Top 7 Reasons For a Startup Failure

Top 7 Reasons For a Startup Failure
Updated:2 Jun, 2022

Recent times have seen a wave of new startups. People from different age demographics have the urge to do something of their own, something that they can call their very own. On the one hand, there are experienced corporate employees who, after gaining expertise and knowing the industry, are slowly creating a world of their own in the way of a startup. And on the other hand, today's youth are striving hard to build a business by figuring out the problems, utilizing and exploring their talent, and observing the existing players in the market.

Thanks to the affordable internet, people can research and learn anything from their homes. While all these look great on paper, there's the other side of the startups. There remains a high chance that a startup would fail in the initial years, and unfortunately, that's what is happening to the vast majority of startups. 

In this article, we have zeroed down to 7 major reasons for a startup failure. So have a good read to be aware of all the main reasons for a startup failure.

1. Lack of Proper Business Model

For any business to thrive, there needs to be a proper business model and a pipeline that fits the business needs, practicality, market, and consumer needs. Chalking out the right business model requires a lot of brainstorming, closely understanding the market metrics, and the targeted customers, and thinking of maximizing the profits. In a way, a business model says a lot about the business and the founding team's way of thinking. A business model should be scalable and bring more value to the company, the lack of which will either wind up the business or restrict it from growing. In fact, a business model serves as a blueprint for the investors to whom you may pitch your idea.

2. Absence of Team Game

You'll surely come across various quotes regarding the importance of team play. Be it a game or business; team play is one of the most necessary prerequisites for a successful business. The founders of the startup need to be on the same page regarding the startup's vision. While these may be all okay initially, things start altering after a certain while. In most cases, there are clashes amongst the members and board regarding different ideas, different takes on the business, jealousy, and ego. Besides all these, some are more lone wolves than team players. These all affect productivity and result in a temporary or permanent halt on constructive, innovative ideas and business growth.

3. Laying Focus on Too Many Aspects

When starting a business, you must be clear-cut in your approach concerning your product and company. Each product is different and requires diverse expertise, idea, and team, and has a different market altogether. Many entrepreneurs lack the characteristic trait to focus on the product development and the right market that they chose in the first place. You can't get overnight success in anything that you are building from scratch. The key to success is staying consistent and hustling by thinking all day about scaling your business and taking it to the next level. It will be frustrating, but it'll surely put a smile on your face years later. Once you become a popular name in one industry, you can slowly try to expand your wings in the other sectors.

4. Inefficiency in Team Management

For a startup to flourish, one needs an efficient team that incorporates all the talents required for the various aspects. The founding members thus need to hire the right individuals who have the necessary skills and are willing to learn and explore in a nascent growing environment. Often, the founders don't hire the right individuals or fail to understand the personality or demands of their employees. One must keep in mind the right incentives that they should provide their employees in exchange for their work for the startup. Today's youth has a lot of talent and energy to work and learn. The startup management must be able to fathom their needs, understand them and provide the right things for keeping them hooked on to the startup.

5. Lack of In-Detailed Market Research

You have to know your market pretty well to be among the top players in the market. Even after initially realizing the market, you need to observe the changes in the market and how the market leaders are adapting to it. Look through the market research and analytics, study what your competitors are doing, and try to know your audience's changing demands and emotions. A lack of market research is the go-to way to losses. Many startups fail as they can't survive in the changing market conditions.

6. Mistakes in Financial Planning

Another reason for a startup failure is because of the mistakes in financial planning. Finances are super important, especially in the initial years. There are several segments where you need to invest the money, and a lack of proper planning will mess up the entire business. Inexperience in relevant financial planning results in these mistakes, and several times, there are situations of over or under allocations of funds for a particular department. Understanding where to spend, when to spend, and how much to spend are crucial for keeping your business on the right track.

7. Incorrect Pricing Model

Pricing your product is one of the key areas that any entrepreneur must think of before launching their product. High prices won't help in the beginning when you are trying to establish your brand, and extremely low prices won't make the business profitable. Therefore, you must set the right price in between the extremes. Like any other thing, this requires a lot of studies and considering many factors. Several startups fail to do so and end up with low sales.

Hence, these were the 7 prime factors for a startup failure. For a startup to thrive and be profitable, the management needs to take care of all the factors mentioned above, undergo regular research on business analytics, and study their customers.


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