5 Reasons Why Startups Fail

By Dilip Pandya, Mentor – Espark-Viridian

It is reported from several sources that the failure rate of startups is as high as 90%. Some even peg it higher. While enough has been said on the subject and theories abound on the abnormally high failure rate, my submission is based on my experience and observations. Hence I’m listing some factors for any Start Up that can lead to failure, where my definition of a startup is much broader than the latest connotation for a “tech-based” startup. I wager to encompass even the regular businesses which might not have innovation at its base, and this is not an exhaustive list.

1.Lack of experience – Most startups are founded by young kids who lack the experience of heading an organisation. This induces many follies, the teething issues of founding an organisation, getting it off the blocks, growing it and scaling up the growth is not a mean task and requires all round skills. Hence it makes sense to include co-founders and/or mentors who are like minded but are possessing complementary skill-sets.

2. Failure to Create a 360 degree plan – Many Founders take a huge amount of time in perfecting the product/service/idea which is not inappropriate. However, once they are done, they don’t invest equal diligence and time in creating an all-round strategy for the business. Which results in a stunted operation!

3. Obsession with the Product/Service – Many founders are so obsessed with their Idea that they fail to create a meaningful story around the benefits that can be generated. Since they have invested heavily on the “idea” in terms of time and effort they fail to appreciate that the target audience and stakeholders need to be educated exhaustively to generate the same passion and clarity. Hence often their strategy is hasty and short-sighted. This then induces frustration, lack of clarity and doubt all around resulting in a fall-out

4. Poor Team Building Strategy Forming a Like-minded team is as critical as having an appropriate Product/Service/Idea.

  • Startups have gathered notoriety of paying high but sacking people at the first sign of trouble. Hence talent is now averse to taking the risk. The same goes for associates including channel partners and vendors et al. This makes it increasingly difficult to find and retain members who are persistent and patient, a paradoxical requisite which is indeed very hard to find. Equally hard to find is the trait of “hunger to grow” which is critical requirement in Start Ups.
  • Lack of Interpersonal Skills –  It is widely known that technical and intellectual skills grow and wane in significance but interpersonal skills remain vital for everyone at every stage in the career or organisational growth. I have noticed that the founders are invariably skilled technically and also do imbibe or seek help/support on the intellectual skill sets but do little to hone the interpersonal skills. This inhibits team formation and development which is a bane for scaling up . And if you don’t grow a startup fast enough, you slide back and won’t be able to cross the inflection point.
  • Initial Success Leads to Myopia – The initial success also breeds a false sense of success inducing reckless behaviour in the founder. He feels that success is all because of him (which may be partly correct, at least in the initial stages) and hence doesn’t give enough credit to team members which also leads to fall-outs.

5. Faltering at the Scaling-Up stage – Most startups falter at the stage where they have to scale up. The factors cited above are indeed responsible. Another critical factor which I have noticed is the weakening diligence at the founder’s end which is a given and expected with the increasing size of the project, and absence of robust processes and systems required for supporting growth and its pace.

My singular suggestion to founders is to plan for the best, prepare for the worst and seek help right from the word go in areas which aren’t their strengths. Building a Vision on where you want to take the organisation in five years shall give you the wisdom to admit that you aren’t a super-man and the humility to reach out for help!

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