Top 10 reasons of “Why startup fail?” How to avoid it? 2021

Top 10 reasons of “Why startup fail?” How to avoid it? 2021

According to Startup Genome reports, 90% of startups fail. Why startup fail? There are different reasons and different research. I will help you based on my own experience. Here is my list of the most common mistakes. I will explain 1 per 1 by single posts.

Top 10 reasons of “Why startups fail?” How to avoid it?

No market need.

According to CB Insight, 42% of the startups fail because no market need. Wow, that’s almost half of the reasons to avoid failures. Is CB Insight telling us this is the main reason of startup fail? Actually, by statistics, it is the main reason. 

What does it mean no market need?

It means, your solution doesn’t cover any current needs in the market or expressed in a different way: The market is not requesting or looking for the needs covered by your product or services.

Why is this happening? Unfortunately, many startups and companies are launched without a previous market analysis and deep testing. This problem can be divided into two reasons: “Not filling a gap in the market” and “No market for this specific gap”.

Not filling a gap in the market.

The market is overcrowded with companies or solutions doing the same or fixing the same problems in the same way. So, how we can fill a gap in the market? To keep reading the full article you can do at this link: 4 Easy Steps to Understand The Fail of “No Market Need”.

One of the most common reason of why startup fail: Not having a niche market.

What is a niche market?

A niche market is a small or specialized market for a type of product or service.  A niche market can be for a specific type of customers: Sector, location, size of the company, finance sources.  A niche market can be also for a specific type of solutions: Quality, type of products or services, licensing model, price.

Practical examples of not having a niche market.

I recently cooperated with a startup without a niche market. On the beginning, they were trying to sell to small, medium business and enterprise customers. The process and methodology differ a lot from each other. In the same way, business requirements are very different from each other.

Later, they realized about the focus on enterprise and corporate customers were their core business and they stopped to don’t waste efforts with the small or medium business. To keep reading the full article you can do at this link: 4 Easy Steps to Understand The Fail of “No Market Need”.

Not commitment or passion.

 

“Don’t start a business because you want to make money. Follow your passion and the money will follow you.” – Anonymous

I have heard this sentence dozens of times by successful entrepreneurs of different size and sectors business. Therefore, commitment or passion is one of the key factors when it comes to make success a startup. Undertaking your own business entails responsibility and dedication in a persistent way. Especially when at the beginning you are like David against Goliath.

Do you know what startups, leadership, fitness and personal relationships have in common?  In all of them, commitment, perseverance, dedication and passion are necessary.

Practical example: Fitness

Your goal is to stop being obese and start having a fitness body. This change does not happen from one week to another or even from one month to another. For this, it is necessary to keep it in the correct direction for a long period and after that period continue working on it. Here are some tips for this problem:

Tips for this problem.

1. Find your passion. It is quite normal that you don’t find out your passion or have not even found the job that best suits you. There are people who never find it or find it at a more advanced age. An expert can always guide you and clarify doubts, but everything has to come from you.

2. It is not necessary that your passion is realized by becoming an entrepreneur. Many people give their best performance by following their passion as an employee. A very fresh case from this week is the mythical player of the Lakers “Magic Johnson”. After resigning at the helm of 2 years as president of the Lakers, he has acknowledged that he did not enjoy himself as president.

3. Be aware of the need and meaning of commitment at your role. It is quite usual either as a role of CEO, entrepreneur or even leaders of a group, to be in positions without knowing what it means or what responsibilities that position entails. 

4. It is necessary that the passion is led in the right direction. I refer to the famous email that Elon Musk sent to his employees. He was arguing that there are other companies with a better balance of life and work. You can find the entire email in this link of Tekedia. we have seen in the previous examples about CEOs who are too motivated or they are driven in the wrong situation, they can lead to employees being counter produced or even abandoning projects or companies.

One of the biggest fear for young entrepreneurs: Fear of failure.

 

Many young entrepreneurs access to this entrepreneur world without realizing the meaning, the responsibilities or even the risks of being an entrepreneur. Let’s start with something basic: The meaning of entrepreneurship.

What does entrepreneurship mean?

Let’s take the dictionary for a while. Based on dictionary.com:

Entrepreneur: a person who organizes and manages any enterprise, especially a business, usually with considerable initiative and risk.

From my personal definition, it means going away from your comfort area of having a fixed salary every month, being responsible for the success or fails of your own company and the bigger impact of your fails compared with being an employee. After all, for the pros and cons is your own company.

