Top 10 Reasons why startups fail in the first year
The term startup and failure cannot be overemphasized; this is because most startup tends to fail a few months after they are set up. Most times people do not know why startups fail in their first year. Well, in this article, we will deal with the reasons why most startups do not grow or go further after the first year.
What is a startup?
A startup is a new initiative targeted to solve an issue or help people achieve a purpose. In a more advanced sentence, we can say a startup is a new development of something that has never existed or the re-branding of an existing purpose to serve the public better. Often, startups are initiated menially, then, it starts to grow. Also, a startup can be operated either by few founders or an individual.
According to the creator of learning startup methodology Eric Ries, “startup is a human institution designed to create a new product or service under conditions of extreme uncertainty”.
Now, we know what a startup is, let’s go straight to the reasons why they fail in their first year.
Reasons for Startup Failure
In startups, there are very important Key Performance Indicators known as KPI. Not having funds at all and venturing into business causes failure in startups. While on the other hand, investing too much money towards the progress of a wrong KPI is one of the major causes of financial breakdown. KPIs includes cost-control and great economic unit. When an entrepreneur has too much money in his/her savings it becomes very hard to focus on cost-control and if a person earns too much money as an entrepreneur, he/she ends up not taking good terms in deals as should be. In such cases, he/she ends up building a business that might grow but not yield enough interest as is expected.
KPIs are put in a scale of preference bearing in mind that the aim of a startup is not to raise money immediately or generate revenue for its sake; instead, it is to build a solid business that yields enough interest equivalents to the amount of money invested.
If overlooked, this could lead to a very dangerous pitfall. The early stage of an establishment might not necessarily need more than 50 employees for large scale and 10 employees for small scale. At this stage, communication is fluent and every employee understands the core values and has a passion for the business.
Immediately employees begin to grow, there tends to be a breach in communication from the management to other staff. Everybody splits to different pages, passion is deteriorated and everyone belongs to different teams, this is when communication can slow down the success of the establishment.
At this point, Re-orientation is the savior. The employer needs to enlighten every employee on the establishment’s outlines, core management and staff duties in other to keep the team simple and enhance the establishment’s success. This should be done routinely if the said establishment must overcome startup failure.
3. WRONG TEAM
This is a major factor which determines if a startup succeeds or fails. Most startups make big mistakes when selecting a team to work with.
It is very crucial for the team to set a common vision and long term goals for the startup. Unity should be a daily practice among the team. About 39% of startups fail as a result of diversities among the team members.
For a startup to stand up and succeed amidst the various competitions in the market, a team of highly motivated, like-minded, committed, resilient, persistent and diversely skilled people should be assembled.
4. LACK OF MARKET DEMAND FOR PRODUCTS
Lack of market demand is a top factor why many startups fail in general. The big question is this, how can a startup succeed if there’s less or no demand for its products and services.
Before setting up a startup, the first research and market survey’s should be done around the products you’re to offer and the market space.
Is your product meeting or solving customers need? Is the product nice and solves a product or is it just nice and not solving a problem? If a startup can answer these questions before selecting their products, definitely, they will come up with a product that the demand is high in the market.
Also, if startups can focus on validating their products on leading projects and doing a pre-launch beta testing they will be able to come up with a product that will satisfy various market needs and in turn increase its sales and existence.
According to research, about 50% of startups fail due to this factor.
Competition is another major factor which causes startups to fail in their first year.
In the case of competition, we would be looking at two case studies:
i. Case study 1
Most startups venture into business areas where the competition is very high and for you to strive amidst the competitions you will need to spend more on adverts which in turn will affect your capital as a startup.
Because of this, no matter how hard you try you’ll find out that no one is patronizing you. For instance, I want to start a startup and I venture into search engine optimization (SEO), you’ll find out it will be hard for me to be known amidst the likes of Neil Patel, Brian Dean and the rest.
ii. Case study 2
Most startups bring up their own products and fortunately the market booms and they start making few bucks from there, then the big companies with big capitals, sales, and presence come and hijack the market from you, because of these you lose focus and most times its disastrous to startups.
So in cases like this, all you need is to keep the hard work and stay focused.
Every startup needs help in one area or another. But, it is of the entrepreneur to admit that he/she needs help. Being dishonest about where you need help is a shortcoming that cost the business more than the startup capital. It is advisable that one should get a partner that can be of utmost help in defaulting areas.
About 19% of startups fail because of this according to research.
7. POOR MARKETING
Marketing is very important if a startup must succeed. Most startups because of the quality of their products forget about marketing strategies and at the end run at the loose most time even fail.
No matter how good a product is, if the consumers don’t hear about it it’s just as good as nothing.
For a startup to survive the product must be marketed, using different social media platforms, banners, posters, billboard and more.
This is a major factor that determines if a startup succeeds or fails. Many startups find it very difficult to price their product or services. Some set ridiculous prices which in turn pushes customers away. Also, some in order to keep customers, they price their products very low which in turn leads to loses.
According to studies, this factor has made about 18% of startups to fail.
Most startups lack adequate planning. They forget about the need for having a backup plan. Many startups today only plan for the good times and forget about planning for the bad times, so when they are faced with challenges in the long run, because there is no backed up plan for such situations they fall apart and most time this causes the startup to fail.
Resilience is pivotal if a business will fail or succeed. Like we stated above, in cases where unforeseen circumstances or challenges come up, it takes resilience to overcome. Keep pushing even when things are not working well, the refusal to quit put keep working hard is a major factor if startups will succeed.
In conclusion, it is more likely that startups will face most or all of the challenges above which will force the founder to either keep running the startup or just shut it down.
Therefore, for about to be or aspiring entrepreneur’s taking note of these challenges that most startups have faced in recent times is the best way of ensuring you take the best steps when setting your startup.