One of the most difficult things to do in life is to build a company from scratch. To prove how difficult it is, research has shown that only 8% of startups remain in business after 3 years. Why do the others die? How do they die? What could’ve prevented their death?
To provide answers to the question, swlh carried out an autopsy on some of the companies that ventured into the startup world and failed.
Here are some reasons gathered.
Mismanagement of Available Funds
A detailed, foolproof plan is good, passion for the job is even better, but if a business has all these and they lack adequate funding, they are most likely to fail within the first five years.
However, it is not unusual for businesses to come up with a way to raise the first round of funds. One of the usual sources of initial funding is the founder/co-founders. And then we have family, friends, and angel investors. Jeff Bezos relied on family to get Amazon running; Elon Musk sourced funds for Tesla from his pocket; and Mark Zuckerberg from a friend’s family.
Whenever teams come on board to pitch their business proposal to venture capitalists, one thing the VCs look out for is the cohesion of the team. Are they in sync? Is there any sign of discord? One renowned Angel investor was once quoted saying that he’ll rather have an A management team execute a B-grade project than a B management team take on an A-grade project.
Disagreements, incompetency, envy, or lack of passion are features of a cancerous startup. Even though the symptoms might not surface immediately, the end is certain.
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Inadequate/Misleading Market Research
42% of startups fail due to the fact that they failed to solve a market need. You might ask, “How is this even possible?” Unfortunately, it is. And this is because they business totally neglected the importance of market research. Some founders think that market research involves talking to a couple of friends and family to get their opinion on the product. So sad.
It was recently published that 70% of startups scale up before they ought to. Although every startup’s goal is to ditch the tag ’startup’ and become a profitable, established company, this shouldn’t lead to premature death.
Lack of Focus and Flexibility
One trait of a good business manager is tenacity- the ability to stay resolute in the face of a storm. Just like Mark Zuckerberg did when the board wanted to sell Facebook, or like the founder of Nike when they contemplated starting their apparel line. But this trait should be exercised with caution.
Sometimes, you might be headed for doom and your focus has blinded you to the dangers ahead. For example, Jeff Bezos; with his unrestrained purchase of smaller companies. Or even PayPal, when their star-wars inspired means of sending money didn’t work. The major thing is to ensure that as much as you stick to your plan, you’re open to revising it if it doesn’t pan out.
Here are top 20 Reasons Startups fail by percentage