Falling Forward: Why Do Startups Fail and How to Keep Them Growing?
- Top 10 reasons why startups fail
- Tips for startups to succeed
- Why every startup needs an experienced tech partner
- Startups fail FAQ
- Wrapping up
Millions of startups appear every year. However, many of them fold up soon after opening. Only 10% of emerging businesses can achieve long-term survival. Others close either within the very first year of operation or over time.
How many startups failed in 2023? According to Business Insider, 3200 startups have ceased operations during that year. Furthermore, 2023 brought the all-time maximum of startup shutdowns. So, how to get into those lucky 10% and stay afloat? To address this challenge, entrepreneurs should primarily seek answers to the question: “Why do most startups fail?”
We’ll explore the essential reasons for startup closure and suggest actionable tips for entrepreneurs to facilitate the success of their ventures.
Top 10 reasons why startups fail
Before launching a new venture, entrepreneurs do their best to prepare appropriately. However, even meticulously planned strategies can be susceptible to defeat. While the startup destiny involves a bit of chance and good luck, it is also largely determined by rational factors that can be forecasted.
Several reasons can lead to the downfall. We’ll examine the 10 fundamental ones that can trigger a negative scenario.
#1 No market need for a product on offer
A mismatched product-market fit is one of the core reasons why startups fail. In other words, the created product doesn’t appeal to the audience. This can happen for several reasons.
- Flaws in the market research;
- The idea hasn’t been thoroughly validated;
- Inappropriately selected target audience.
Any of these aspects can lead to a product that doesn’t suit consumer demand and, consequently, doesn’t sell.
Learn the core metrics to evaluate a tech product’s success.
#2 The lack of funding
Insufficient funding can undermine the emerging business. If a startup runs out of finance or is unable to raise capital, it will inevitably collapse.
Running out of budget sooner than expected can occur for various reasons, including faulty planning or irrational spending. In any case, the company will be forced to cease its activities until the financing is restored. However, obtaining investment is not an easy endeavor and can take months or even years. Therefore, this situation may lead to startup closure.
#3 Inadequate research
The idea of your startup should be backed by comprehensive market research. The research would give a clear understanding of what need you are addressing, for whom, and with what solution. This is the right way to validate your product idea before you proceed to the “how” phase.
Exploring the market and users will allow you to get a proof of concept (POC), which is a necessary step before product development.
#4 Untimely launch
It is crucial to unveil your MVP at the right time. Presenting a raw solution or, conversely, holding it too long can lead to devastating consequences. Therefore, the timeline of your project is one of the greatest factors that contribute to the startup fail rate.
#5 Insufficient flexibility
Agility and adaptability to altering external conditions determine the venture’s success. A startup has to keep up with changes, react promptly, and achieve flexibility to sustain the transforming environment.
Businesses that adapt faster than others gain the best scaling capacity and cut through the competition.
#6 Unsustainable business model
A startup’s business plan should include a realistic growth strategy, defining a scalable revenue model, and demonstrating a sustainable competitive advantage.
A vague business strategy weakens its market position and blurs the vision of how a company would attain profitability. Gaps in the business plan may lead to issues with pricing, unclear monetization strategy, inappropriate product development guidelines, and more.
Ultimately, the lack of a robust business model will likely cause a startup to fail.
#7 Poor sales and marketing
Marketing and sales are two intertwined pillars of a company’s resilience and expansion. Without spreading the word about your product, you won’t build an extensive customer community.
14% of startups failed due to inefficient marketing, as shown in the chart above.
Entrepreneurs should work out comprehensive marketing and sales strategies encompassing vital communication channels and constructing effective pipelines. Start building community interactions before the product is introduced. This will facilitate lead generation and spur further conversions.
#8 Fierce competition
Another reason why startups can fold up is severe competition in their segments. If your niche is already saturated with big, well-established players, it can be challenging for your business to cut through. Therefore, many entrepreneurs choose to join startup accelerator programs, like Y Combinator, which provide services for each stage of the company lifecycle.
#9 Burnout or the lack of passion
Unfortunately, founders can become disenchanted with their startups at certain stages. The loss of passion may occur because of various reasons, including the lack of physical and mental capacity, disbelief in positive results, and more. If the team members lose their interest in the product, this would cause a startup to fade away.
#10 A weak team
The final but crucial failure factor is the people who stand behind the product.
“Great things in business are never done by one person; they’re done by a team of people.” – Steve Jobs.
Finding and hiring the right staff to implement your idea may be challenging. Even more so if we speak about obtaining developers for a startup. Entrepreneurs can encounter numerous pitfalls when dealing with human resources and recruitment. Extending an in-house staff can incur unnecessary expenses while entrusting your project to a freelancer may cause a lack of control.
Assembling an efficient IT team becomes a breeze if you partner with an outstaffing solutions provider. Such vendors can swiftly augment your startup team with qualified and skilled experts. Under your guidance, they will effectively fill the knowledge gaps in your company and help to streamline product development.
Tips for startups to succeed
Meticulous planning, budgeting, and resource management are the pillars of successful startups. However, multiple other factors affect business development and growth.
Entrepreneurs who built their companies from scratch and achieved expansion aren’t afraid to test hypotheses and understand the importance of investing in marketing campaigns and lead-generation activities. Below is a list of factors that the beginner founders should take note of.
Become an innovator
Exclusive solutions have the power to set businesses apart from the rest. Consider in which niches you can offer improvements or which existing products your solution can reinforce. The essential thing is to find a way to ease consumer life.
