5 Real Reasons Why Startups Fail

5 Real Reasons Why Startups Fail

6 minutes read

Author : MyLegalWork Staff

Posted on: 22nd Feb, 2017

“A startup means an entity which is working towards innovation, development… of new products, processes or services driven by technology or intellectual property.” -DIPP

 

India stands at the third position globally in the number of technological startups, closely behind US and UK. It ranks 130 out of 186 countries in the ‘ease of doing business’ index formulated in the World Bank Doing Business Report in 2016. It has moved up this rank from 134 in the WB Doing Business 2015 report. Even though the rank is moving up at a remarkable rate, India is still among the bottom of the list instead of the top. This means that there is considerable difficulty in starting a business and then keeping it afloat.

212 startups have ended up shutting business this year. What led to this shutdown though? As Thomas Edison said, I have not failed, I have just found 10,000 ways that won’t work”, so maybe we all can take a leaf out of his book and learn from these failures too.  

 

 

Based on some failure stories, we can list down top 3 reasons why, even the most promising startups fail to becomes a success.

1. Expanding too fast

Start ups create unique products and business structures which help make our lives easier. Startups like Swiggy offer real value to the marketplace. The market responds as a curious audience, lapping up the uniqueness. In the start there will be an influx of consumers. After a point, the number of consumers will fall, unless you have an unfailable business model. When founders try to over-expand in the nascent stages, they overburden a fragile model. This is the very reason that led to PepperTap’s failure. The founder, Navneet Singh, himself admitted this mistake by saying, In the race to pepper the whole country with PepperTap, we had brought too many stores online far too quickly.”

2. Moving too slow

So should I move slow or fast? Find your pace. But don’t build so slow that the competition stifles you and don’t move so fast that you lose out important details in your product. Move smart and fast so that you can sustain.

3. No Market Need

There are many ideas which sound great on paper. The ground reality is far different from the rosy picture which is painted in an investor meeting. Doormint, a laundry startup, found that its business model was not equipped to deal with the actual costs of pickup and drop, packaging, and processing the clothes. Add to that the dirt cheap laundry services that the local laundry-wala provides, and Doormint decided to shut its operations after 2 years of  inception.

4. Too many projects at one time

Do not overburden yourself and your startup with multiple projects. Take the most viable product and make it work. Then you can move to other projects or products to market.

5. Lack of Investment

Many startups do not receive the funding that they require. Upto 82% startups are self-funded and 24% founders depend on financial help from friends and family. Only some percent of startups are able to receive a good amount of funding through venture capital money or angel investors.

 

In the age of the startups, not every startup will be able to sustain in the marketplace. One needs to ensure that there is a unique, workable idea along with a good business model. This way, the startup will be able to keep its hold in the marketplace at the ground level. It can then work on funding by making pitches to the relevant investors. Even if the startup does not succeed, one important thing is to embrace failure, learn from it, and grow.

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