Why Startups Fail? – 5 Reasons (2021)

Why Do Startups Fail?
Why do many startups fail?

Not every startup is going to be successful as the failure rates for different niches are up to 90%. Why do startups fail?

What are the major reasons behind the failure of the startups? Where do the startup owners make mistakes that lead to startup failure?

Every startup owner dreams of being the next Airbnb or Uber, but it does not always happen.

We are not trying to discourage the rising talent, but facts present the harsh reality.

In the business world, only passion is not enough to get things done.

Why Do Startups Fail?

Millions of startups are launched globally. Even in the local industries, countless entrepreneurs jump into the market, but most of them don’t survive for more than 12 months.

Most of the time, a single reason does not collapse the business.

General startup failures are caused by a combination of reasons.

If your financial management is weak, you will be out of cash soon. Likewise, poor resource management may end up losing the future chances of growth.

Here in this article, we are going to talk about 5 simple yet true reasons why startups fail.

1. Poor Analysis of Market Demand

Reason Why Do Startups Fail - Poor Analysis of Market Demand
Reason Why Do Startups Fail – Poor Analysis of Market Demand

Feasibility report of the business is an important factor of the business, but most of the startups tend to overlook its importance.

No matter how revolutionary the product you are offering in the market, if people don’t need it, your business might fail.

If a company is based on a product that has no significant market at a local or international level, they might encounter failure sooner or later.

Here are some situations that you need to consider if you want to sell the right product in the right market:

Hot-Selling Products

Finding the right product and offering the required item in the market is a science. Businesses and startups pay thousands of dollars to market analysts to recommend the hottest selling products and items.

If you want to manufacturer products that actually generate sales and revenue, go for the items that are the actual need of the customers.

If your target market is having troubles or issues in their professional or personal life, offer them a product that can ease their life.

Once you have understood the pain point of the users, you can easily target them with the right product.

Pre-Launch of the Product

Every product has a higher demand at specific times.

If your startup is about a unique product that is really very innovative, but you are ahead of your time, it may hurt the finance.

People may not be ready to adopt that massive change at the time. In simple words, if your startup introduces flying suits for the public, people may not buy it.

The public is not ready to accept that kind of change right now.

Market Size

The products and businesses that are meant for the limited, targeted market may not generate the desired revenues.

Once the product sale has touched the peak, the sales might go down, and you might have to abandon the production later on.

2. Business Model Failure

Reason Why Do Startups Fail - Business Model Failure
Reason Why Do Startups Fail – Business Model Failure

Being optimistic about your startup or business is a great thing, and you must have positive vibes. Apart from being optimistic, you also need to realize that acquiring new clients in the market is not going to be easy.

The poor business model is another major reason why startups fail.

Having an amazing website and attractive logo is not going to be enough to make the business successful. These fancy tactics may attract many clients at the start, but after some time, you will start noticing that you need more.

Only a comprehensive business plan can help you to survive in the market or the business world.

If the cost of acquiring a customer is higher than the value of the customer, your business might fail soon.

Feasible Business Model

When it comes to following a profitable business model, here are two simple questions that can clarify a lot regarding your business model:

It is a simple formula that the cost of acquiring a customer must be less than the customer value.

3. Poor Management Team

Reason Why Do Startups Fail - Poor Management Team
Reason Why Do Startups Fail – Poor Management Team

You are not the only one responsible for the failure or the success of your startup. You probably have other people involved too.

Their experience and management skills are going to highly influence your business. A good management team can keep your business safe from several blunders and professional mistakes.

From finding the right product to launch to marketing your business the right way, your management team is the key player in the success or failure of the business.

If you are not the only person involved in the decision-making process of your business, make sure they are experienced enough to make critical decisions.

The management team is going to manage every aspect of your business ranging from financial management to employee hiring.

Here are some points where the management team may make mistakes:

  • The poor strategic approach for the product launch and marketing
  • Poor execution of business plans
  • Not hiring the right person for the right job.

4. Lack of Financial Resources

Reason Why Do Startups Fail - Lack of Financial Resources
Reason Why Do Startups Fail – Lack of Financial Resources

Most of the startups run out of cash in the very first year of the launch.

If you have collected limited cash and other resources as per your plan, what if things did not go your way?

How are you supposed to arrange cash when things don’t go in profit?

If startups run out of cash before generating passive revenue, there is no need to ask why startups fail.

Successful financing is one of the most important aspects of business success.

As you have limited cash reserves and other resources, you need to be extremely careful with the expenditures in the very beginning.

The first year is a sensitive period for businesses. So, you must set some milestones and then deploy a strategy to get things done effectively.

5. Product Problems and Startup Failure

Product Problems and Startup Failure
Reason Why Do Startups Fail -Product Problems and Startup Failure

If your developed product is not as per the market standard or does not resolve the pain point, you may not be able to generate desired sales.

From obvious reasons to several strategic points, every factor must be considered before going live in the market with your product.

You need to be mentally prepared that the first product may not be 100% successful. Once you have launched the first product, try to collect clients’ feedback in order to make needed modifications and changes.

In some cases, you might have to produce a totally new product from scratch.

In both cases, you need to pay attention to every business aspect that can lead to startup failure.  

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Written by Usama Arbakan

I am a big fan of the digitization of businesses and have been helping bloggers and startup owners with business marketing for the last 4 years. My educational background includes Bachelor's in Commuter Science Degree and several diplomas in marketing and writing. Currently, a part-time blog writer at Ad Specto.


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