Why Do Startups Fail And How Can That Be Avoided?


The startup culture in India is proliferating like never before. Budding entrepreneurs who want to make it big, dream of opening a startup and succeeding in life. We all know that failures are a path to success but there are some mistakes that, if not taken care of at the right time, will ultimately lead to a downfall of the business.


Listed below are some of the major reasons because of which startups fail, based on a report by CB Insights.

Lack of market need

Almost 42 percent of startups have failed because they were solving an interesting problem, but not one which plagued the market. Their product/service did not resolve an important problem the market was facing. For examples, with  Uber and ridesharing, commuting has become easy; Amazon changed the e-commerce game.

It is important for startups to understand what the market needs, and if they are really resolving that problem. However wonderful the idea might be, if it does not address a problem in the right manner, it is doomed to fail.

Running out of cash

About 29 percent startups claimed that they failed due to fund crunch. The startup might have failed to raise funding, and/or the initial investment did not last due to poor planning of resources at one’s disposal, or poor allocation of resources based on the startup’s requirement.

If the entrepreneur does not plan out properly on the road ahead, the company might run out of cash and the dream of a successful business would never see the light of the day.

Not having a great team

A good team can make or break a startup. Some 23 percent startups claimed that they failed because of the team. In an interview, David Beaton, the Founder of Sharkius Games, a London-based company, shared that one of the reasons he had to shut down was because of the lack of a good team.

Not having the right team might be a great problem. The entrepreneur needs to understand who she is hiring, and who is being handed over a pink slip. A bad team can pose many hurdles on the path to success but a good one stands behind the entrepreneur like a rock.

Facing stiff competition

A startup that does not know its competition and what they are up against, will eventually find themselves in a problem. 19 percent of startups told CB Insights that not taking competition seriously led to their demise.

Cost issues

18 percent of startups fail due to cost issues. They are unable to price their product at a range that covers their costs but is also affordable for the customer.

The product is not user-friendly

The product designed by the companies need to be user-friendly and be used with anyone. Therein lies the success of the product and hence, the company.

Product without a business model

A company needs a working business model to succeed, otherwise, it would not be able to make any headway even though it might have the required funds.

Poor marketing

Money does not convert into good marketing. There are a lot of factors involved in good marketing, including a good understanding of the market and how the product caters to the market. It is important to know the target audience. 14 percent of startups cited this as a cause of failure.

Not caring for the customers

When a startup loses touch with the customers, it is then that it digs its own grave. Customer and product are the two main things that one needs to take care of.

Product mistimed

While launching a product, one needs to do the research and understand the right time as to when it would be most profitable. Going ahead with a plan without the proper groundwork and shove a startup in the direction of failure.

Other reasons

Another important reason for startup failure is losing focus, and this could happen due to a number of reasons, from losing focus on the primary goal to branching out into multiple things so that you lose sight of the main goal.

Other reasons include a pivot gone bad. Startups often pivot to capture new markets and/or diversify, but the pivot does not always work out, and almost 10 percent claim this was the reason for their failure.

Lack of passion, which also counts for startup failure, and 9 percent of startups attribute their failure to it.

9 percent of the startups also claimed that expansion to new markets or new geographical areas didn’t materialize and ended up in startup failure.

According to the report, the other reasons that lead to the failure of a startup are lack of investor interest and legal challenges.

The above-mentioned list would be helpful for startups that have started on the wrong foot and can be used to get back into the business with a bang.

Also Read: Seven Mistakes That Young Business Leaders Are Prone To Make