Establishing a business is quite an arduous task. Moreover, numerous startups hope they are generating the next significant product or service. In reality, 90% of businesses fails within three years making the situation complicated. It has been witnessed by researchers that 1 in every 5 million of both funded and non-funded startups, achieve the unicorn position or become a unicorn. Considering those numbers less than 1% of startups that are focusing on raising venture capital usually end up getting funded. Sometimes, good founders and entrepreneurs are good at risk mitigating or they fall for similar reasons due to which startups fail worldwide. To achieve success, entrepreneurs should be aware of the challenges and issues in order to prevent them from making the same mistakes made by others.
Why Startups Fail?
Startups fail because of several reasons starting from lack of product market-fit to disharmony in the team. Someone has well said "There is always a solution present for each and every problem". We will have a glance at the common reasons why startups fail and how can we work on these things to avoid failure and create value.
1. Quality Ideas, Substandard Business - Entrepreneur's presume that a brilliant plan is sufficient. Moreover, some believe they will arise with a great idea and consumers will beg for it. In reality, bad decisions lead to startup failures. Therefore, it does not matter how good the idea is, if it is not profitable in the long run, the business will be a failure.
2. Dearth of Market interest - Many entrepreneurs are not clear about their product goals, for who they are producing, how the products will solve their problem and in what ways will it achieve the market. Moreover, poor research leads to misunderstanding of the audience and no one wants the product. Before launching, the product should be validated with the pilot projects or beta testing should be conducted for reducing the risk of market rejection. Therefore, a solution should be made available which is valuable to the customers.
3. Ill-timed Scaling - Nowadays, the aim of startups is not to be a startup anymore. They are always in a rush for hiring people, declaring new products, collecting funds, entering the new market and producing too early. Therefore, the best time to grab the market when the business is ready to set in.
4. Issues with the development team - Lack of technical expertise and people, Ineffective management, Poor communication are the main challenges faced by the business. The secret to successful hiring is to research and come up with the product and idea what people want.
5. Bad Monetization - It is very important for the business to have a clear Monetization strategy. Raising capital is quite a more difficult task than we think and it takes a long time. Therefore, along with a business plan, the entrepreneurs must keep an eye on the monetary strategies.
Usually Startups fail when they don't solve the problems occurring inside and outside their own firms. In spite of having advanced technology and globalization, enough data for shopping behavior, reputation as a leader, advisors, experts, managers etc. the businesses fail as they do not succeed in solving the problem by a scalable method.
SUMMARY OF THE BOOK
David Feinleib, in his book "Why Startups Fail And How Can Yours Succeed" narrates us the reason due to which new businesses fail within a span of three years and why the venture capitalist turned down 99% of the pitches approached. Most entrepreneurs keep on continuing with the silly mistakes over and over again. Several people spend millions and millions on producing products which are not in demand, others invest too much too early on marketing and sales and some hang on too long without pivoting out of bad markets. In this book, the author has taken the examples of established startups like Google, Apple, Facebook etc. in order to guide other entrepreneurs in conquering the odds and avoid the traps and pitfalls. Having knowledge of avoiding mistakes doesn't assure startup success, nevertheless it will increase the chances. At first, he mentioned how a poor product market-fit can change the situation of a startup. Starting from the scaling of investment in products to maintaining a perfect balance between the customer feedback and the business change-world vision which in turn helps them from running out of cash. Every entrepreneur should goal for a big market opportunity and deliver their products in such a way that captures it. Instead of targeting the big markets they go for capturing the small market which makes the venture capitalist guide away their investments. Moreover, lack of an underlying wave, no confirmation of data, spending too much for reaching the market, holding on to wrong thesis for a long time forced the startups to shut down. Instead, targeting the big markets, riding a huge wave, constantly pivoting, launching the product as demanded by the market and efficient way of reaching the market will help the business to grow. The author has truly stated that having a good product and bad market is a way better than having a bad product and good market. Many companies fail not because of the poor product market-fit but due to the delivery of the bad product which does not work. Most of them suffer from product blindness where the companies offer bad products in the market. In contrast, bad products get built due to the inability of the business to solve the real-world issues due to which they never lived up to their promises. Usually, startups lack clear vision regarding their strategy for what they are trying to build. The key point for a business to succeed is to have a commitment towards accomplishing their goals and plan strategies accordingly. Great products are always simple, universal and viral which applies to both customer products and business-to-business activities. Furthermore, a great product contains all the ingredients of product chemistry like features, physical appearance, quality which works well together though it takes numerous trials and errors. Balancing the time of launching and