Why do start-ups fail and How to avoid them?
90% of Start-up fail within the initial three years, even with support and encouragement. A wise man said, “A failure is not a failure if you learn from it” and a brilliant entrepreneur always learns something from their failures. It is essential to test your idea before starting a start-up.
Usually, aspiring entrepreneurs are in love with their view that they neglected the real perspective and skips the problematic questions that they should ask themselves. There are various reasons why start-ups fail. Here some of the most common causes that drive start-ups to failure.
Tapping the right market is the key to start a start-up successfully. Doing thorough research of the market using SWOT analysis is necessary. SWOT stands for Strength, Weakness, Opportunities, and Threats, and this will give you in-depth insight on how you can hold in the market.
Money does not convert to good marketing. A product can fail if sufficient marketing efforts are not given. There are many factors involved in ethical marketing, including a good knowledge of the market and how the product feeds the demand. Nowadays marketing is not only limited to making product awareness but also about building marketing elements within the products and exploring unexplored venues like retargeting, influencer marketing, etc.
To difficulties, marketing should start when the product is entirely ready. And also marketing people should be involved in consumer experience, contract management, and product development as well.
Out of Cash?
Almost 30 percent of start-ups claimed that they failed due to the financial crisis. Cashflow holds the business, no matter how intense you are, how many users or how great your idea is, you still require to pay your representatives, marketing department and you. Some entrepreneurs fail to maintain a record of accounts and hence fail to take adequate measures on time.
You may run out of cash due to various reason such as unable to raise funds, or the initial investment didn’t last because of the poor planning or poor allocation of resources based on the start-up’s requirement.
In businesses Which are financed by external investors or private equity firms, the founders should be aware of Key performance indicator (KPIs) for the next investment. Failing to manage KPIs, and making expenses with low ROI can push the business down the drain. To avoid such a thing, you need to keep track of the accounts. And if any funds are required, the Management or CEO should work adequately in advance to explore all the funding options and secure funds before it’s too late.
Business Model Failure –
As described in the Business Models Part, after spending time with start-ups, we realized that one of the common reasons of failure in the start-up world is that entrepreneurs are too sure about how easy it will be to gain consumers. They assume that because of creating an impressive website, product, or service, consumers will beat a path to their door. That may happen with the first few consumers, but after that, it rapidly becomes an invaluable task to attract customers, and in many cases, the cost of acquiring the consumer is higher than the lifetime value of that consumer.
The conclusion is that you must be able to gain your consumers for less money than they will generate in their lifetime relationship with your company. Despite that, we see the vast majority of entrepreneurs failing to pay adequate attention to figuring out a realistic cost of consumer acquisition.
A business model is the support of every business and directs the financial and commercial viability of your business to make value and money. Some companies are so much involved in the solution that they tend to neglect the business model. An ineffective business model is defined by a high cost to acquire consumers, unknown or low lifetime value of consumers.
To avoid this, one should understand the meaning of POSDCORB.
PODSCORB stands for Planning, Organizing, Staffing, Directing, Coordinating, Reporting, and Budgeting. POSDCORB will help you in creating a successful business model.
Steps of POSDCORB
- Planning: This primarily refers to establishing a broad sketch of the work to be completed and the procedures incorporated to implement them.
- Organizing: Organizing involves formally synchronizing, defining and classifying the various sub-processes of the work to be done.
- Staffing: This consists of recruiting and selecting the right candidates for the job and facilitating their orientation and training while maintaining a favorable work environment.
- Directing: This entails delegating anddecision-making structured instructions and orders to execute them.
- Coordinating: This refers to orchestrating and interlinking the various components of the work.
- Reporting: It involves regularly updating the superior about the progress or the work-related activities.
- Budgeting: It Involves all the activities under Accounting, Auditing Fiscal Planning, and Control.
Poor Management Team?
A strangely familiar problem that makes start-ups to fail is a weak management team. Weak management teams make mistakes in various areas:
- They are often weak on a plan, developing a product that no-one desires to buy.
- They are usually poor at performance, which leads to problems with the product not getting built correctly or on time, and the go-to-market execution will be poorly implemented.
Management is most of the times the brain and heart of a company. Weak strategic decisions can exemplify poor management, the communication gap between the team, little work on product and bad hiring systems.
To avoid such things, make people answerable to each other, decisions supported by data and not biased experiences. The administration should own its choices. Over communication within the team is always helpful than under-communication.
Now that you have read the whole article, you can now avoid being one of those 90% who fails to make their start-up successful. Starting a business in India is very hectic due to the lengthy registration process and laws. We at Afleo.com helps budding entrepreneurs in starting their own business by providing services such as Company Registration, Trademark Registration, Annual Compliances, GST Registration, IEC Registration and Modifications. Our mission is to save the time of our clients by taking care of lengthy, long and hectic registration process so that they can focus more on their business to make it successful.