Invoice Bazaar Blog

What are the most common reasons for the failure of startups?

By Invoice Bazaar | June 5, 2022

An entrepreneur decides to launch a startup because she is convinced that she has a product, service, or solution that will benefit a relatively large section of consumers. There are hundreds of products and innovations being launched every day worldwide, but very few survive and flourish beyond three or five years. There is much groundwork to be done before the plan is executed and a startup gets launched. Inadequate or poor market research can result in a faulty business plan, erroneous product demand assessment, and faulty product pricing. All these can spell disaster for a startup. Hence, flawed market research and wrong analysis and understanding of your customer needs can be one of the leading causes of failure. 

Secondly, the timing of the launch of a startup is very crucial. Sometimes a product might be so ground-breaking that the consumer is not yet ready to warm up to the concept. Pioneers always bear the brunt of risks associated with a new product. The pilot launch of prototypes can help to study market response and mitigate losses. Moreover, entrepreneurs must always invest expecting the most conservative estimate of revenues in the initial stages, though they should also be prepared to deal with the requirements of the rapid growth of the business.  

Another common mistake made by many startups is to splurge a considerable portion of the investment on initial launch and marketing without anticipating the hiccups that are part of any venture. In fact, startup founders should always be frugal while managing expenses because they should always keep buffer funds in reserve for troubleshooting in case of significant glitches. Nearly 30% of startup failures are attributed to liquidity crises. Hence, startup founders should restrain themselves from overspending on marketing, and they should hire employees only when required.

Furthermore, the people associated with a startup are as crucial to its success as the product itself. Partners and senior associates should be on the same page when vital decisions are taken, and they should arrive at a consensus regarding profit-sharing, which should be directly proportionate to each player’s contribution to the team. The key contributor needs to be adequately compensated and should not feel exploited. Recruiting the best employees in the field, those who can come up with innovative solutions can ensure success to a large extent. Almost a quarter of failed ventures is because of lousy recruitment. 

Last but not least, intense competition is a major factor that can devour startups. Hence, it is crucial to observe and understand what your competitors are doing right and doing wrong, learn from their mistakes and capitalize on that knowledge.