One of the biggest fear for young or inexperienced Entrepreneurs is to FAIL

For that reason, it is very common “to want to assure each step that is taken to try to minimize the risk of falling and failure. Every successful person knows the following: “The fail is part of the game”. It includes also this statement to successful actors, athletes, influencers, singers, etc. Meanwhile, you are afraid to fail, your competitor will be there without this fear and getting your own market and customers instead of you. This common situation happens caused by the lack of awareness of entrepreneurs risks and rewards. 

Having a poor Go To Market.

You can have the best product, but if you don’t know how these products fit with your customers, then it doesn’t matter what you have. Remember that some companies are able to sell “A shit”, but they put a nice wrapper and they will be selling more than you.

The first and most important point is to know who is your customers. Know your customers, its needs, its pain and bring added value. Then, you should think about how you are going to transform these needs into a product or service.

Underestimating the duration of the sales cycle.

I read some of the most famous webs with entrepreneur articles and tips for startups. However, I missed in their lists and articles the factor of: Underestimating the duration of the sales cycle. I found out how some entrepreneurs underestimate the duration of the sales cycle and this impatience leads them to burn out their budgets, employers or even relationship with partners and potential customers. 

The duration of the Sales Cycle: It is the period of time from the the customer is a prospect till the customer make the purchase order. 

Which factors are conditioning the length of the sales cycle?

There are several conditioning factors for the sales cycle. This is my personal list cooperating with technology vendors:

  1. Customer budget and costs.
  2. Direct needs covered by the product or service.
  3. Target public: Companies or Individuals.
  4. Company size.
  5. Sector: Private or public.
  6. Brand recognition.

Poor leadership.

Another very common problem about why Startup fail: “The poor leadership problem” or it also known as “Bad leadership”. What is important to understand?

How does poor leadership impact on the startups?

One of the main reasons an employee leaves a company is because of his or her direct manager. This kind of problem also affects corporate companies. However, the impact of this problem is much bigger at startups than corporations. So, how does this problem impact on the startups?

  • Lack of Stability. 
  • Direct impact on sales and partnerships
  • Bad reputation. 
  • Financial problems, as a consequence of all the previous one.

However, if you are reading this and you are at a management position. This article will help to be more aware of the mistakes to avoid and how to become a better leader.

What mistakes should you stop?

 “We spend a lot of time teaching leaders what to do. We do not spend enough time teaching leaders what to stop.” –  Marshall Goldsmith at What Got You Here Won’t Get You There. 

To keep reading the article you can do at the following link: Poor leadership.

Not listening the customers and market.

4 Tips on how to avoid this failure of Not Listening.

  1. The partners and customers feedback, it is the most important feedback.
  2. Make a proper feedback process.
  3. “No hay más ciego como el que no quiere ver, ni más sordo cómo el que no quiere oir” – Spanish proverb.
  4. Better prevent than fix later.

The partners and customers feedback, it is the most important feedback.

The majority of the startups are working by channel partners. Some of them are 100% and others sometimes. Nevermind, they are as important as the customers are important for you.

Thus, there isn’t more important feedback as the partner and customers give to you. Without them, you don’t exist as a startup and neither your solution. Ignore this feedback and the competitors will receive your partner and customers with the open arms. To keep reading the article you can do at the following link: 4 Tips On How To Avoid This Startup Fail: Not Listening.

Spending all resources too soon.

There are some entrepreneurs that can have millions in their budget and they will always finish in bankruptcy. The main reasons to spend all resources too soon are:

  1. Hiring too fast. It is very normal feel excited on the beginning and try to make a “Corporate team”, but at the beginning, you need to grow on R&D and Sales at the same time.

  2. Spending more budget on R&D rather than selling. I found out a very common mistake on “Technical founders”, they will spend a huge budget on their R&D but not on Sales & Marketing. The result you can guess 🙂

Why startup fail: Not pivoting or doing wrong.

Every successful entrepreneur knows how important it is to pivot and pivot and pivot… till you get with the correct match and strategy. There is nothing written when you speak about the magic formula of success.

Because of this, you can’t keep the same go to market strategy forever without results. You should also consider the duration of the sales cycle as I mentioned before, but never be stuck without getting results in the short and middle term. I don’t speak about sales, but at least get references or something that is adding value for your next steps.

4+ Extra Reasons Why Startup Fail by Jitka Sladkova

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.

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.

What do you think about these mistakes about “Why Startup fail”? Have you ever experienced any of the issues mentioned in this article?

I hope this guide will help you to make your dreams true at your startup. If you find out this useful, I will appreciate you share this and more people can be guided by this.

Javier Nieto León

When I started as a Business Development Manager at a Tech Startup Vendor in 2014, I faced the issues and the pains about how hard it is becoming a global Tech Startups. The Startups Tips mission is to help your Tech Startups to go from Local to Global.

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