A lot of startups fail within their first few years of launch, ideas go down the drain, efforts are wasted, and confidence is lost. Statistically, only one in ten startups survive for more than 5 years. Sometimes, business failure is caused not just by one factor but by a combination of several factors.
In our attempt at Increasor (we operate as an ecosystem with major sectors in Tech, Accounting, Corporate Services, and recruitment) to provide the necessary support for startups, we have remedied these factors and created a leak-proof system that checks all the boxes, thus, ensuring that the startups that we partner with are empowered and supported right through their various growth processes.
Here are the three major reasons why startups fail in the 21st century:
1-No/Zero market demand
When there is no market for a product or service the chances of making tangible sales are extremely slim. Starting a business without first understanding the market potency is a huge risk. Most startups even develop products or services without first conducting a proper market survey (Research is one of our key processes at Increasor). Let’s break it down a little. Imagine creating a product that is truly phenomenal but yet seems irrelevant for the target audience, if they could easily find alternatives that outperform your product then there is no need for them to buy.
Correct market survey and data interpretation are very essential, – Lead-Innovation used the Dinnr food delivery service to explain this phenomenon. 70 percent of 250 respondents agreed that they would buy the product. The Alpha test group and 1:1 interviews also produced positive results. Nevertheless, founder Michael Bohanes ruined the startup because he misinterpreted the market research results. Bohanes only presented his idea, which did not offer a solution for a customer problem or a relevant additional benefit. He interpreted the survey data as market potential, while the respondents only expressed their general interest. De facto there was no demand for such a delivery service-
So, if you have a product or service idea that you would like to develop, ensure that you understand your market. If you do not have the required skills to execute a proper Market survey and data interpretation you should get help from professionals.
2. Lack of sufficient financial resources
Money makes the world of innovations and ideas go round. Startups fail because at some point in their growth process they eventually run out of financial resources. The growth and expansion process takes up a lot of money, the money needed to build new user systems, the money needed to pay employees, the money needed for advertisement, the money needed for internal management, etc. All these expenses can accumulate to quickly gulp up a huge chunk of the entire business budget.
And when the money runs out, the startup is forced to either slow down, sell, or even shut down. The CB insight in one of their studies established that One third(29 percent) of companies fail due to liquidity problems.
This inability of startups to generate cash when needed can be remedied if they had the proper financial backing right from the onset. For example, Increasor uses its wide network of investors from its investment platform to provide rigid financial support for Tech startups that possess high growth potentials, this method creates enough room for growth and value development while also making capital available to the startups.
3. Having the wrong team
Do we even need to explain this? Business growth is a combination of positive efforts from business owners, Investors, and most importantly the Team (employees). If the team is incompetent, irresponsible, and distracted the whole framework of the startup is rendered fragile. The cooperation between team members is very vital. Without internal cooperation, the business cannot stand, thus most startups fail as a result of an internal team that lacks cooperation.
„The first five employees will make or break your start-up.“
Oliver Holle, CEO Managing Partner Speedinvest
The lead Innovation Blog wrote – ‘’However, an unbalanced composition of the teams with regard to the competencies of the individual members often hampers the success of the company. Sometimes there is a lack of important skills for the technical implementation of the business idea, sometimes there is a lack of a CTO who acts as an interface between management and the technical departments. The online job platform Standout Jobs, for example, failed due to a lack of professional skills. The team was not able to build an MVP (Minimal Viable Product) itself or with some external support from freelancers. The company could have brought on board additional founders or external innovation partners with the appropriate skills, but failed to take this step and went bankrupt.’’
Not to brag, but Increasor has a vetted recruitment platform that seamlessly connects employers to the best and most competent employees around the world.
Here are some other factors that could cause a startup to fail:
- Strong competition
- Pricing and costs
- Lack of unique business model
- Poor product
- Poor marketing
- Product mistiming
- Lack of focus
- Lack of passion
With our vast experience at Increasor, Tech startups that partner with us gain a massive advantage, they automatically will not have to deal with any of the problems discussed above as we have ensured that our methods always provide desired results.