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5 Reasons Why Start-ups Fail

Posted by

Lindsay Wagner

on

July 3, 2022

Start-ups rarely fail because the founders' idea isn’t good. On the other hand, a founder may have a great idea but still fail. We have 5 reasons to ensure you can avoid pitfalls as a founder.

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It’s often an uphill climb to success. However, the only way to avoid epic start-up failure is to know the pitfalls and how to steer clear of them. So we took it upon ourselves to gather insights from various industry professionals and successful founders to give you the guidance you’ll need to succeed.

Many founders say that their start-up failures resulted from setting up in the wrong market, ineffective marketing, destructive team dynamics, and not being an expert in the industry.

Read on to safeguard yourself from possible start-up failure!

We spoke to several product specialists at MOHARA to explain why start-ups fail. Then, read through our comprehensive guide to stay ahead of the start-up pack!

1. RUNNING OUT OF MONEY

We all know that funding is the fuel we need to keep our start-up engines going. Without the necessary funding, achieving start-up success becomes increasingly challenging. The research proves this.

A New York-focused CB Insights Report states that the 20 primary reasons start-ups fail are because founders ‘run out of funds’. The report ran a series of analyses, which pulled together stories from 101 start-ups that failed.

29 % of start-ups cited that knowing how money should be spent is significant for avoiding failure. The common cause is that at least 42% of companies didn’t provide a service or product that the market needs. In addition, many companies outcompete themselves and present prevalent pricing and cost issues.

The idea is to ensure you have the necessary funds for the product development process. If you require funds, there are many avenues, but the traditional way of gathering funds is always a viable option. So plan, stay focussed, and fill up your start-up engine before venturing into the next phase!

2. UNSUITABLE MARKET

If the market doesn’t fit, you can’t change it. The market dictates your next move. It has been the world's way for centuries and is challenging to change.

Many start-ups fail because they use their funds without considering or planning according to their users’ wants and needs. Ensuring your product aligns with your market is one of the most crucial aspects of a start-up. Start-ups that failed were focused on the great idea, not on their market. Founders should look outside of themselves.

Fortune’s report on the ‘top reasons that start-ups fail’ states that start-ups create and build products that users don't want.

The survey also states that 42% of these start-ups lacked a market need for their product, and it is the single biggest reason for start-up failure.

Consider the term “being in a good market with a product that can satisfy that market, " coined by Marc Andreessen, co-founder of influential Silicon Valley venture capital firm, Andreessen Horowitz. The term sets out the goal that all founders should have to avoid failure. It leans into customer value – it refers to building a product that fulfils customers' needs better than the available alternatives. What does your service or product provide that others don’t?

3. LACK OF RESEARCH

Getting your ducks in a row means knowing which ducks matter most. Knowing what you’re dealing with makes it easier to navigate your success. This is why research forms one of the essential pillars of start-up success.

There are two main avenues that you can take. The first is market research and, sometimes, the lack thereof, which is an excellent reason for many start-ups falling. An unfriendly user experience, poor product timing, competition and pricing issues within a specific market can determine a product's success.

Product research is the second. There needs to be a greater focus on understanding the user's needs and using the right technology to build a product that fulfils the user's needs. Consider why you should start with the product before tech.

Get a clear understanding of your product and what it has to offer to your user – understand your user too. When you find the right balance between these two aspects, you’re on your way to success!

4. STRAINED TEAM RELATIONSHIPS

Everyone has a personality – even your product does. But, when it comes to your actual team, collaboration matters most.

Team dynamics have a significant impact on the success of a start-up. Factors to consider include personality clashes, disagreements on a specific angle taken on a project, or how founders can make strategic decisions. According to Forbes, founders can implement 10 start-up work relationship strategies to ensure their start-ups have a greater chance of success. These strategies include managing conflict more efficiently and accepting harsh feedback.

A start-up doesn’t stand a chance if there are inconsistencies within the team.

5. STRONG COMPETITION

Now there’s no way that we’ll get a run avoiding competition. It simply comes with the territory.

According to the CB Insight study, many start-ups have to give up because their competitors have the upper hand. Founders will have a competitive advantage if they consider the above factors. When your start-up ensures that the market fit is correct and that the product fulfils the needs of their users, they can ensure that failure doesn’t become the ultimate factor.

The smartest thing that you as a founder can do is research and study other start-ups' failures. Then, avoid the mishaps and the pitfalls and direct your unique path – create a product roadmap, if you will. Then, when similar hindrances occur on your start-up journey, you’ll bypass them. Instead, learn from others' failures and thrive. It’s a matter of being bold and going for it!