Why do 9/10 startups fail brutally? Here are 10 ‘NOT TO DO’S’ for survival!

Starting up is hard, and the fact that 9/10 of them fail within the initial three years makes it look even more dreadful. Intelligent entrepreneurs always learn from others’ mistakes and try to avoid them in their own startups. It is observed that most unsuccessful startups show specific signs which help kill the startup brutally!

Let’s look at the reasons some startups that, despite having a great idea, failed.

> Call9

Call9 Delivers On-Demand Doctors In Emergency Situations with Technology.

Total Funding Amount: $34M

Short Reason: Disharmony in the team

Long Reason: According to some people with involvement in the company’s financing, a troubled relationship with one of its essential investors lead Call9 to its end

> Layer, Inc.

Layer is a very high quality, scalable and open cloud service for communications that utilizes carrier grade VoIP systems.

Total Funding Amount: $44M

Short Reason: Outcompeted

Long Reason: Fast growth with pressure from investors, where they had to compete with giant companies in the market like Intercom. Issues with reliability and they just couldn’t make

> Arivale Inc.

They provide individuals a scientific path to optimize wellness and avoid disease for a life filled with joyful moments.

Total Funding Amount: $52.6M

Short Reason: Poor business model

Long Reason: The cost of providing the service exceeds what their customers could pay for. High price for collecting genetic and blood. It would take time to start delivering the program to consumers cost-effectively(CAC), which puts them in the wrong time in the market. Because of that, they were unable to continue operating at a loss.

> Anki Inc.

Anki was founded in 2010 by three Carnegie Mellon Robotics Institute graduates. The team focuses on creating unique consumer products that people would not expect to be possible, powered by cutting-edge technology that was once confined to robotics labs and research institutes.

Total Funding Amount: $182M

Short Reason: They ran out money(Could not manage runway)

Long Reason: According to its long-term roadmap, it could no longer continue being a hardware & software business. It sold 1.5 Million robot units, but that wasn’t enough to stay alive for another year.

> Aria Insights

Aria Insights develops unmanned air vehicles for search and rescue missions and bridge inspections.

Total Funding Amount: $39M

Short Reason: No market need

Long Reason: They offered a solution to a problem that doesn’t really exist yet. Because of that, it was hard to operate on such a large scale.

> Singulution

Singulution was introduced as a sale & business management solution for multi-location vendors. 

Total Funding Amount: Bootstrapped with $0.4M

Short Reason: Not implemented MVP

Long Reason: He built what he thought people needed, but he never asked them what they actually needed. Eventually, the project was outrun by the competitors and absorbed by another startup.

From lack of product-market fit to disharmony on the team, here are 10 reasons for failure of startups so that you avoid them from Day 1.

1. There’s no market

42% of failed startups reported that their customers had no market need for their products! If you end up making a solution for a problem which nobody has or is insignificant, you risk losing all your effort and resources into failure. Learn from successful giants.

Google is solving the problem of arranging the world’s information and giving you the way to access it easily. It evolved from just a directory to an intelligent search engine to now a digital assistant.

2. Running out of cash.

Your key is to understand how much cash is, how to manage the runway & at the same time  explore all the funding options and secure funds before it’s too late.

One of the naïve mistakes emerging businesses make is using the investment in the initial phases. These entrepreneurs take on investment without any strategy to use the finances. They try to scale the company as soon as they get a good chunk of money, land into critical circumstances and ultimately fail. Your job is knowing how to regulate the accelerator pedal. In the early stages of a business, while the product is being developed, and the business model refined, the pedal needs to be set very lightly to conserve cash. There is no point hiring lots of sales and marketing people at this point of time. However, on the flip side of this coin, there comes a time when it finally becomes apparent that the business model has been proven, and that is the time when the accelerator pedal should be pressed down hard.

It is always advisable to reach out to experts for getting assistance on cash management and setting up projections, not airy but based on facts and backed with justifications. Internal Cash management is an art and you ought to learn the same!

3. Overconfident Entrepreneurs

In a study examining a sample of 2,994 entrepreneurs, for example, 81% believed that their chance of success was at least 70% and 33% believed that their chance of succeeding was close to 100%! Unfortunately, statistically speaking, 75% of those entrepreneurs would be dissolving their companies within the first 5 years.

 Inappropriately lofty beliefs can ultimately lead to disaster in building a business. Seek constructive criticism for the plan before finalizing it. The solution is: Do not do it all alone. It’s not an individual’s efforts that make a company significant, but teamwork and collaboration do the magic. Starting up with at least 2 to 5 co founders having varied skills and experience is much better than starting up alone. Remember your pockets are too narrow to afford professionals at an early stage. Keep maximum talent in the founder base.

