What are the Most Common Reasons Start-ups Fail?

Start-ups have been the hyped-up success story of the former decade, with a few new companies hitting it big and changing the face of business development. But for every successful start-up, countless others fail, sometimes mysteriously and often unobserved. No one goes into business expecting to fail, yet a good number of new start-ups do. To understand what causes failures, listed below are the top five reasons why start-ups tend to fail.

Market problems major reason new businesses fail is that they run into the problem of there being little or no market for the product they have built. Here are some typical indications:

1. There is no convincing enough value proposition to cause the buyer to commit to procuring. Good sales reps will tell you that to get an order in today’s challenging circumstances, you have to find buyers that have their “hair on fire” or are “in thrilling pain.” 
2. The market timing is not right. You could be ahead of your market by a few years, and the public may not be ready for your specific resolution at this step.
3. Luckily you may have had the funding to last through the early stages, but the market size of people that need your services and have funds to come to you is not large enough.

Business Model Failure

One of the most common causes of failure in the start-up world is that entrepreneurs are too optimistic about how easy it will be to acquire customers. They assume that clientele will beat a path to their door because they will build an exciting website, product, or service. That may happen with the first few customers, but it quickly becomes an expensive task to attract and win customers if you do not have a proper business model in place.

The Capital Efficiency “Rule”

 If you want a capital-efficient business, it is believed to be important to recover the cost of acquiring your customers in less than 12 months. Wireless carriers and banks break this rule, but they have the luxury of access to cheap capital.

Poor Management Team

A weak management team is an incredibly common problem that causes start-ups to fail. A good management team will be smart enough to avoid Reasons 2, 4, and 5 in the business. Weak administration teams make errors in multiple regions:

1.  They are frequently weak on strategy, building a product that no one wants to buy as they failed to do enough work to validate the ideas before and during development.
2.  They are usually poor at execution, leading to issues with the product not getting built correctly or on time. The go-to-market execution will be poorly instigated.

Running out of Cash

A fourth major reason that start-ups fail is that they run out of cash. A key job of the CEO is to understand how much money is left and whether that will carry the company to a milestone that can lead to successful financing or cash flow positive.

Product Problems

Another reason that new businesses fail is that they miss the mark in developing a product that meets the market’s needs. This can either be due to simple execution or a far more strategic problem, which is a failure to achieve Product/Market fit. Most of the time, the first product that a start-up brings to market will not meet the market need. It will take a few revisions to get the product/market fit right in the best cases. In the worst cases, the product will be way off base, and a complete re-think is obligatory.

Conclusion