Harikirat Singh in his post did a bit of research on some 50 odd Indian startups that failed. Some of them indeed raised funds during the seed and/or subsequent rounds. Although the sample size taken in this case is just 50, but it more or less conforms to the global studies covering a higher sample size.
Based on his post, I've segregated those Top 10 reasons behind startups failure as below:
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Remember, the combination of the above reasons, can lead to a deadly blow to your startup. These gaps can be easily reviewed by the investors, who then naturally pass on your startup for funding!
Did you know, what's the cost of a failed startup? Review it here.
Let's now switch to global phenomenon ...
CB Insights polled over 100 entrepreneurs from failed startups, in order to find out the top 5 factors, which were responsible for their company’s downfall. Here are those:
1. No or Low Market Need: Addressing a significant market is an fundamental requirement for any startup to succeed. If the market for your product or services is limited / too small, then even the most innovative startup may not survive. Most often, entrepreneurs are too optimistic in launching a product / service, which no one wants to buy!
2. Ran out of Money/Lack of Funds: How long would your startup sustain on bootstrapping, if the fundraising was difficult? Half of the battle is won, if you've a product/service has a proven market as well as business model to sustain for at least a year. This is an area where an experienced business adviser can be invaluable!
3. Not the Right Team/Conflict within Founders: Successful teams require a diverse set of skills, a shared goal, and complementary personalities. If any of these aspects are lacking, it can severely impact the productivity and effectiveness of your company.
4. Lost to the Competition: Complete clarity on what your competition offers and unique value proposition are essential in attracting the potential customers. But if your competition provides better value and/or at lower costs, even loyal customers will switch.
5. Pricing/Cost Issues (High CAC): Much like the previous factor, your product or service must be priced lower or competitively and if your cost of operations are higher than competitors, then it must be made apparent, why your services provide a greater value than theirs.
Entrepreneurs must learn from these valuable insights, to avoid their own startup's failure!
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