Why do 90% of the startups fail? Address the general know-how’s and learn how to succeed

“I’m planning to begin with a start-up.” is one of the most generic lines that we all get to hear day and after. According to a survey by National Business Capital and Services, a lot of small businesses start up every month. However, the failure rate of startups is quite high. In the year 2019, the failure rate of startups was around 90%.

21.5% of startups fail in the first year, while in the second year 30% of the startups give out. In the fifth year, 50% of them go into decline and in the 10th year, about 70% cease to function and cut out. When we see the number of businesses that start up every year, what is it that pushes them to a higher percentage of failure ratio?

Reasons for startup failure

There is a range of reasons why businesses fail.

1. Running out of cash- The most widely given reason is that the startups ran out of money, and the cash flow dried up. It might be because of the poorly managed costs and that the sales were not high enough. Another reason why their money could dry up is that the startup was unable to get for itself the required venture capital or better financing to survive. 
2. Incorrect target audience- The other reason is that startups forget to focus on their target audience, and start targeting everyone as their demographic. What they miss out on is that the more narrowly defined a start-up’s niche is, the better and easier it will be to market the right set of audiences.
3. Market Problems- Sometimes, entrepreneurs create a product for which they have little or no market. A probable reason for a start-up failure is the lack of focus as well as lack of a compelling value proposition that would nudge the customer to purchase the product. The other thing that could go wrong with the market is the timing of the product. The venture capital could be ahead of the market by a few years, and the target audience is not quite sure if the particular product is the solution they are looking for.
4. Business Model Failure: Many entrepreneurs are more than optimistic about how easily they can acquire customers. The business model fails when the cost of acquiring the customer (CAC) is higher than the lifetime value of that customer (LTV). 

A business is all about marketing and bookkeeping. Entrepreneurs who excel in both do not need to worry. But the sad truth is that one can not be an expert in all niches. Instead of fumbling through the marketing side of your startups, you can easily hire out that particular service to maintain the efficiency and quality of the product you desire to sell.

Besides this, other factors such as a lack of market research to know about what the customers want and a bad partnership that results in an untimely dissolution of the startups also add to the failure ratio.

The Ideal Growth Strategy - Stay Hungry

All startups must have one thing in common- they must stay hungry and learn often. At the first glance, it seems like most businesses will take the road to failure. But there are effective ways to stop your start-up from becoming one of the entire 20% that topples over in just the beginning. 

Startups are just not about ideas. It is about making those ideas happen, building a great story, and chasing the right vision. Once you set goals where you need to be and what is that place where you want to be, your aimless wanderings come to an end. This helps you bootstrap with the right strategy that helps you build your business quietly. Thorough research about the desires of your target audience, as well as knowing exactly what makes them tick will help you create better pitches.

New experiences, features & customers

Once you know the pain points of your customer base, you can sell your products at higher margins and automate for efficiency. Cutting delivery and production rate also helps. What’s more, is that you can sell more of your product as well as enhanced products to the same people. This can be done by adding improvements that drive incremental purchases. For instance, every new phone launched by Apple has better cameras and more compelling features. 

Your start-up needs a loyal customer base. When you connect powerfully with your target audience, the retention of the products you sell increases. Begin by introducing your product to new markets that have similar needs to your core audience, or to markets where your product could address a different problem.

New Offerings and a Potent Model

Your start-up sees exponential growth when you make new and efficacious products to sell. Growth is not just limited to enhancement or polishing a product, but to create newer ones. You have to consistently find what new needs can be solved within the existing markets. You can also brainstorm and invest in a new category. 

While all these are strategies that a start-up must have in its functionality, it should also be ready to sell its old product in a new way. What stands out as more important is how you re-imagine how to go to the existing markets with newer channels, revenue streams, and techniques of creating value. 

Source: Wilbur lab survey of !56 startup founders, December 2020

If taken as an approximate value of how many startups fail, the result is about 11 out of 12 dies down. That is a very high number, which suggests that you have to make most decisions right for your business to succeed. Ideas are easy, it is the implementation that is hard. Test on your ideas, do your research and homework and ensure that you have your calculations right when you dig deeper into this world of creativity and the era of startups.

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