funding to stand in the market through the early years. It was the arrival of VMware that kicked their market into gear.

3. Over-Engineering the MVP

Many entrepreneurs overbuild their minimal viable product (MVP) infrastructure. It can inflate their spending without adding much value. Founders must figure out startup strategies that let their brand scale without friction. 

For example, building an MVP that can undertake one million-plus users on the first day is unnecessary. It can be hefty to maintain the over-engineered MVP architecture.

Also, be mindful of the features you develop. MVPs must only contain impactful features. Once the product is out there, you can always add new ones to reach new milestones and recalibrate your product by adding and omitting based on their performance.

4. Not Securing the Right Market Fit

A successful product requires multiple revisions to get the market fit right. In the worst-case scenario, the product or services need a complete rethink. That’s an ominous indication of where your company is headed.

Normally, it takes about 50+ conversations with customers to strategise whether your idea will sell. Unfortunately, many founders skip this step before beginning to build the idea. It may lead to disastrous circumstances for the product and the company in the long run. Therefore, founders must receive, analyse and incorporate constructive customer feedback to achieve the right product-market fit. 

5. Non-Aligned Goals

If the founding team cannot put out a product on their own, they shouldn’t be on the board.

-Founders of Standout Jobs

Multiple startup failures occur because of the lack of adjustment among founders, organizational teams and investors. It might also lead to startup failures, which could be regarding partnership deals, product new rollout timing, organisational structure or more. Therefore, ensure that the founding team, developers and marketing teams are in on the product or service idea, at least on the development and strategy fronts.

6. Absence of a Scalable Sales Motion

When an idea finds its correct market fit and delivers a clear USP, the next thing to figure out is: how to sell it. Many organisations fail to find a sustainable growth model. Therefore, ensure that you adapt to a scalable and repeatable growth model for consistent conversions and elevate your bottom line over the years.

7. Failure to Find a Profitable Growth Model

One of the most typical causes of startup failure is that entrepreneurs are too optimistic about customer acquisition. They think building an impressive website, product or service will attract customers right to their doors. That might happen in a few cases. But customer acquisition remains a crucial task across all industries. To ensure that this doesn’t happen to your business, make sure your customer acquisition cost does not exceed the customer’s lifetime value (LTV).

8. Poor Management Team

A weak management team is a familiar problem leading to startup failures. For example, 

  • Incapable management teams are often ineffectual in guiding product development and marketing and unable to devise successful strategies.
  • Lack of collaboration also hampers their product’s execution, leading to issues such as the product not getting built correctly or delivered on time.

Poor collaboration and unregulated team management obstruct a startup’s capabilities in multiple ways. Ensure that your management teams share a common goal and are always open to enhanced collaboration.

9. Limitation of Monetary Resources

Many startup failures stem from liquid cash drying out quickly. First, a business leader must ensure that cash flow remains streamlined before starting a venture. They must be aware of the funds they have at present, identify cash-burning measures and see whether they have the resources enough to carry the operations to reach a successful milestone.

Final Thoughts

A startup’s valuation won’t change overnight. A company must strive to achieve critical milestones to increase its valuation. Sometimes, it is possible to raise funds, but the valuation appears to be significantly lower.

This is where a CEO’s job comes into the picture. There’s no point in hiring multiple sales and marketing people when your product is still developing. Everything depends on the founder’s/CEO's decisions, namely — making responsible hiring decisions, including only essential must-have features, ensuring that your products have a unique value proposition, etc. 

It can be challenging for startup novices to get it right the first time. But it is not impossible, especially if you get the help you need.

Scalix is an integrated platform for startup founders to ensure easy access to the community, capital, and other pillars of a successful business. It aims to assist companies and entrepreneurs in making conscious decisions and seeking investment while generating impressive income for investors.

Contact us today and build a seamless plan to guide your startup through rugged economic and managerial terrains.