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Why Startups Fail?

India has the third-largest ecosystem for startups, yet 80-90% of Indian startups fail within the first 5 years of their inception. Wondering why startups fail? We found some of the key reasons behind the same and ways in which entrepreneurs could challenge these startup failure situations.

Here are some reasons why startups fail & steps you can take to avoid the same:

1) Lack of innovation
According to a survey, 77% of venture capitalists think that Indian startups lack innovation or unique business models. A study conducted by IBM Institute for Business Value found that 91% of startups fail within the first five years and the most common reason is – lack of innovation.

2) Lack of funds
There are millions of startup ideas floating around. But to turn ideas into reality requires finance. Those that do procure funding need scalable and profitable models to make the startup grow. Lack of funding is one of the key reasons why startups fail.

3) Lack of focus 

Grubhub is a food delivery startup. From the beginning, the company decided to focus only on food delivery. There’s a lot of other services that a company like that could offer- pick up of food, catering, and more, but the founders chose to focus on just delivery. The result? They could execute technically and operationally and grow the business successfully.

4) Product Market Fit

A large number of startups fail for the simplest reason – the consumers have no need for its products. Does your product provide value to consumers? Are there consumers for your product?

Is your product aligned with the innovative ideas that your company is based on? A lot of times startups attempt to quickly develop products that have no demand or try to expand the market for a product.

5) Leadership gaps

Most startups are driven by the vision of its founders and core team members. However, having a good idea is far less important than knowing how to lead a brand, a company, and a team. Lack of vision and strong leadership is another common reason why startups fail.

6) Lack of agility

Startups can have a number of teething issues. Besides that, they constantly face challenges, to which, they need to find solutions. Change is inevitable and hence, it is most important for startups to remain adaptive and agile in order to progress.

Startups can ensure agility within the organisation by practising the following:

  • Continuous learning
  • Having a fluid workforce
  • Research and development
  • Be willing to let your ideas change

7) Business model failureA good product, an impressive website, and huge ad spends- a number of entrepreneurs assume that these factors are going to be enough to attract customers and business. They ignore the fact that customer acquisition and customer retention come at high costs and the startup needs a foolproof business model to sustain and profit.

8) Ignoring customers

Quite often startup founders have too much to handle – funding, recruitments, overall management of the organisation, and more. Customers may not even feature in their to-do lists. This is a big problem; which entrepreneurs fail to realise and can very well be the reason why startups fail.

9) Lack of talent & competency

Surprising, but 23% of startups fail due to lack of talent and skill. It is one of the most easily solvable issues, one would assume. However, it is not. The reasons?

1) Startups spend a lot of time and effort in recruiting the right candidates. In situations of bad hiring choices, startups may face the challenge of replacing the hire with a better candidate.

2) Most times startups are cash strapped and cannot afford to hire experts or experienced employees who come at a high price.

What could startups do to tackle this issue?

  • Plan their hiring processes with utmost care.
  • Create alternative working methods such as work on freelance-basis or on a project basis model with expert professionals.
  • Make hiring processes stricter and intense by giving the candidates a real issue to solve.