According to research, 1 in every 5 million non-funded startups gets to the unicorn status. This means that the startup is valued at at least $1 billion. For every funded startup only one in 10,000 becomes a unicorn. This means only 1% of startups looking to et funded actually get funded.
Below we highlight the main reasons why startups fail.
1. Your product has no market demand
Most founders and entrepreneurs believe that their product or idea is so appealing that the market will consume it. In the beginning stages, most people do not understand what their product might be (or not) able to achieve in the market, especially during the early days.
The solution would be to first test out the market. Make sure there is a need for your product. If not change the course to satisfy another market. Ensure that your product is a market viable product (mvp).
2. Ignoring and not avoiding cash burn
Many startup founders and entrepreneurs want to build a perfect product or solution and launch after that, but when the startup is relatively new, one needs to cash in so as to keep the company afloat. Important things to check at this point in time would be low-profit margins, small recurrence purchases, clients delaying money, high payroll costs, and high churn rates. The more cash flow you get in your startup, the higher your company’s success. One more thing to note: ensure there is a distance between paying your suppliers and the time period your customers are supposed to pay you. This means you have to negotiate terms with your supplier that are longer than the payment terms of your customers. Spend only on what is important and weigh your priorities as well.
3. Lack of skills needed for the business
As a founder, make sure your skills are complemented by everyone in the team. A startup requires several departments. Sales, marketing, management and bookkeeping, and product management. Make sure the individuals you choose to take up this role are good at what they do. And as a founder(s) concentrate on what you are good at. If you and your co-founders find that you lack skills that help grow your company makes a point of learning what you need to earlier on, this will ensure that everyone in your team is propelling the company forward.
4. Reluctance to get feedback and criticism
Create prototypes and get feedback from your potential customers. Do not be afraid of someone stealing your idea or that your prototype has to be perfect to be shown to the first people. The best way to have a product that will be received well in the market is by getting feedback and learning what your target market really wants. It is rare that you have the entire customer needs taken care of and so feedback and criticism will really help you know what to change, tweak and/or improve on.
5. Weak team and poor leadership
Get people who believe in your company’s mission and vision as opposed to “top talents” who will take up the next best offer when it comes. These committed employees will help you realize your vision which is very important for a startup.
6. No real interest in the market you are operating in
As a founder, you will need to work about 60 to 90 hours a week with little to no pay to help the startup take off. It is not possible to want to work that hard if you do not believe in what you are doing. Passion and genuinely looking to solve a certain problem that you care about will make you want to put in the time and effort that is required.
7. Inability to raise capital
People may always be surprised by the time and number of rejections required before they succeed in raising capital for their startup. Too often this process is started too late and the entrepreneur goes to the rescue with the wrong group of investors, the first ones. Fundraising in a startup environment is something that needs at least 6 months of active prospection, meetings, calls, and visits. The more you are in the routine of fundraising, the more precise you are about what you need as a company and what investors who are looking for your profile want. Make a committee responsible for this and name at least two people who will be responsible for raising funds and report to the team every 2 weeks.