So you’re a newbie in entrepreneurship. Why does your startup keep failing? Is your business a one-hit wonder? Or are you putting yourself in a position where you have no choice but to continue? There are many reasons why a startup fails, and these are often the ones that most entrepreneurs fail to address. Let’s look at some of them now. What can you do to prevent this from happening?
Lack of alignment between the customer and the company. The biggest failures occur when the company doesn’t align its culture and operations around customers. A great example of this is NewsTilt, a news website for independent professional journalists, which closed its doors less than two months after it received seed funding from Y Combinator. The founders weren’t interested in the domain they built their company around. So they ignored customer needs and didn’t create a product that satisfied their customers.
The startup’s founding team is often the culprit behind failure. The pressure of starting a company can be overwhelming for some relationships. A successful founder needs to communicate effectively with his or her team to keep everyone on the same page. Even though the team may change, it’s crucial that all of the members agree on the company’s major goals. And, as founders grow in experience, a team dynamic should change to reflect this. If this isn’t a priority, a startup’s success may suffer.
Product/market fit is another major reason why startups fail. Although many entrepreneurs have grand visions of selling a million units within the first year, there is often little need for their product. In their mind, everyone wants the newest gadget, gizmo, or service. Yet, if they don’t validate their idea, their startup won’t be profitable. Instead, a product or service that solves a problem in the market is likely to be a successful startup.
While the founders’ enthusiasm may be high, they must also have impeccable marketing and bookkeeping skills. Even if their product is poor, they can still succeed if they have good marketing. Additionally, startups should stick to a budget irrespective of their revenue. Otherwise, they will be forced to scale their business too fast and risk losing it all. So, what can you do to avoid these mistakes? Here are some tips to avoid these common reasons for startup failure.
Too much competition. A large percentage of startups fail because the market is already saturated with similar products. If Apple and Samsung dominate the smartphone market, it will be very difficult for any new company to gain a foothold in that market. There are two types of market gaps. First, there are product gaps. If no one wants to buy your product or service, you’re not going to be profitable. Second, if your solution doesn’t address a need in the market, there’s no market for it.
Insufficient funding. Founders often fail to raise enough capital for their startup. This constrains their agility and profitability. They end up counting on the next round of funding or on an acquisition or major enterprise deal. In addition, they may not understand what their business is good for, so they spend their money on the wrong things. Those three reasons are a recipe for failure. Thankfully, there are ways to avoid these reasons. Just make sure you know what motivates you and why you are starting a business.