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Why do most start-ups fail?

Why do most start-ups fail?

The Startup Inception

Usually a Startup is a group of recently passed out inexperienced persons with an idea to bring disruption and change the world by their products and services. The energy and enthusiasm of whom seems to be unsurpassable and invincible. However, business is run by a lot of factors and not just zeal. The very inception of a startup without proper market survey, capital generation, need assessment, value addition, understanding of the market and its dynamics lead to imbalance in running business. Here are some of the basic factors which have proved to be detrimental to business ventures and have resulted in small business or MSME business fails.

Weak Management Team

Since the young startup founders are inexperienced and lack managerial skills because they may have great ideas and limitless ambition but they lack fundamental management ability; formal management education or training makes them even more susceptible to mistakes. They may also lack finance management on top.

Poor Leadership Skills

Poor leaders percolate poor decisions and this leads to a poorly performing team with an inflated sense of self. The team always looks at the leader for the right direction and decision-making. This creates more challenges than solutions leading to conflicts with and between staff- and a business that will turn in the wrong direction.

Poor leadership could easily derail a startup or lead to start-ups fail. So, it’s important to develop a team understanding and a cohesive unit of productivity rather than a differentiated group of workers each fighting for status or just not doing their jobs correctly.

High Aspirations and No Experience:

Since the young talented guys set up a startup without any experience but lots of imaginations and aspirations, the startup might have to face the consequences of bad management, poor leadership or the most important factor – poor finance management. Startup founders may aim higher growth and imagine success in less time. But, this tendency leads to wrong choice of business, incorporation, inefficient running of business to rash decisions and finally a failed model.

Lack of Training

Since the talented young startup owners rely on enthusiasm and troubleshooting only, they are in a hurry making profit so they avoid a regular and essential attribute that is skills upgrade training. It is a well-known saying that you should test the waters before you jump in. But not all startup owners follow the protocol and hasten the process leaving some vitals of proper training unattended. They don’t have a proper plan to execute tasks and jobs in hand. This is due to lack of proper training.

Lack of Consultants

Corporate consultants are the external supporters who are highly paid when it comes to advisory, consultancy, regular training and coaching. Startups usually avoid to hire these freelance corporate consultants as they think that they are too small to hire them as it will do no good and is a waste of time and energy. However, as a matter of fact and common observance, those startups which take help of consultants were assumed to be at a lesser risk than those working on their own and considering themselves as jack of all trades.

Lack of Planning

Every business model requires proper research on product or service, market, capital generation, planning of tasks, jobs, resources, manpower, target market, sales of product/service, profits and margins, profit projections for next 20 years down the line. Since the young talented startup owners are in a hurry and work in haphazard manner, they do not plan before they act. It is always wise to do the homework and leg work before you actually do something. It’s like preparing well for the examination before the exams.

No Clear Target Customers

Since the Startups are usually a group of educated & talented recently-passed-out students. They lack the skills to survey the target customers. They are overwhelmed by their own ideas and start working on them. This often leads to improper targeting or lack of results which might in the long run lead to complete shutdown of the business.

Today we are living in an everchanging, challenging global environment that requires a proper understanding of target customers, their needs, desires, aspirations and lifestyle. This valuable information and date are generated by companies on selected target customers by conducting surveys, questionnaire, research, understanding and sold to multinationals at premium prices. Startups are unsystematic and this leads to loss making concern from the very nature of their existence.

Less Networking

Usually, business houses have a department for networking, marketing and a sales team to promote their ideas among customers and business houses. This generates curiosity, understanding, the value it contributes to the lifestyle of their consumers through products/services Startups rely solely on internet marketing tools which is not sufficient. Some products and services require personal touch and demonstration. Startups don’t know how to sell their ideas, products and services leading to failure.

Lack of Investor Support

A startup needs to be profitable, in order to attract investors. Usually, every business has a product or service cycle. Investor looks for the following attributes in the founders and team leaders before investing. They look for passion, deep understanding of business, traction, significant market size, product differentiation/competitive advantage, Team members and delegation, exit strategy, a complete set of pro forma financials; income statement, balance sheet, and statement of cash flow, a return on investment analysis using capital budgeting techniques and various ROI calculations, sensitivity analysis around key variables, business model, monthly cash sources, cash usage report, expansion plans and the X-factor.

India Is a Saturated Market

India is the second most populous country in the world after China and a major economy; however, most startups serve the fraction of Indians who live in urban India; majority remain untouched by most startups. More than 1000 startups serving too few consumers are saturating the Indian market. In India, less than 20 online retailers are enough to serve the current market. This leads to weak ecosystem and there aren’t enough funds to go around.

A Talent Trap

Startups are stuck in a mental trap, they are oblivious to market forces, busy doing the wrong stuff, not focusing on revenue, don’t know their runway, usually cry for bailout funding and eventually sell out their business.

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