Startups are the latest trend in today’s business world. Attracted by the prospect that they can run a business their own way (in other words, being their own boss), many entrepreneurs and young adults have taken that brave step forward in venturing to begin their own startup. But for every successful startup that made it big, countless others fail miserably, disappearing mysteriously without notice.

Many individuals see the glitz and glamour of the startup life but they do not fully comprehend the amount of effort and sacrifices made by the founders behind the scenes. Hence, many just jump into the bandwagon without proper knowledge and planning which will only lead to eventual failure.

Factors that Cause Startups to Fail

According to CB Insights, there is rarely one singular reason for a startup’s failure – the reasons are often diverse. After conducting thorough post-mortems, CB Insights lists down 20 most frequently cited causes for a startups failure. However, in this article, only the top 10 reasons will be highlighted.

10 – Untimely Product Release

Timeliness is key to ensure that your product reaches your audiences at the most appropriate occasion, when the market demand is high or when there is a specific need amongst consumers that your product can fulfil. Releasing your product too early might give consumers an impression that it is lacklustre due to a lack of preparation and effort involved to create the product. However, releasing a product too late will cause you to miss the vital window of opportunity to reach your audiences when the need is still prominent.

Getting consumers back after a bad initial impression and regaining their trust is a monumental task which will exert even more time and cost on the startup. Hence, a startup should always monitor market trends to ensure that they are able to release their products on time.

9 – Being Inflexible and Does Not Seek or Use Customer Feedback Actively

One of the best ways for a startup, or any business, to know market needs and expectations is through consumers themselves. Hence, adopting a tunnel vision and not taking users’ feedback into consideration is a sure way to fail for most startups to fail miserably. Many companies tend to build their products and services based on what they assume is best for the users without seeking feedback and opinions from users, resulting in a product which did not meet their expectations at all.

One great example that many aspiring entrepreneurs and startups should emulate is the popular transportation network company, Uber. When Uber first started off, the only payment method that was made available was via debit or credit card transactions. However, after receiving feedback stating that they are worried about divulging their personal information as they might potentially be hacked, Uber adapted and changed their services to include cash payments. The ability and willingness to to change by responding to customers’ feedback not only increases brand loyalty amongst customers, but also increases the clientele base for a company.

8 – Poor Marketing Efforts

The ability to identify your target and knowing the proper channels to gain their attention, then converting them into potential leads and ultimately customers are is one of the most vital skills that a successful business should possess. It is pointless for a company to have the best product in the world but they do not apply the proper marketing techniques to expose their products to targeted demographics.

Startups should firstly identify the audience that they plan to target and study similarities and expectations that exists in the population. Then, they should plan on the best method to disseminate information to these audiences, via social media activation, traditional advertisements, viral online content, et cetera. By implementing proper marketing techniques, not only will a startup survive, but thrive.

7 – Insufficient Business Model

Sustaining a business is never easy. Not only does a business demand a steady flow of money to support daily business operations such as research, production, distribution, marketing, and so on, businesses should also have emergency funds ready as a precautionary measure to counter any unexpected situations. Solely relying on sales or any singular channel of making money leaves the company at a dangerous predicament of not gaining the necessary finances. Moreover, investors will be hesitant to invest in a company if they do not see a company’s income-generating capabilities.

6 – Creating a “User Un-Friendly” Product

Many startups and entrepreneur fall into the trap of creating a product that consumers do not want, as they did not take users’ needs and wants into consideration in the process, be it deliberately or unintentionally. For any product or service offered, consumers typically have some elements that they expect to be featured to fulfil their demands. If businesses can pinpoint these needs and cater to them perfectly, then the business is bound for success. Founders need to understand that it is not always about what they envision their product to be that matters, but whether the product can meet customer requirements or otherwise.

5 – Pricing and Cost Issues

One of the main issues that often impede a startup’s success is the pricing of a product or service offered. Many founders share that a common difficulty faced is pricing a product that is neither too high or too low to make money in context to the cost required to sustain the company.

Consumers will often consider if the product or service has value for money – the ability to meet their expectations for the amount being paid for it. Many startups tend to place a high price on their products in hopes of covering their expenditure and obtain profit, but the products fail to deliver what is promised which is a big letdown to consumers. This leads to a decrease in sales and profit, which defeats the founders’ original plan. On the other hand, prices that are too low means that the revenue obtained will be insufficient to cover expenses.

4 – Unable to Match the Competition

In the marketplace today, if an idea seems to be gaining market validation or increasing interests amongst the public, there may be many entrants that are vying for the same piece of the pie. While the general advice is not to be too obsessed with competition, totally ignoring and not keeping track of your competitions’ efforts is also a recipe for failure. Monitoring competitors helps a business to undergo comparative analysis between itself and its rivals to identify weaknesses and knowing what areas the company should be improved on.

3 – Not Having the Right Team

The idea of working in a team is to utilise the strengths of each individual member to produce a holistic and complete group that can work together like clockwork. A team consisting of diverse individuals with different skill sets and expertise is critical to the success of starting and sustaining a company.

Team members should be recruited based on their experience in the related field and not solely for their profession. For example, someone who is an expert in the FMCG industry will not bring much value to a tech startup specializing in mobile games. Recruiting team members that do not share similar vision and goals for the company also spell failure, as conflict of opinions in decision-making will cause instability and a loss of direction for the company.

2 – Running Out of Cash

Handling finances responsibly is an essential skill that every business founder and startup should have. The question of how much money should be allocated for various aspects is a constant conundrum which turns out to be one of the top reasons why many startups fail. However, in some occasions, startups not only run out of cash not when they are underfunded but when they receive too much funds and start spending it recklessly as well.

1 – Too Focused on Problem-Solving

According to BC Insight’s post-mortem analysis, the number one reason for a startup’s failure is because they are too focused on producing products and services to solve interesting problems rather than meeting the needs and expectations of consumers. One example was given by Patient Communicator who mentioned that their customers – primarily doctors – were not interested in the model that they were pitching as it did not meet their needs. The doctors wanted more patients instead of a more efficient office as pitched by Patient Communicator. Hence, before embarking on a quest to solve a problem, future businesses and startups should identify if the problem is indeed in sync with the needs of consumers.

Other Legitimate Factors

Besides the above reasons, there are many other reasons that cause startups to fail. The factors mentioned above revolve primarily from a business point of view, but many experts claim that the founder’s attitude and understanding of business as a whole are also trigger points that make or break a business.

Advice for Future Startups

Nevertheless, the advice for future entrepreneurs and founders of upcoming startups is to have a solid plan that involves and prioritises customers’ opinions. Besides that, founders themselves need to equip themselves with perseverance, flexibility, and a diversified team to brave the never-ending challenges of starting their own business.  

_{This article is originally written by Jonathan So from iPrice Group, a price comparison website which offers coupon services and latest insights on SEA e-commerce's industry.}