From being ahead of their time to incompetent teams: Eight reasons startups fail

You have heard of the success stories. Startups that got large funding, some that got bought over and founders with the Midas touch. But what about the many, many startups that start off with similar dreams and ambitions but fall by the wayside? What really leads to the start-stumble-die phenomenon for many startups? What did the founders take for granted? What did they fail to account for?

At Firstpost, we spoke to some of the success stories and investors in startups. What do they feel is the fine line that separates success from failure? Almost everyone who responded in this article said the same thing: there was no demand for what was being created or offered.

But what if there is demand? Here are some of the other reasons blamed for startups crashing:

Ahead of their time:

A lot of startups fail because they are launched ahead of their times. Some others fail because they fail to pivot their strategy when the initial idea doesn’t work, says Deepinder Goyal, Founder and CEO of Zomato, the online restaurant search service.

Some fail because people aren’t able to execute better or even sooner than their competition. And then there are those who are building things for themselves and not solving real problems as such that a consumer might face.

“I think one of the top reasons is that some are making products that no one wants or sees value in. Product demand or lack thereof, is a huge reason why some startups fail. Sometimes the market simply isn’t there yet,” says Goyal.

Lack of vision:

The foundation of every startup should be the vision to solve an existing problem in a specific industry. When founders lose focus of that vision, that is when the problem arises, says Shashank ND, Practo, Founder and CEO of Practo, a healthcare finding service.

Some entrepreneurs also fail to pay heed to the importance of hiring good talent and employees who share the same level of enthusiasm in taking the company to the next level. Fund raising is something that will follow if the product is good and the customer base is loyal and content with the product’s offerings.

The aim of every start up should never be to make money, but to solve problems, build great products and follow a remarkable culture within the organization, says Shashank.

No market for the product/service:

One of the major reasons where founders go wrong, is that they run into the problem of there being no market for the product that they have built. They get passionately aggressive about the product and backtrack consumers’ appetite, says Rajat Tandon, Vice President of Nasscom 10,000 Startups.

When building a product it needs to have an inherent need, else it will just hide behind a layer of UI/ UX (user interface, user experience). At times, the market situation can also be different - startups could be ahead of the market by a few years. Another factor is the business model. Founders get too optimistic about how easy it will be to acquire customers, but after a certain period of time cost of acquiring customers actually gets higher than the lifetime value or customer retention.

Quoting former president Abdul Kalam, Tandon says,“Don’t read success stories, you will only get a message. Read failure stories, you will get some ideas to get success.” This encapsulates how founders should approach their companies, he says.

Everyone wants to be the next Google or Facebook, but only a few will actually get there. Be optimistic, but realistic, exhorts Tandon.

Traction matters:

The only factor which makes or breaks any startup is traction. Everything about a startup – their business model, product, technology, team etc. can be measured and validated based on the traction it generates, says Ravi Narayan, Microsoft Ventures.

Sometimes startups come up with an offering which is way ahead of its time, and therefore cannot get enough traction and eventually forces them to shut down.

Webvan, the online grocery delivery startup in US, went bankrupt in 2001 because they were in the wrong market in the wrong time. In today’s world, they might have been the market leaders. The Webvan business model which did not succeed in US, has become a very successful one in India today.

Another reason why start-ups fail is because they don’t address the right customer group and region. Touchfone, one of the startups Microsoft Ventures works with, initially positioned its offering as a business to consumer one and tried to get to the consumers directly. However, they soon realized their mistake, pivoted and repositioned themselves as an enterprise solution provider and became a successful startup, says Narayan.

Aiming for perfection:

Many start-ups spend too much time in building a perfect product, which is a myth, feels Sunil Rao, Country Head of Developer Relations and Startup Ecosystem.

There are a lot of reusable components in the technology stack which start-ups can use to go to the market, and it is worth spending that time in research and managing their limited resources more efficiently. Start-ups also fail when they focus their efforts on raising funds without a vision.

In the current scenario, the mortality rate of startups is very high. Almost 40 percent of the start-ups do not make it beyond 18 months. Having said that, there are many start-ups in India that are flourishing and their founders have complementary skills to support their vision.

Having a basic idea around monetisation is good sign of a focused start up. Having a good set of mentors, a support mechanism to bounce ideas off and capturing honest feedback from experienced professionals goes a long way in defining the success of a startup, says Rao.

Incompetent Team:

The failure of start-ups is usually a combination of issues, just as its success is also due to multiple favourable factors, says Paula Mariwala, Executive Director, Seedfund.

Mariwala lists a number of reasons, but the the most important one is an the presence of an incompetent team. The team being incomplete, incompetent or disconnected with the market and most importantly, strife or lack of chemistry amongst founders is recipe for disaster and most difficult to salvage, says Mariwala.

The next factor is market size. A limited addressable market size, the  product proposition/offering not being compelling or differentiated enough for users to adopt.  The market is very discerning between ‘nice to have’ and ‘must have’products, and usually very price sensitive and slow to adopt a ‘me too’ product.

The best of companies and products can fail if launched at the wrong time. Being ahead of the market or launching at a time when a large player decides to enter the space could kill even a very good start up.  A wrong go-to-market strategy and complex business model often makes it difficult to scale up and easy to burn cash, resulting in high customer acquisition costs, poor capital efficiency and long gestation before seeing revenues and scale.

Lack of capital is a reason that most entrepreneurs attribute to failure.  However, if the team is good enough to manage other factors, they usually find the money required to survive, says Mariwala. Not treating the business like a company:

One of the key reasons that’s leading to the downfall of many startups is the fact that entrepreneurs are running businesses more like ventures than companies, says Suveer Bajaj, Co-founder & Director of FoxyMoron, a digital marketing agency.

They’re focusing on valuations and raising funds in order to keep up with the competition. And once they get funded, they often miscalculate the burn rate and end-up running out of cash, he says.

It is also important for  start-ups to maintain a culture that keeps inspiring people. A culture that encourages people to share the startup’s vision and makes them feel that they are a part of something special. The moment the startup begins to compromise on the culture, it starts to collapse, Bajaj explains.

Failure to innovate:

Some of the most common mistakes that an entrepreneur commits is the inability to model his/her proposition to the market’s dynamic conditions, and the failure to continuously innovate and differentiate to create a unique value proposition, says Rajat Tandon, Senior Director of the Nasscom 10,000 Startup Programme.

Another important reason, says Tandon, is the failure to communicate the business value propositions in clear, concise and compelling fashion.

“One should start working on building a strong foundation and address these core elements of success to ensure a successful entrepreneurial stint,” he says.