Why do startups fail? 12 most common reasons

Starting a business might sound all fun and frolic but let me tell you it is not an easy job it takes hard work, persistence, and of course an innovative idea and a good business model. But you need to be aware of all the shortcomings, according to Murphy’s Law “anything that can go wrong will go wrong” so you need to be completely prepared for all sorts of outcomes.

Small businesses in India?

So what do you mean by a small business, according to the Small Business Administration (SBA) a small business is a business with 500 employees or fewer. so that means many companies which seem very large are actually small businesses.

There are approximately 400 million small businesses or enterprises, and they are the backbone of economies around the world. They are the main source of job creation globally, accounting for over 95% of firms and 60%-70% of employment.

India has approximately 6.3 crore small businesses. The number of registered small businesses grew 18.5% Y-o-Y to reach 25.13 lakh (2.5 million) units in 2020 from 21.21 lakh (2.1 million) units in 2019.

77 % of VCs think that startups in India fail because they don’t come up with innovative ideas and 91% of startups fail within the first 5 years. Here are some of the most common reasons:

1. Lack of enthusiasm:

Many people have brilliant ideas, but they do not survive in the commercial world owing to a lack of passion. The main reason for losing interest in a business is a lack of understanding in that domain. It is possible to design a product and successfully market it if you are passionate about it.

2. lack of innovative ideas

Startups in India are known for copying other global startups rather than making something of their own. India doesn’t have meta companies like Google, Facebook, etc, but it has the 3rd largest startup ecosystem. Being innovative has its advantages like there will be less competition and also the company can stand out from the rest.

3. Need for a good leader

Most ideas take shape only if they have a leader who can steer the company just having an innovative idea won’t suffice if you want to create a successful brand you need a team, a great leader some might have the magic of leading in them but don’t worry if you don’t have it in you need to hone the skill and Study leadership, practice it. Or you can simply assign someone who according to you might make a great leader.

4. Money, money, and more money

There is a gazillion of startup ideas all around us, but to bring these ideas to life one needs finance. The lack of a proper business model which will yield profit can lead to the start-up’s downfall. If the money stops coming in then the company funds will be dry, thus shutting down the startup.

Money is important for the scaling of a company even after seed financing some start-ups are unable to get funding is one of the biggest reasons why startups fail. So the key point is from the very beginning companies should spend the cash carefully and also have a solid revenue-generating model.

5. Conflict in the team

A diversified team with multiple skill sets is crucial for a company’s success. Many entrepreneurs are unable to perform what is required for a business to succeed. Both the entrepreneur and the team should concentrate on industries that are relevant to their abilities and educational background. Their abilities should be supplemented by those of the team. Discord in the team may hinder the company’s growth. Discord among a company’s investors can sometimes end in failure. As said a team can either make or break you.

6. Wrong Target audience

Also, one huge factor is the target audience, it should be scaled down to the audience of a particular niche. It should not be too broad targeting the wrong crowd does not work out well. So it is important and also advisable to figure out the kind of audience you want to cater to.

Without a market, there is no cash. Many businesses have failed because they designed their product or service completely out of the market. In certain cases, the market was not yet mature, or features were developed that were irrelevant from the perspective of the target group, and hence were not desired by the market.

7. Adding no value to society

A start-up fails when the product/services they are providing are of no use to the people, so you need to think and understand that if your product, adding any value to the lives of others, is it making any difference in the lives of common people. You can avoid such situations by being conscious of your ideas and also by gaining in-depth knowledge about the market.

8. Extremely expensive

The product’s pricing should be fair for a startup’s success. If a product is priced too high, it may fail to attract enough buyers to be successful. It can only be high if there is a benefit to the client and if it makes sense. Customers do not complain about the product’s pricing in this situation.

9. The inadequacy of a business model

Many entrepreneurs feel that creating a product, service, or website and acquiring consumers is simple. However, without an effective business model, it is not easy to achieve. A business model is concerned with determining a scalable method of acquiring and monetizing clients.

10. Bad marketing

Another reason which leads to failure is bad marketing, one should hire marketers, it costs money but if it’s done right it will give you back double the amount that you have to spend. Also, customer retention comes at a high cost, and every company to be successful needs a solid business model.

A company becomes successful because of its clients so you should never, I repeat never ignore what the customers want to cause in the end they are the reason for the revenue generated. You should have a solid customer care service Address customer queries, concerns, and feedback, do not ignore your customers, also when the company is customer-centric it becomes easy for the company their decision-making becomes easy.

11. Ignoring the demands of customers

It is critical for a company to develop products and solutions that clients require. The team should not, whether purposefully or unintentionally, overlook the demands of the clients. Receiving feedback from users at various stages of product development and testing does not derail a firm. Customers will become addicted to the next iteration of the products and services.

12. Legal Issues

A startup might become entangled in legal difficulties, which can lead to its demise. It might be anything from the suspension of a high-earning affiliate account to the inability to launch on a worldwide basis.

These are the most common reasons for startup failure. Other factors include the inability to pivot, cash burnout, a lack of utilization of the network, a lack of investors, and so on.

Startups that have failed

Indian startups that have failed in the past years :

Yumist

Serving home-cooked food is becoming increasingly popular among today’s businesses. Yumist was one such business. It was created in 2014 to serve the daily-meals industry in India, which was previously untouched. Alok Jain and Abhimanyu Maheshwari were the founders, and they raised roughly $3 million in fundraising.

One of the main reasons for this startup’s failure was its business model with a high burn rate that required considerable money to achieve expansion that Yumist could not have. There was also insufficient capital to run the startup. As a result, the startup was forced to close its doors.

Turant Delivery

The B2B startup was an intra-city logistics provider that began in 2015 to add a new twist to the Indian logistics market. Turant Delivery’s algorithm allowed it to give services at up to 15% less than what competitors cost for the same journey (according to the company’s claims).

The company had to close due to a lack of cash to continue itself in the long run. A logistics service company needs a lot of capital to stay in business. As a result, finance is critical for any logistics startup.

Doodhwala

Another startup that halted its services is Doodhwala a milk delivering startup founded by Aakash Agarwal and Ebrahim Akbari in 2015 based in Bangalore it worked on a subscription-based model and offered various grocery products According to CrunchBase, Doodhwala had raised over $4 million across multiple rounds from investors like Mumbai-based VC firm Omnivore Partners.

Doodhwala declared the closure of the startup at the end of 2019 owing to unfavorable conditions. They transferred their customer base to FreshToHome. Doodhwala was operating in Bengaluru, Hyderabad, and Pune at the time of its closure. A year ago, they used to perform around 400K conveyances in a month.

Bottom line

To start a start-up that’s successful one needs to follow the tips provided here and go through some extensive research and be prepared. Out of 12 11 startups fails, which suggests that a lot of things need to be done correctly for a business to be successful and stand out in the market. You need to have goals, research, focus, never lose hope, and always believe in yourself.

Failure is not the end of the world. It’s the first step toward achievement. Take note of the mistakes addressed in this essay if you are running a startup or intending to create one. Nothing is more painful than making a mistake you were already aware of.

Also Read:

Follow IndianStartupNews on FacebookInstagramTwitter for the latest updates from the startup ecosystem.