Here’s why startups fail, even after raising millions
Starting up a business is hard. While raising venture capital helps, ultimately it is the markets that decide the success or failure of your business plan. That number is apparently 90% of the failure rate!
But don’t the startups that raise millions should be better able to navigate the market demands to be in the coveted 10%?
Yes, and yet, we have startups crashing in valuations and sadly, shutting down due to various reasons. Let us explore these reasons one by one so that you can be aware and avoid repeating these mistakes.
Too much reliance on paid advertisements and discounts
Some startups become cash-burning machines. The venture capital money is contributing to the revenues of Google, Facebook, Tik Tok, etc in the form of advertisements for the startup’s artificial growth.
Providing too many discounts to your customers for trying out products or making them ‘habituated’ can also result in uncontrolled cash burn. The reality strikes when your customers are not using your product without any of the artificial demand generation tricks.
Unethical ways to convert and retain customers
Sometimes your product is unable to generate the trust and fan base required to generate conversions or word of mouth. Out of desperation, startups might end up using unethical means to ensure they showcase the hockey stick growth in their userbase.
Startups may opt for over-the-top advertisement techniques that oversell. Or sales executives get trained for using unethical means like using emotional manipulation for buying their products. They might not allow you to delete your profiles even if you demand it. Either way, people do eventually recognize these mischiefs, and negative word of mouth kicks in, causing irreparable damage to brand reputation.
The market doesn’t want your product
Sometimes founders get struck with the next big idea and are able to convince the investors of how big their business idea could become. But they fail to convince the customers why they need their product.
Today’s consumers are smart, technology-savvy, and well-informed. They will look at hundreds of websites before making a purchase decision. For Gen-Zs, it's especially important to them that your brand is truly ethical and genuinely provides value to their lives.
If your product fails to solve a real problem, is positioned incorrectly, and doesn’t maintain a good brand presence simultaneously, it is very difficult to sell. Sometimes startups fail to recognize this early and end up burning money to make a product nobody wants or understands.
Your product/technology doesn’t work
Theranos is a good example of startup failure due to selling a product that just doesn’t work. Elizabeth Holmes spent countless measures and venture capital money to keep it under wraps than actually making a good product.
If your technology doesn’t work, the scam will come out eventually, causing an immense fall for the founder and pain to the employees. As they say, the easier way to startup failure is to vigorously market a faulty product.
Faulty management practices
A rogue founder or too much interference by investors can result in business failure. A startup needs a healthy dynamic between co-founders and investor relations to work together towards success.
A co-founder split leads to a lack of trust among key stakeholders, including customers. This is especially in the case of B2B products where large corporations or highly regulated industries need assurance of product continuation and quality.
The market collapses
COVID-19 had resulted in lots of healthy startups shutting down. This was especially the case for travel startups, transportation, niche industries like airlines, etc who were severely impacted by the pandemic.
One can never the anticipate Act of God. It’s better to apply measures to ensure you have alternate business models that help keep your startup afloat during unforeseen circumstances.
You can work to avoid these mistakes
In the chaos of building a business, one might lose sight of where the startup is heading. But being mindful of these typical failures can help you navigate your startup journey and hopefully avoid making them
Harshala is a writer and maker in the publishing, community, and marketplace industry. She is building merrative.com — a dribble for the publishing industry. Connect with her to hire writers and get engagement for your content creation efforts.