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Here’s What You Should Learn From Startup Failure

Published On
February 9, 2023
Read Time
Shanti Mohan

Startup failure is common. In fact, only 10% of startups succeed, according to the latest reports. The reasons are plenty, especially given the harsh and challenging economic environment post-pandemic. However, there is a silver lining, that none of these reasons are unbeatable.

Lessons From Startup Failure to Help You Succeed

Some startups fail because the idea is not viable and others struggle to succeed because the work culture is not conducive to growth. Whereas, some do not survive because cash flow is poor, and they are unable to secure more financing.

But more often than not, startups fail due to a combination of factors. When you read through startup failure postmortems, a pattern tends to emerge; from that, founders can learn how to prepare for the inevitable challenges.

1. Lack of Market Need

In 2019, Quibi was launched with much fanfare. Yet, big names and $1.8 billion in funding could not save it from failing. It took only 6 months for the mobile streaming service to shut down. One of the reasons for its downfall was its failure to serve a market need for short-form streaming services.

The lesson here is to never take the saying “if you build it, they will come to heart. An ingenious idea does not automatically herald success. You cannot ignore what users need or want, even unintentionally.

CB Insights estimates that startups fail 35% of the time, because they don’t serve a market need.

2. Product-Market Fit

Distorted relations between the market and product is another cause for startups to decline, which can happen for a number of reasons. One, founders do not prioritise building a product. Instead, they aggressively focus on getting capital or pursuing sales with a flawed product.

Two, a mistimed product can also be responsible for startup failure. Launch a product late, and you miss the window of opportunity. Release it too early, and a bad user experience puts off early adopters, making it harder to reach critical mass. The lesson here is to sell a product that has high demand but low supply.

Three, setting product pricing is a dilemma for most founders. It has to be low enough to attract customers yet high enough to recover costs. The way out is to test the price before you go to market and tweak it based on feedback.

3. Viable Business Model

Being bullish about a particular business model frequently leads to startup failure. Do not stay wedded to vanity metrics that make the startup look good but do not genuinely show performance. Nor should you hyper-focus on acquiring more customers using the same model.

Find more ways to make money and, if need be, pivot quickly. That’s how Burbn was able to thrive as Instagram.

4. Cope With Competition

Founders have to be judicious about how much attention they pay to competition. However, ignoring them maximises a startup’s odds of defeat, and Vine is a quintessential example.

The short-form video service relied on popular content creators to maintain their market share because these creators drew in millions of viewers and users. But unlike its competitors, most notably Instagram, Vine failed to meet the needs of creators.

First, it didn’t allow creators to monetise content using the platform. Moreover, the startup was hesitant to experiment with other ways to make money. Essentially, they were losing popularity to competitors and burning money.

Second, it stuck to its feature of 6-second-long videos. Meanwhile, Instagram introduced 15-second videos, and that was it for Vine.

The lesson here is to be cautious of competition, particularly when an idea is hot and making the rounds. Others may capitalise on it, leaving your startup on the brink of failure.

5. Poor Teamwork

Friction within teams is not limited to startups. The productivity of most companies suffers when there are team problems. But for startups, it can become a costly complication.

When there is discord between the founding members or even between a founder and investors, it can turn fatal. Irrespective of why that friction arose – finances, lack of knowledge, or something else – it is one of the biggest problems.

When things go awry at the top, they trickle down. Ultimately, the organisation loses its sense of purpose and direction. The way out is to have strong, transparent communication within the organisation including the co-founders and investors.

Startup Failure Is a Given

Establishing a startup is a game of probability. There is always a chance of failure, no matter how minuscule. But as Winston Churchill eloquently said, Failure is not fatal. Accept that there is potential to sink, and then move on.

That’s the key to managing startup failure – knowing that things can go wrong. Have a contingency plan for every eventuality. So, if the venture fails, you can quickly move on to Plan B. Lastly, always take the time to analyse the reasons for startup failure.

If you have someone whose business advice you value, sit down with them to discuss the situation and find out what mistakes were made, or simply do it on your own. But give the circumstance its due diligence, because failure is not the end.

If you are building a startup and need a go-to network to help you manoeuvre through the initial challenges, consider Scalix. We support founders right from inception to scale.

From raising capital to connecting customers, our integrated platform can help reduce the risk of startup failure. Apply today to join Scalix!