Why Do Startups Fail?

What is business? Webster's Dictionary states that business is the state of being busy. It is a common English language meaning for the word, but it is more to it than what actually meets the eyes. Business is actually a dream of the people who dare to think out of the box. It is a dream of the people who are willing to go that extra mile and take the risk of doing something which is unconventional. It is the passion for people who dare to think why instead of thinking how.

Walt Disney once said "If you can dream it, you can do it". All the entrepreneurs dream to have a successful business, but still majority of startups fail. I remember reading an article in Forbes where it was mentioned that nine out of every ten startups fail. That is a whopping 90 per cent. Why is the rate of failure so high? Where do they go wrong?

Let's look at five reasons which can be the cause of startups going into the unfortunate 90 per cent bracket.

* Team players and not Individual contributor - It is very important to have the right kind of people in the team. It is impossible to be a one man army. As an owner of the company you can only do so much and you will need a team to handle other responsibilities. As per a survey, around 37% of the founders feel that getting a right team set up is the biggest challenge faced by startups across the world.

It is obvious that being the owner of the company you might be apprehensive about trusting your team from day one and would try to keep some amount of control with you. But it is very important that you trust your team's ability and give them enough control in their area of responsibility.

We need to keep in mind that individual success does not matter if the team as a whole is failing. Rather than having individual brilliance in the team we need to make sure that we have good team players who can work around each others' strengths and weaknesses.

* Control of Cash Flow- One can say that Cash is not the be all and end all when it comes to starting a business but it is very difficult to start and run a business without cash too. Around 13 per cent around the globe feel that start ups run out of steam just because it has run out of cash flow.

It is not true that all startups or business failing because of loss or insolvency. There are many businesses which had to be closed as there was not enough cash flow to continue. One needs to understand the stark difference between urgent and important, important and not urgent features of the business.

Important and urgent features are ones which are needed to run the day to day activities of the business. Important and not urgent are the ones which are better to have features which can be acquired once the business settles down. Once you are able to differentiate between these features and make a clear demarcation then it becomes a bit easier to control your cash flow. Yes, there will be contingencies and unforeseen events which will make you to spend more than you plan to spend but there will be an overall better control over your cash flow.

*Not ready for expansion- There are three stages of any business. Start up state, steady state and growth state. You can use the same business model for both start up stage and steady stage. But there will be a time when you will need to expand or grow your business. You need to forecast and make provisions for growth in your business model or else you are bound to fail. Dosen't matter how successful you have been in the beginning stages, if your business model is not flexible enough to accept changes then your business will fail in due course of time.

It has been observed that around 10% of startups have failed, in spite of having a great start, because they were not flexible enough to scale up at the right time.

*Ignoring the competitors- When I was a child my mother used to tell me not to bother about the so called competitors and just concentrate on my studies. And I was bound to succeed. According to her thinking about my competitors would distract me from my studies and I would end up being second best.

But the same philosophy cannot be applied in the world of business. World of business has changed drastically in the past decade or so. It is virtually impossible to have an idea so unique that you have no competitors at all. So it will be fool hardy to think that your idea is the first and take the market by storm, or to think that your product or service is the best in the market and cannot be matched by your competitors.

The biggest risk would be to enter into a business without doing a proper stud of the market and your competitors. And around 19 per cent of the entrepreneurs fail due to this mistake.

*Not understanding the mood of the market- The biggest challenge faced by startups or business owners is that they do not take out time to study the market. The product offered by them might excellent but is it going to attract the customer? What will be the target customers? What are their needs? Is your product actually fulfilling their need? These are some questions that need to be answered before launching your product in the market. That is the right approach. Unfortunately many entrepreneurs develop the product and then talk to their customers and struggle to sell their product as it does not cater to the need of the customer.

The five points mentioned above are not the only reasons for startups failing. There are many reasons but these are the most commonly found reasons which can be the defining factors between success and failure when it comes to startups.