Why startups fail? Here are the reasonso

Why startups fail? Here are the reasonso

The question that most entrepreneurs ask, Why startups fail, here are the most important reasons why startups fail.

Why startups fail

Why startups fail

Statistics show that 9 out of 10 startups failed, I don't know how this statistic was, you might have thought about whether your company might be one of those companies that is failing, or you might think about how the company is surviving this deep sea of failure.

In both cases, one can never ignore this high percentage, which indicates that failure surrounds all companies, and it is necessary to understand the reasons that lead to this to take advantage of it and learn the lesson. For this we will tell you about 7 Reasons Why Startups Fail. 

And now here are the most important things that make your startup fail in the first year of starting.

You can see new business ideas 2022


1 there is no need in the market for the product

The number one reason many startups fail is because they offer a product that is not needed at the moment in the market, as a result of their lack of customer focus and listening.

 Or because it presented its product at an inopportune time, and was unable to achieve a consensus between its product and the expectations of users in the market.

That's why the founders of the company described their failure by talking about this point. 

The company has relied on providing solutions in order to help individuals collaborate in online shopping. This would solve a problem that individuals do not now have.

The main reason why this happens is that the market research process has been ignored, or the results in it are wrong. 

This problem is also caused by a lack of interest in developing a minimum of viable products to test the idea before it is fully launched on the market.

Liquidity risk 2

It is not possible to talk about the reasons for the failure of startups without touching on financial problems. 

The forms of financial problems faced by companies vary, but they agree in the end result is the depletion of the company's existing liquidity, and therefore its inability to continue its operation again. This happens as a result of the following reasons:

  • Failure to secure a new funding round.

Some companies rely on ongoing funding rounds to run their business, and when they can't secure a new round, it causes them financial problems. 

The main reason companies rely on financing rounds is that they multiply their spending, so they can control finances only through these rounds. And when you do not succeed in securing a new one it leads to failure.

This is what happened with Anki, who started her work in the field of artificial intelligence in the production of robots in 2010. In almost a decade, the company has successfully secured 5 investment rounds worth 182 million Dollars. 

In 2019, the company's CEO, Boris suffman, announced that the company could not secure a new round, after the last-minute deal broke down, as he described it, and the end result was the closure of the company.

Why startups fail

Infograph shows what happened with 1,119 startups from the first round of funding to the sixth round, which saw only 3% of the total companies survive. This is from website .stats cbinsights

  • Financial management error

One of the things that lead to a financial problem is the error in its management, whether because of poor planning, or a problem in sales due to a defect in the forecast, or because there are funds due to the company but not yet collected from third parties.

Founded in 2011, Zirtual has successfully served many companies, providing virtual assistants to perform certain administrative tasks, such as scheduling meetings. The company decided to expand its operations, but did it early.

This burned a lot of money in order to implement the growth plan, but this was not well planned. 

The company finds itself required to pay salaries to approximately 500 employees of the company, as a result of its miscalculation, the result was bankruptcy, and later the company was sold.

  • Pricing error

One of the most important things that leads to a financial problem is the wrong pricing of products correctly. Especially when a company decides to rely on price burning as a Market entry strategies.

 It may therefore be difficult for them to cover the costs, with not enough profits to make up for it.

The pricing problem may be that the customer sees the price of the product greater than he can afford, or has other products to buy, or because he does not see the value he will receive fit the amount requested. 

Delight IO, which provided usability testing for mobile apps, was hit by this, and customers didn't buy its services because they didn't find anything to convince them.


Team not suitable for the idea 3

Whatever the greatness of the ideas, having the right team capable of implementing them is a must. Some ignore this fact as a result of wanting to save costs؛

 He works alone or with a limited number of partners, without thinking about hiring managers or getting more partners in influential positions, or choosing unsuitable staff just to save cost.

This problem may cause the end of the company as happened with Zirtual. Of course, the desire to save on cost is quite understandable and must be pursued, but in order to preserve quality. 

This is why companies are currently resorting to hiring freelancers, this gives them the right quality, while incurring a lower cost. Companies can find the best professionals in various fields, by hiring them via the site of five.

