Numerous startups take birth every minute of the day. However, the truth is, most of them fail at the soonest. The idea might seem smooth and flawless in the beginning but when it faces reality there are numerous problems that the new entrepreneurs deal with. When it comes to failure of a startup the reasons are numerous. However, here are the few that are the most common ones responsible for the failure of a startup-
- Lack of Cash:
This is probably the most common reason a startup faces failure. Most of the times the startup companies run out of cash. Getting a good investment in the beginning of a startup is not enough. The need for cash is constant in any business. Any business has certain milestones that determine the ability of the startup to make money in future. In order to get future investments one needs to reach those milestones for a good evaluation by the investors. These steps could be hiring a good team member, validity of the product by the customer, positive feedbacks etc.
- Market Problems:
One of the major problems for the failure of a startup is the unavailability of demand in the market for the product. This could be due to various reasons- starting from lack of commitment on the part of the buyer, bad market timing, and small market. Due to the lack of demand no matter how good a product is, a startup is bound to fail.
- Collapse of the Business Model:
Any startup idea seems bright and glowing in the beginning but after facing the market the flaws of the business model becomes clearer. A sparkling website, good product are not enough to keep the flow of customers intact. The acquisition of customer is not a very easy job and the effectiveness of the business model becomes important here. The golden rule here is that the cost of acquiring a customer must be lesser than the lifetime value of one. A good business model makes sure that the cost of acquisition gets recovered within one year. If any business model misses this basic essence, it is bound to collapse.
- Poor Management:
Finally, business is all about teamwork. The management of a startup depends solely on the capability of the team. A capable team makes sure so that the company does not have to face problems like business model collapse or lack of money. On the other hand, a poor team deals with issues like lack of strategic planning, poor method to execute, division within the team etc.
- Faulty Products:
Then again, it is the product, which speaks for itself. A good product gives any startup a lifejacket for a certain period of time if anything goes wrong. On the other hand, if a product is faulty in itself, there is no way to save the startup. The market rejects a faulty product. The reasons of the flaws in the product are generally twofold- problems to execute or strategic failure.
There might be various other reasons for the failure of a startup. However, the reasons mentioned are the most common ones.