Startups fail quite often. No one should be surprised by this phenomenon. But why does this happen and how can you avoid becoming the next failed startup to make the news? Let’s consider the most common reasons why startups fail and see how to prevent them or overcome them.
1 – Lack of Market Demand
As statistics by CB Insights show, one of the main reasons why startups fail is a lack of market need. It’s pretty obvious that before building a product, an entrepreneur first should verify whether the market needs the product — that is, whether there’s a target audience whose problem the product can solve. This step may seem obvious, but unfortunately, many startups create a product that no one wants to use, and eventually, they fail.
How to avoid this mistake: First, startup founders should put thoughts like “my product is unique and there are lots of ready people to use it” out of their heads. Instead, start verifying the business idea. The main reason to do this is so that startups and the development team are on the same page and everybody is aware of what problem they’re solving for their target users. It’s vital first to do lots of research before spending a lot of time, effort, and money. Don’t neglect it.
2 – No Business Model
Unfortunately, a great idea is not enough. Many startups come to market with an idea or a product but without the infrastructure to back it. A company without a business model is doomed to failure.
How to avoid this mistake: Some companies use a business modeling tool called the Lean Canvas. The Lean Canvas allows startups and their development teams to build a product that provides real market value. The Lean Canvas requires startup founders to fill out a simple table with questions regarding expected costs, technologies, monetization, and marketing. As a result, a startup is able to create a relevant product development strategy and eventually build a product that the market really needs.
3 – Lack of focus
Due to a lack of direction, many startups apply their efforts ineffectively and irrationally. For example, some companies focus on networking and public relations before ensuring they’ve built a product that’s wanted by their target audience.
How to avoid this mistake: All startup efforts should be focused only on the product and users. A great way to succeed is to build a minimum viable product (MVP) and get user feedback. An MVP is ideal for gathering early data from users, which allows the team to improve the product and develop the full version.
4 – The Wrong Team
One more common problem startups face is hiring on or recruiting the wrong team. It’s harder to select a winning team than you may believe. Startups often have a team that doesn’t provide enough support, isn’t 100 percent involved in the process, or even lacks technical expertise.
How to avoid this mistake: Have a CTO from the very start. The role of a CTO is vital for a company’s success since this person controls all technology-related issues and ensures the product will meet the end users’ expectations.
5 – Wrong technology
The choice of technology affects the speed of product development. Inappropriate technology may lead to unanticipated issues and delays.
How to avoid this mistake: Be careful in selecting technology, as you don't want your competition to beat you to market. Many companies build startups on Ruby on Rails and succeed. Ruby on Rails is perfect for startups due to its many ready-made plugins and modules. Building software with Ruby on Rails helps to cut down on development time, cost, and time to market (TTM).
6 – Running out of cash
A good product idea and a strong technical team aren’t enough for a successful business. What about the budget? Many founders strive to create the perfect product that will meet user expectations and totally forget that they need to earn money as soon as possible to keep the lights on. Budget problems usually occur due to high salaries, high churn rates, and low profit margins.
How to avoid this mistake: To stay in the game, it’s better to spend only on essentials that can bring ROI. In addition, it’s crucial to pay attention to the marketing strategy in order to attract as many customers as possible.
7 – Ineffective marketing
Many startups believe their product is so amazing and helpful but totally forget that their target audience may not be aware it exists. A poor marketing strategy — or even no marketing strategy — results in a startup’s downfall.
How to avoid this mistake: Startups should thoroughly conduct market research, create customer profiles, and analyze their target audience’s habits, lifestyle, and interests. Based on this research, a company can convert its target audience to leads and customers. After that, they can promote their product through marketing channels such as a blog, social media pages, websites, and advertising to make the product discoverable everywhere.
These are the most common mistakes that ultimately lead startups to failure. It’s essential to be aware of the reasons why many business ideas die. Be aware of the risks and learn from others’ mistakes.