Perhaps the problem of a team that is not suitable for the idea occurs as a result of the founders ' lack of awareness of this. This is what happened with Lumos, which was forced to close in less than a year.

 The founders realized they were “not the right team to build a company “. While acknowledging that there were at least seven major problems, they led to the company's collapse.

See the best successful online business ideas in 2022

Competition of startups 4

Even with the strength of the company and the completeness of all elements with the product or service offered, however, strong competition can overthrow some companies and cause them to fail.

 In the end, the customer is looking for who gives him the choice that suits him, he does not have to feel belonging to a particular brand, unless that brand gives him a reason for it.

The principle of competition emphasizes that no one can guarantee the continuity of his success, only with constant work and effort.

 It is not enough to be satisfied with past achievements, and believe that they are the key to safety to stay in successful companies.

 Failure often happens to companies years after they start work, which underscores the importance of permanent work.

Radio has emerged as one of the first music streaming providers in America. The developers of the app wanted to offer a product that has a different competitive

 advantage, showing the user preferences for what their friends are listening to, and giving them suggestions for listening according to their playlists.

The company has raised US.125 million in its 6 funding rounds. 

But still, when Spotify came on the scene, it managed to outperform Rdio, because it offered a better competitive advantage to customers. Rdio eventually ceased operations in 2015.

Poor product 5

One of the main reasons startups fail is that they offer a product that is weak in the eyes of customers. Maybe because it doesn't care about the user experience enough, and doesn't meet customer needs well.

 Although this is obvious, some companies forget it, and think marketing campaigns are enough to convince the customer of the product.

But the immutable fact remains that the customer does not buy advertising, but the products or services offered. This is what happened with Google in one of its projects, Google Plus. 

The company focused on its desire to compete with Facebook, but did not harness its efforts properly to come up with a product that receives public attention, and the result was Google's announcement that the service was discontinued in 2018.

A product without a strong business model 6

What is the benefit of the product to the company if it is not able to make a profit through it In fact, this is one of the challenges that most startups face, 

as when they start thinking about a company, the focus is on creating a proposed feature that is actually useful to customers.

But the company's goal is to get profit in the end, it only works for it, and does not want to get higher costs than revenue which means loss.

 So, she directs her thinking towards designing her own business model. These days, it is no longer enough to rely on one source to make a profit, but over time, choosing more than one channel of profit becomes a must for success.

Steve plank, one of Silicon Valley's most famous entrepreneurship educators, says in a definition of the startup, it's:

 "A temporary enterprise designed to search for a repeatable and developing business model”. Through the model, profits and expansion can be achieved correctly. His absence leads to failure.

Malp began its business of preparing and delivering meals in 2014 within New York. She also used to offer a free sugar biscuit with every order.

 The company stood out from the rest of the companies in offering a complete restaurant experience, with its own applications, kitchens for preparing food, and delivery workers, without having to open a physical restaurant because of the high cost.

The product was integrated for customers, but later reports revealed that the company lost money on the meals it delivered, and began making a very small profit margin in 2016 of only 30 cents per meal.

 The company had raised 29 million through investment rounds, which helped it cover costs. But this was not enough to continue with possible large losses.

So the company made an attempt to modify its business model, increasing the price by adding other fees such as delivery and sales tax. 

This resulted in customers turning to other service providers, and the company ceased operations in 2017.

 This underscores the value of a strong business model from the start, and that if it doesn't help the startup profit, its chance of continuing is almost nonexistent.

Poor marketing of the idea 7

The importance of marketing as an influential factor in the success of companies can no longer be denied. With all the effort put into product design and processing, marketing is geared towards reaching customers، 

By knowing how to get their attention and turn them into potential customers, and then eventually actual customers. So it's no wonder that poor marketing can result in corporate failure.

conclusion

In conclusion, it cannot be judged that failure occurs as a result of only one cause, but is the result of a set of causes that occur together, perhaps affecting one cause more than another, but in the end it does not mean neglecting the rest of the causes. 

The bad experiences of failed companies tell us that we need to take care of all the elements of successful work together, and that this is the only way for our company to become the one that succeeds out of the rest of the ten companies.

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