not launching the product in the market plays a vital role to avoid failure. Instead, the company shouldn't ship too early when the product is perfectly ready or too late before others discover it. Articulated goals, substitutes and universal products can increase the chances of survival. In some cases, entrepreneurs lack the ability to execute the ideas which they have planned. Here, the author has perfectly compared the startup with a horse race where it is very important to pick a right horse to win. Every business or startup should lead by such an entrepreneur who have a market visionary, ability to create a new market or transform the existing one, continuous research on product-market fit, understand the market needs and deliver the product as per required, promotes vision on order to support the business, use failure to achieve success, have the capability to start and then lead. Spending or investing too early in a business with poor product market-fit has paved a way to failure. Moreover, insufficient experimentation and investing too late forced the companies to shut down. Either they invest too early without understanding the traction curve or they spend too late when there is no hope. Several of them don't know whether their products are ready to launch in the market or not. Those startups who have failed to survive in the market lack uniqueness and bringing back the business to the same position is difficult. Understanding the traction curve, consumers' needs and finding products which fit the market is the perfect time for spending. Most startups lose money when products are not brought automatically, customers generate less revenue, reduction in sales turnover, lack of sales leverage, mistakes occurring in joint partnership, Ineffective salesman and sales strategy, bad contracts and mismatch pricing against customer expectations. In order to avoid this situation, the company should create a reputation and have specialization in one thing, create new innovation models to generate the organization’s growth and figuring out how much can be spent on customers. Market approaches such as product innovation, viral marketing, social media platforms, buzz, mobile use and transportation, brand name, searching for continuous changing trends makes it popular otherwise the startup becomes invisible. With the advancement of technology and innovation, communication needs to be frequent and interactive. Lack of communication skill affects the business severely in various ways like it confuses the final goal with real progress, mis-setting expectations, no apologies are made for the mistakes, less interaction and many more. Therefore, frequent communication, setting appropriate expectations, more interaction, holding productive meetings, apologizing for making things right, separation of ultimate and short-term goals helps in avoiding the situation. Furthermore, lack of capital prevents the company from taking a leap. Similarly, building a big idea company is far better than having a company of ideas. One should control their own destiny by controlling their source of investment and should not wait too long for getting started, moreover, real-world feedback is the key to avoid the failure of never getting started. It has been stated by the author that great execution can never assure us the delivery of perfect product market-fit but lack of great execution can definitely kill a company even if it has found the product market-fit. Many entrepreneurs face the problem of hiring growth for the organization when it comes to execution. Combination of great product market-fit with unparalleled execution transforms market laggard to market leader. Many entrepreneurs' dreams have shattered because of the inability to woo the audience. Perfect framing of your pitch and presenting it in front of the right investors plays a key role. It takes a lot of time and energy in pitching the investors. To achieve success in pitching entrepreneurs need to pitch those investors who are suitable for your business, get only those investors who have interest about your ways and ability to transform, recruit and raise capitals, control their own materials and selling is not enough, the combination of entrepreneur and investor can turn into partnership for a long term. Inexperience sellers are unable to manage their liquidity and leave money on the plate for others to grasp it. For a great outcome, the sellers should plan their strategy for liquidity, and need to be aware whether they are being brought or getting sold and how much they are paid for their work. At the end, the author has mentioned the cause for failure such as lack of motivation among the employees, the myth of working for themselves, friction, unable to decide when to hold or sell, no attention towards startup health effects the business. Furthermore, solutions like understanding your target, predicting the size of the market, approaching the market in an efficient way, controlling your own destiny, having a product vision, executing a great product, simplifying the problems etc. helps in avoiding the failure and lead the startup to the path of success.
With the ongoing globalization, many startups will appear and many will vanish. Nonetheless, the one who survives or stays in the market or business will be the company that prevents all the mistakes which are mentioned above. Those startups who choose customers over premature scaling, no teamwork, doing the work all alone, and success over failure can make a difference of being unique in their business. The startups can succeed in the long-run only if the entrepreneurs avoid making common errors and take preventive measure with an effective problem solving strategy for resolving the issues. To make a startup successful, the entrepreneurs need to work on creating new ideas and understand the nature of the market and customer needs. Many entrepreneurs make the mistake of giving up instead of implementing the steps for recovery. Every startup should have the motive of prioritizing customers and to be a startup by their actions and not merely by the word.