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manuj’s blog

October 14, 2021

Why Do Startups Fail? A Postmortem

Why do startups fail

Coming up with a startup is not easy.  In fact, nearly everyone who sets out to come up with a startup does so without the proper guidance and resources.

Most people who start companies fail within the first few years of operation. Fewer still are able to sustain their success over time. 

Startups fail for many reasons, not the least of which is a bad idea.

For a long time, people have believed that having great ideas is sufficient to make a company successful. This is often how the myth of the lone genius lived on.

However, it turns out that great ideas are often overshadowed by other, equally good ideas. A lot of startups make bad decisions for a number of reasons, but simply having great ideas doesn’t guarantee success.

5 Top reasons why startups fail

Start-ups fail for a variety of reasons. It is usually a combination of factors that prevents success, rather than just one. This blog discusses the five most common explanations.

5 Top reasons why startups fail
  • Insufficient market demand
  • Intense competition
  • Insufficient financial resources
  • costs and pricing
  • The improper team

1. Insufficient market demand

Insufficient market demand

According to CB Insight, over 40 percent of the 101 shutdown companies failed because their product or service was designed completely out of the market. 

In other circumstances, the market was not yet mature, or characteristics were developed that were not significant from the target group’s perspective, and so were not desired by the market.

The above statement is true of Woodero, an Austrian startup. 

The company was able to successfully gather the necessary funds through crowdfunding, but ultimately failed due to a lack of demand for their wood-made smartphone and tablet cases. 

Treehouse Logic, founded as SurveyMonkey for Website Configurators by Dave Sloan, likewise failed because Sloan attempted to tackle a problem that was not relevant enough for curation.

2. Intense competition

Intense competition

Startups were outpaced by competitors in 19 percent of the CB Insight survey, forcing them to give up.

Wesabe, a failing online personal finance management service that was outperformed by Mint, is a well-known example.

Mint looked at the flaws in Wesabe’s MVP and decided to launch the platform only after they had come up with a better solution.

This, among other things, gives Mint a competitive advantage. Wesabe was more powerful and had more features than Mint, but it was more complicated to use.

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Raptr is another example of a corporation that has succumbed to the market. 

The startup provided a gaming social network and benefited for several years from AMD’s decision to bundle Raptr software with their graphics driver.

When other gaming platforms, like Steam or Xbox, became available over time and the AMD 2016 agreement was not renewed, the company’s fate was sealed. 

Until then, 44 million dollars had been invested in the company by investors.

Jawbone Up, the startup that introduced the first fitness wristband in 2011, has received a far larger investment, around one billion dollars.

However, the company’s competitors outperformed it. The market got more competitive as Fitbit and other manufacturers entered the market, and the company’s own unique items did not generate enough demand.

After all, the business had run out of cash.

3. Insufficient financial resources

Insufficient financial resources

The absence of capital resources is another major reason for start-up failure.

Follow-up financing is frequently inadequate throughout the growth phase. 

According to the CB Insight report, just under one-third of businesses fail owing to cash flow issues (29 percent).

Airware, a drone firm, had to close its bulkheads again a few months ago as a result of this. Airware searched for lenders for 18 months before running out of cash and was forced to close.

The company aimed to establish itself as a commercial drone pioneer. The market, however, did not develop as swiftly as airware had anticipated.

Furthermore, there were lengthy development cycles and software features that competitors already offered. 

Caterpillar had the financial wherewithal to successfully place itself on the market in the long run when it departed as one of the largest financiers. After the start-up, approximately 120 people were laid off.

4. Costs and pricing

Costs and pricing

Another issue that many businesses face is determining a price that is both high enough to pay costs and low enough to entice clients. 

After all, profitability concerns were cited as the primary cause of failure by 18 percent of the companies in the CB Insight survey.

For example, Delight had the vision to create a new sort of mobile analysis: visual analysis. The monthly plan with the highest price tag was $300. For this price, customers had hoped for more.

There was also a billing model that was badly chosen. The cost was determined based on the quantity of recording credits. 

Customers had no say in the length of the recordings, therefore most of them were cautious about using up their credits.

Pricing based on the total duration of recordings would have made a lot more sense and would have increased the number of subscriptions.

5.The improper team

The improper team

The success of a corporation is frequently hampered by an imbalanced team composition in terms of individual member competencies. 

There is occasionally a dearth of critical skills for the technical implementation of a business plan, and there is sometimes a need for a CTO who acts as a liaison between management and technical departments. 

Due to a lack of professional qualifications, the online job portal Standout Jobs, for example, failed. The team was unable to create an MVP (Minimum Viable Product) on their own or with the help of freelancers.

Startups, corporate initiatives, and established businesses can all benefit from other businesses’ missteps.

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