Saying that a startup falls for a single cause is a bit absurd given that it is normal for a bunch of circumstances to end up with it. However, there are some reasons that seem to be repeated more than others. A study conducted by CBinsights detected a total of 20 main reasons that are after the fall of a startup. From higher to lower incidence are these:
There was no need in the market (42%)
Successful startups are those that solve a particular problem or improve the user experience. You can have very good technology, a good database, good reputation, etc. But if what you have created does not meet any need that the market demands or has the capacity to scale in it; you can do little with it.
Lack of financing (29%)
The lack of capital can be due both to the absence of investors who bet on a project and to the mismanagement of it. Many startups end up falling even after closing several rounds of financing for not having a good control of the treasury. You have to know how to dose expenses and increase additional funds as the company grows and the market becomes more complicated.
Not having the right equipment (23%)
The lack of a multidisciplinary team where the sum of the different skills allowed to take the project forward was frequently cited as one of the critical points. In this section it is also important to analyze the motivation of all the members; whether or not they share the vision and the degree of commitment to the project.
Too much competition (19%)
Something that market research should reveal before launching your business idea or product; seems to go unnoticed to a significant number of startups. Sometimes, competition arises later with actors in the market much stronger than a startup; but sometimes it is due to an excess of confidence in the competitive advantage that our product forgetting that this does not necessarily imply discontent with what is already exists in the market.
Failing to get the prices right (18%)
Before pricing a product you have to find out if the market is willing to pay for it and how much. Put price is a skill that seeks the balance between too low or too high considering that this is not a variable that lends itself to a lot of play so the decision is important.
Development of a poor or disappointing product (17%)
The more expectations you raise with the launch of a larger product is the obligation to fulfill them. In this sense it is always better to overcome them than to lower them, given that an impressed client will only divulge the benefits of your brand to recommend it to other friends.
Not having a clear business model from the beginning (17%)
Well in the dynamics of the world of startups is considered the fact of pivoting as something consubstantial, but a business model is important so the variations should not be very radical. You can diversify the offer, take the leap to digitalization, opt for the niches that are most active … but nobody would understand that, for example, a company born under the umbrella of the collaborative economy suddenly happened to apply abusive prices for their services.
Lack of adequate marketing (14%)
Some founders think that launching a good product is enough. It is clear that without it, there is no marketing worth; but it does not make sense to enter the market without knowing the audience you should address. In addition to focusing marketing actions on our specific target; having a good professional profile in this area can save the company from more than one outrage.
Ignore customers and be in love with their idea (14%)
Ignoring users is a proven and true way to fail. As it was said in the section of the competition, it sometimes happens that the entrepreneurs walk their company as if it were “your baby”. In love with their idea, they disregard adverse comments from customers and instead collect their notices and incorporate them into the product.
As with the price, the maxim is here neither too late nor too soon. In the first case because the delay of a launch allows the competition to anticipate and steal that window of opportunity, while you release a product too soon you may find that the market is not mature enough to absorb it.
Losing focus (13%)
In a startup, it is convenient to be flexible, quick and courageous to undertake changes when something is detected to fail or take advantage of other opportunities that are identified on the fly. But we must not forget that changes require new investments. Both time and funds, and that these can be squandered with such proof. The gurus already say that, almost always, entrepreneurship is not a race of speed, but of substance.
Lack of understanding between founders and investors (13%)
Either by ignoring the demands that investors demand, or by an excess of zeal and control of investors. The truth is that, in 13% of cases, according to the study detailed here; startups end up closing due to lack of understanding between the parties. But the discord may also arise among the co-founders of the startup, a problem that is also fatal for the companies.
Make more or less profound changes in the business model (10%)
It can be used in phases of company growth, taking advantage of inertia. The risk lies in not making new calculations and making them on concrete data. There are numerous examples of change that have worked extraordinarily, such as Instagram or Gillette; but there are also some that have been lost by taking another wrong path.
Lack of passion and persistence in the founding team (9%)
It is imperative that the founding team share the passion and the degree of commitment to the project. When interest is focused only on trying an entrepreneurial adventure, it is easy to fall before the first adversity.
Bad location of the company (9%)
It is not just about being at the right time, but also about making it the right place. There has to be congruence between our business proposal and the environment and the client that surrounds us. Then you escalate to other markets. It is true that there are more and more teams that work remotely, making an extra effort in internal communication, but they always keep an operations center.
Lack of interest from investors (8%)
It seems unlikely that an investor risks their capital in a project that does not interest them; but it can happen that they are guided only by speculative and profitable reasons which leads them to lose interest in following up and accompanying the company.
Change of legislation (8%)
Greater risk of being affected by this variable in disruptive business models and in emerging markets.
Lack of contacts (8%)
It affects many of those who are starting out in the world of entrepreneurship that still lack an important network of contacts. This is a matter of time and networking by forums and entrepreneurship meetings. The other mistake is not knowing the contacts you have to generate synergies that benefit everyone.
Burned out by how hard is the life of the entrepreneur (8%)
Reconciling personal and family life with work life is not always easy in the activity of an entrepreneur. Most learn to handle the situation. There are also (at least 8%) who are not willing to give up so much that they end up giving up.
Lack of flexibility (7%)
If before we talked about the risks involved in pivoting; here reference is made to the danger of persisting in continuing with something that does not work; no matter how much the market tests it. Lack of perspective or excessive fondness with our idea ends, in 7% of cases, with a company.