10 Reasons Why Startups fail in the first few years of operation

Startups are often considered as risky. People quit their job to start their dream venture, so there is always the element of risk involved. The reason Why startup fail is not because startups are risky but startups fail because their founders often lack a sense of self awareness.

Any entrepreneur dreams of making startups to gain unicorn startups status but it isn’t always the case. Startups may have the idea and also the team but most of the startup fail and only few succeed. So, here presenting 10 reasons why startup fail?  If you are planning your own startups then take care of these 10 reasons.

Lists of 10 Reasons Why Startups fail?

1. Wrong market/ Industry selection
2. Marketing Vision
3. Business model failure
4. Weak feedback system
5. Poor Management Team
6. Not investigating the market
7. Selection of Location
8. Don’t know about Cash Burn Rate
9. Product Problems
10. Founders Ego

Let’s know more about these reasons:

1. Wrong market/ Industry selection

Most of the startups fail in the first or second year due to wrong market or industry selection. According to the data from Small Business Association (SBA) 30% of new business fail in the first two year of opening. The success or failure of any organization depend upon the industry they are working.

If you select the wrong market or industry for your product or services, then there is high chance that your startups might fail. For example: If you are looking to startups on same industry as of amazon, then you cannot compete with it because of lack of resources and ultimately you will fail. So, you have to invest proper time in selection of industry before starting a company.

2. Marketing Vision

The next thing entrepreneur need to careful about while starting new business is marketing vision or marketing myopia. Many startups fail due to the lack of vision or wrong vision for the company’s product. You may have the premium product but if the marketing vision is shortsighted than your company is destined to fail.

For example: If your startups are making premium quality pazor in the era of smartphones, then your company cannot succeed. So, the marketing vision of the company should be relevant and farsighted.

3. Business model failure

Startups or any other companies depend upon their business model to earn revenue for the organization. If you create a successful business model than you can sustain in the business environment. Netflix, Uber are the examples of startups companies which created successful business model.

If the business model of the startups fails then you cannot exist or compete in the market. So, before starting your startups you should focus on creating a sustainable business model for your company.

4. Weak feedback system

In the initial stage, the product of any startup is under the development stage. Startups don’t know what are the shorts comings of their product which are discussed in the market. You may feel that your product is good but market may feel otherwise about your product. So, it is very important for any startups to create a good feedback system.

You get to know demerits of your product and what customer actually want from your product if you have good feedback system. So, if your startup has a weak feedback system then it is recipe for disaster. Many Startups fail because of the weak feedback system of the company.

5. Poor Management Team

When you are new in the market, you depend heavily on the management team to take tough decision which decide the fate of the company in the future. Generally, startups don’t have the required data to make decision so they depend a lot on management team to take a correct stand.

Startups companies must have good management team to succeed. Many startups fail in the initial years of operation due to poor management team. So, if you are looking to start a company then be careful while selecting your management team.

6. Not investigating the market

Sometimes you are driven so much by your passion to start a business, you ignore the market you are going to start a business. You look to start a business without proper research about the market. And that can prove to be final nail in the coffin of your dream of starting business.

There are many reasons why startups fail, some may fail due to lack of passion from the founders where as some fail because it is only driven by passion. So, passion is a two-edge sword which can work on your favor and sometimes prove to be reason for your downfall. You need to do proper research before starting a business.

7. Selection of Location

The 3 most important things to start business are: location, location and location if your business relies on foot traffic. Internet location is just as important as your physical presence these days. Startups need to have good social media and web presence as the company physical presence to succeed.

Location is one of the major reasons for the success and failure of the company. Many startups fail due to the location of business. Not only physical location but the location of internet is also important for the success of startups companies.

8. Don’t know about Cash Burn Rate

Cash Burn Rate means how much cash a company need to run for a month. You need to know the total expenses of the company to know about cash burn rate. If you have invested Rs 500,000 in your startups and your cash burn rate is Rs 100,000 then your company can only run for 5 months. So, you need to find out the ways to make your company profitable in five months and if you fail to do so then you will even loose your initial investment.

While starting a business you need to know about the cash burn rate of the company. The knowledge about cash burn rate will help you to manage your expenses. Many startups fail in the initial years because the founders are not aware about the cash burn rate of the company. They are not aware in how many months the company should start to earn revenue in order to sustain in the market. So, investor should have the knowledge about cash burn rate before starting a company.

9. Product Problems

The main reason behind the failure of many startups company is the failure to develop the product as per the need of the market. Majority of times the first product that startups brings to market won’t even meet the market need. In the best-case scenario, the startup is able to get the right product after few revisions. But in the worst-case scenario, the product will be completely way off base and the company need to rethink about the product. 

If the startups companies fail to develop the product as per the market need than they cannot sustain or succeed in the market. It will be matter of time before startups fail if the company don’t get the product right. So, getting the right product is one of the most important aspect to start a business.

10. Founders Ego

Even if everything is right with company it may still fail, if the ego of the founders come in between of the companies need. Startups are built around its founders, they take the decision, gather the funds to start the business. So, they play huge role in shaping the business of your company.

But if the ego of the founders come in between then startup cannot succeed in such scenario. Many startups fail due to the ego of the founders. So, you need to take your ego out of the business if you want to be successful entrepreneur.

You have to be dreamer to start a startups company. It takes a lot out of people to start your own company, to become your own boss. So, if you are looking to be successful entrepreneur in the future then you must make sure to take a learning from the above-mentioned points.