As much as it’s been well recognized that a major reason for startup failure is the issue of little or no existence of market for the product that have been built. There are likewise other reasons that often push a business to folding up.
That being said, ‘it still changes not’… The first problem on the list that tends to force startups to closure is the market problems. As an entrepreneur, there is every tendency of building what people want without the existence of a viable business model.
The market problems can come in three forms after building a worthwhile product:
- Not having enough customers to reach up to profitability.
- Existing in a hyper competitive market.
- Cost of reaching out to target audience outweighing the revenue.
Most startups are so engrossed with creating a wonderful product and eventually forgetting those that would be utilizing it. Often expecting that once they create a viable product, customers would create they own path to their door.
The next is the issue of poor management team. This is an insanely incredible common problem that often causes startups to begin having issues and eventually leading to very disastrous end.
Poor management team are often weak on strategy, building a product that no-one wants to buy as they failed to do enough work to validate the ideas before and during development. This leading to poor at execution, which leads to issues with the product not getting built correctly or on time, and the go-to market execution will be poorly implemented.
And eventually building weak team members below them. So the rest of the company will end up as weak, and poor execution will be rampant.
In addition is the issue of running out of cash. A key job of the CEO is to understand how much cash is left and whether that will carry the company to a milestone that can lead to a successful financing, or to cash flow positive.
The valuations of a startup don’t change in a linear fashion over time. Simply because it was twelve months since you started something does not mean that you are now worth more money. To reach an increase in valuation, a company must achieve certain key milestones.
What frequently goes wrong, and leads to a company running out of cash and unable to raise more, is that management failed to achieve the next milestone before cash ran out. Many times it is still possible to raise cash, but the valuation will be significantly lower.
Another reason that startups fail is because they fail to develop a product that meets the market need. This can either be due to simple execution. Or it can be a far more strategic problem, which is a failure to achieve Product/Market fit.
Most of the time the first product that a startup brings to market won’t meet the market need. In the best cases, it will take a few revisions to get the product/market fit right. In the worst cases, the product will be way off base, and a complete re-think is required. If this happens it is a clear indication of a team that didn’t do the work to get out and validate their ideas with customers before, and during, development.