What are the pitfalls and traps that lead to the downfall of a start-up?
Start-up culture is growing rapidly in India with start-ups coming up all over the country.
Bangalore, New Delhi and Mumbai remain the key start-up hubs but other areas like Hyderabad, Chennai, Pune, etc. are not too far behind.
There are a lot of positives but the fact remains that 80 per cent start-ups fail in the first three years.
It’s harsh but a fact.
There are multiple reasons why a start-up fails and after going through much of the web, I came up with a list of 10 major reasons that lead to the downfall of a start-up:
1. Building a wrong product
Building a product without actually validating the product idea through potential customers is a bad move.
And so is building a product that solves a trifle problem in a customer’s life rather than one which is the major pain source for them.
2. Not being able to build the right team
Often in a hurry to launch their product early, start-ups tend to build teams with people who have little or no interest in the product idea.
This leads to product failure as the people working never give their best for the product.
3. Lack of unique value propositions
If your product fails to deliver one or more UVPs as compared to similar products available in market already, your product is bound to fail.
Before you start building your product, figure out at least four UVPs which will help you stand out and give a competitive advantage increasing your profits.
4. Lack of persistence
If the start-up founder does not have a strong passion for their product, they will not be able to persist through the bad times, which is a given in a start-up run, more often than good times.
Bad times question the faith of founders in their product.
Lack of faith often leads to discontinuity of the product, which leads to start-up failure.
5. Failing to pivot/change direction
Often due to the love for their initial/first product, start-ups, despite knowing that they are building a wrong product, do not pivot.
This leads to wastage of time, resources and money too, eventually leading to failure.
6. No mentors or advisors
It is always good to have a mentor for your start-up.
Going alone there are more chances of you making mistakes that may lead you to failure.
Mentors can guide you in your day-to-day decisions to avoid falling off the cliff.
7. Slowness to launch
Firstly, every idea dies if it is not implemented on time.
This is because of the simple fact that we start losing interest and start under prioritising as time passes.
In today’s fast moving business world, everyday thousands of products are solving the same problem.
In such a scenario, delaying the launch of your product might actually leave you behind the competition, which will eventually lead to product failure.
8. CEO / founder(s) unable to make decisions
A founder must always be clear of his vision for the start-up.
This helps in making quick and efficient decisions in critical times.
Often start-up founders are not clear of what they want to achieve with their product; about where they want to go etc.
Unclear of their own path, these founders face problem while making decisions, many ending up making the wrong decisions all along.
9. No business plan
You might wonder why I have put this at number nine. But it is indeed comparatively less important than the above listed eight reasons.
Every start-up once sure of their vision, and having got a mentor, must create a business plan to articulate every single aspect like customer segment, distribution channels, cost and revenue models etc. of their business.
Business plans will give you a clear idea of your operations.
Failing to create a business plan might lead you to lose one or other important aspects of your start-up.
10. Unaware of competitors and changing market condition
Having figured out everything listed above helps an entrepreneur kick off the start-up for a sustainable long run. But there is one more thing which should be addressed regularly and carefully, and that is market condition and competitor’s current performance.
Many times, start-ups blinded by the passion for their product, forget to address this aspect of business, thereby launching something which is already there in market or over pricing products which are available at cheaper rates etc.
A good market study, along with competitor analysis, can help start-ups accelerate their growth by providing product and services which are still missing in the market.
Few more reasons
Besides the ones mentioned above, here are a few more that can lead to the failure of a start-up:
- Out of control growth
- Poor accounting controls
- Not enough cash cushion
- Operational ineptitude
- Operational inefficiencies (spending too much)
- Declining market
- Obscure or marginal niche
- Lack of succession and/or exit planning
- Single founder
- Bad location
- Inability to change direction quickly
- Making bad hires
The author Nitinkumar Gove is an entrepreneur, business enthusiast and a start-up evangelist from Pune, India. His twitter handle is @NitinkumarGove.