4. Team troubles

In case of founder disputes, the founders agreement, the shareholder agreement should be in place in advance to deal with matters professionally. This is a part of internal corporate governance which helps run a business smoothly.To know more about various agreements and instruments which are essential & must for the founders on Day 1 of startup and also anytime during the journey, irrespective of whether they are planning to fundraise, just go through our exclusive blog on Not just Statutory Compliances! Apply Internal Corporate Governance to build Backbone of your StartUP!!

5. Missing out on competitive analysis

Keep answers ready to the questions like: What service they are offering, what geography they are serving, what customer group they are targeting,  how your service can be different from them, what value addition you are giving, what entry barriers you can keep for your closest competitors.

6. Failing to Plan is Planning to Fail

I suggest thinking about your start-up business in a similar way to how drugmakers think about experimental drugs. They first conduct preclinical testing in animals to determine if human testing might be worthwhile. The first phase of human testing typically involves a small number of patients. Subsequent phases add more patients to the studies. At every step in the process, there are predetermined primary outcome measures. If the target outcomes aren’t met, the drug usually doesn’t advance to the next phase

In the startup world, the above technique is known as Proof of concept-MVP (Minimum viable product). In simple terms, building an MVP means you create the most basic version of your startup idea as quickly as possible.

This way, you can test your assumptions and optimize your idea for product/market fit based on user feedback from your early adopters. Following this process, entrepreneurs could determine ahead of time what financial results you would truly achieve. If the business doesn’t meet those levels, evaluate why they weren’t met. The process is explained in detail in our blog on Startup begins with IDEA! Successful Startup begins from MVP!!

If they didn’t fail quickly enough with experimental drugs that aren’t safe or effective, their overall success would actually be much lower.

This is a point worth thinking about before you launch a business. Failure really isn’t failure if it improves your overall prospects for success. As Thomas Edison said after repeated unsuccessful attempts to create an incandescent light bulb, “I have not failed. I’ve just found 10,000 ways that won’t work.” The sooner you identify what doesn’t work, the sooner you can find out what will.

7. The CAC / LTV “Rule”

The rule is extremely simple; CAC must be less than LTV. At times, entrepreneurs are too optimistic about how easy it will be to acquire customers.

They assume that because they will build an interesting website, product, or service, that customers will beat a path to their door.

That may happen with the first few customers, but after that, it rapidly becomes an expensive task to attract and win customers, and in many cases the cost of acquiring the customer (CAC) is actually higher than the lifetime value of that customer (LTV). Not just CAC, you have to manage your internal cash flows efficiently in order to succeed in the long race. Remember, the goal is survival above all!

8. You aren’t leveraging content marketing

Noise matters and no matter how great your product may be, it’s going down if no one knows about it. Poorly managed marketing is a major reason for the failure of many startups. 

You would be glad to know Content marketing is costing up to 41% less than paid marketing. So the foremost step is  You need to publish more high-quality content on a regular basis. A well-executed, comprehensive content marketing strategy can attract press coverage, improve SEO, and drive traffic to your site – all of which can help startups gain traction

9. Wrong timing

Some companies launch products before their time and either the market (demand/need) or the technology is not there yet. Others launch too late, although they might not notice that it would be too late already.

Example: If hotstar would have launched in 2009, when both internet and smartphone penetration was very less, it would have inevitably died.

10. Burning out

Doing a startup is hard and often even the most passionate people burnout in the process. Some ideas could even take as much as 2 years to even get product market fit and financial situation and work life balance could suffer to its extreme.

Watching your pals making good money in corporate jobs, posting pictures of team and family outings abroad can also make you rethink your decisions.

Most founders couldn’t take these burnouts and ultimately quit. Understand that you are on a big mission, your startup is your dream and maybe you are one deal away from making it.

In a nutshell

Some startups will emerge, and many will disappear. Your business can succeed in the long run only if you avoid all the common errors that startups usually make. Even if you’ve made these mistakes, it’s never too late to take corrective measures and resolve the issues with an effective problem-solving strategy. But Prevention is always better than Cure.

It’s always recommended to get your startup checked as early as possible to reduce the chances of failure.

Check My StartUP is World’s #1 Unique StartUP Analysis Service for Fundraising & Internal Cash Flow Management comprising of:

• Conducting Initial CheckUP thru the eyes of Angels / VCs
• Fixing Gaps in Fundraising Preparedness & Governance Issues
• Preparing or Revising Decks, Projections and Relevant Reports

Further, Fund My StartUP is World’s #1 Fundraising Syndication Service of its kind, from Angel Funds (AF), Venture Capitals (VC), Private Equities (PE) globally

• Service Delivery to initiate after “Check My StartUP”
• Concessional Fee for Fundraising from Investors in Client’s Network
• Presenting your startup in Transparent’s wide Network of Investors

You can get your startup checked with the most innovative and worldwide proven scientific process deployed by Transparent Capital Partners. Transparent can enhance the probability of success of your startup by utilising the 200+ years of collective experience of our team.

Can you think of any other reasons for business failure? Do let us know in the comments.