For instance, multiple services complement Zoom, from note-taking to transcription. They were invented by different companies that revealed the corresponding client needs among the platform users. Ultimately, these solutions managed to enhance the existing product – Zoom.
Investigate who your competitors are
Even if you strive to create a new niche with your product, there will always be competitors, direct or indirect. Therefore, your business strategy should always include competitor analysis and differentiation opportunities.
Develop a comprehensive vision
Business vision makes a solid foundation for your startup.
- Determine your organization’s goals: how do you see the development of your business?
- Draw your success picture: what does success mean for your company, customers, and colleagues?
- Share your vision with your team, investors, and consumers.
Keep your idea simple
Some startups are overwhelmed with functionality. Striving to make a perfect product from the very beginning, they try to pack it with all possible features they can. However, it’s wiser to introduce the core idea first and then complement it with the desired extras.
Investigate the processes
Although managers should not perform all the tasks themselves, they should thoroughly understand how the business works. Learning every stage of the process will help you assess idea feasibility, identify risk areas, and prevent or mitigate the majority of issues.
Build a great team
A carefully assembled, enthusiastic, and professional crew is essential for a startup. What are the core elements of building your dream team?
- Share the responsibilities: identify the crucial roles that you cannot perform yourself and hire the respective experts.
- Attract talented and dedicated individuals: find people with the necessary skills and commitment to propel your business forward.
- Create a positive and conducive culture: transparent and open communication, a sense of collaboration, and opportunities for professional growth will foster an inspiring working environment.
- Reward good performance: recognize the achievements of your employees with bonuses as it gives a sense of appreciation and satisfaction.
Coreteka can be your trusted IT talent provider. We significantly reduce your team’s maintenance cost by hiring specialists from Eastern Europe. Learn in more detail what benefits your startup can achieve with dedicated teams.
Maintain lean and agile processes
Optimizing your workflows in terms of time and resources can be attained through several ways:
- Reducing waste and unnecessary expenditures: prioritize essential things for your business and spend your money correspondingly.
- Expediting procedures: you can utilize lean techniques to eliminate excessive steps in your working processes.
- Achieving flexibility and adaptability: be prepared to adapt to market or industry changes rapidly.
Build a strong brand
“Your brand is what people say about you when you are not in the room.” – Jeff Bezos.
A strong brand identity helps you build your business’s reputation and keep it consistent. Consider the following primary elements when developing your brand identity:
- Name. It should be unique and memorable and convey the brand’s essence.
- Logo. Make it simple yet easily recognized and impactful.
- Tagline. It should clearly and laconically communicate your core differentiation point.
- Colors and font. Visual elements should suit your niche and reflect your brand personality.
Are you ready for such challenges? Then, explore how to create a tech startup in 10 steps.
Why every startup needs an experienced tech partner
We’ve already highlighted the importance of a strong team and tech expertise for startups. An experienced tech partner enhances a company’s ability to navigate the complex landscape of product development, reinforcing innovation, efficiency, and a chance for long-term success. By complementing your staff with qualified experts, an IT talent provider will grant you significant benefits:
- Technical expertise. A tech partner brings in-depth technical knowledge, skills, and best practices, ensuring the development of a powerful tech solution.
- Efficiency and speed. An IT agency accelerates the development process, reducing time-to-market.
- Access to talent. Established IT companies have vast networks of skilled professionals, offering startups a broader talent pool without the challenges of recruitment and onboarding.
- Cost efficiency. The long-term cost efficiency comes from avoiding common pitfalls, reducing development time, and optimizing resources.
Discover staff augmentation as a convenient method to complement your tech team.
Startups fail FAQ
From the 150 startup founders surveyed in 2023, over half of the entrepreneurs who faced failures indicated the lack of proper preparation and funding as the main reason for their defeats. Lessons from founders reveal the importance of market research, a robust business plan, more reliable financial backing, and efficient marketing. Understanding customer needs, addressing pain points, and staying agile are critical to overcoming challenges and raising the odds of startup success.
Precise statistics vary by industry. However, general numbers indicate that only 10% of startups succeed in the long run. The others tend to fold up at different stages of their lifecycle.
Since a startup is a risky endeavor, the hardest aspect is navigating uncertainty and overcoming unforeseen challenges. The most vagueness revolves around building a viable product, establishing market fit, and securing funding while adapting to dynamic market conditions. Mitigating those challenges requires a blend of skills, including flexibility, persistence, and learning from failures.
If a startup fails, consequences may include financial losses, reputational harm, and emotional strain on founders and stakeholders. Further, the closure could lead to the dissolution of the business, layoffs, and destroyed investor trust. However, failures often provide valuable lessons that the founders can use for personal and professional growth. Some failed startups even result in successful ventures through lessons learned and resilience. Thus, Evan Williams started Odeo, a podcasting platform that faced challenges with the rise of Apple’s iTunes. Despite the misfortune, he later became a co-founder of Twitter.
A startup is a risky venture as it deals with many probabilities. You build your company from scratch, without knowing whether your idea will work, find customers, and bring revenues.
The uncertain nature of a startup contributes to high failure rates of emerging businesses.
By understanding the fundamental reasons why startups fail, founders can take preventative measures and remedy the existing challenges. Furthermore, entrepreneurs can learn from others’ experiences and follow valuable tips to attain prosperity.
Since innovation is at the heart of any startup, it’s crucial to ensure a competent tech side of the process. Therefore, the role of a professional tech partner is hard to overestimate.
Software development companies like Coreteka can provide comprehensive help with goal setting, idea validation, building an MVP, staffing your team of tech experts, delivering tech maintenance and support, and more.
Contact us to explore your idea, and let us take care of the flawless technical part.