Some eight of ten new businesses fail within their first three years. Nine of ten venture-backed start-ups fail to generate meaningful returns. Venture capitalists turn down 99% of the pitches they see. The odds appear to be stacked against the entrepreneur!
In this blog, we shall understand the major reason why a start-up fails. These can help beat the odds and avoid the pitfalls and traps that lead to early start-up death.
Choosing Supposed Profits Instead of Customers
For start-ups, profits and investments can be very tempting since the financial necessities in the initial phase are pressing. Entrepreneurs need to keep their heads clear that short-term profits matter but they do not matter as much as consumer loyalty and building a customer base.
Most start-ups, that fail tend to focus more on short-term profits than building long-term relationships with clients and customers. This tendency leads to compromise in the long-term strategies and vision.
Therefore, entrepreneurs need to know the importance of customer centricity and enhance their customer experience. Customers bring revenue and profits, however, failure to attract customers leads to losing out on profits.
Lack of Innovation
The lack of innovation relates to a derivative idea. It means copying or imitating the business model of other companies.
Therefore, trying to deliver services based on the services of other businesses becomes hazardous. Basing one’s start-up to the successful or established business model of other companies does not make sense since one does not know entirely about how the other businesses operate.
Additionally, every business is unique in its ways. Therefore, lack of evaluation and innovation may lead to the failure of the entire business model.
Wrong timing of launch
Entrepreneurs need to make sure that they launch their products and services at the right time. Launching products/services late or ahead of time, both are detrimental. It leads to failure of product launch and outreach.
For this, it is essential to understand the market competition and what the competitors are doing. It is better to prepare adequately before making a predicted failure move. Regardless, it is also necessary to launch the product on time no matter how relevant it might be.
Introducing products late could label the services as a “me too” service. Therefore, make timely decisions and targets to avoid such labels or failure following.
Raising Funds with the wrong investors
When searching for outside funding, many of today’s start-ups make the fatal mistake of rushing into partnering up with the investor who was able to offer the highest amount of start-up capital.
It is extremely important to bear in mind that all money will not be equal as far as outside investors are concerned. There are investors who bring money to the table together with useful insights to help business grow as well as helpful industry relationships.
There are also investors who interfere with all aspects of the business, making it a challenge to run the company. Thus, the entrepreneur needs to study the overall value beyond the money that investors will bring to the business. As far as investment is concerned, the only money is not obviously the better choice.
Working Capital Management
Managing Working Capital efficiently is crucial to keep the business going on a daily basis. For instance, the business might have made huge sales, but they are on credit.
Working capital mismanagement happens when it is time to pay the employees, but the company is out of funds to pay them, regardless of making a significant amount of sales in credit.
Another factor is managing the investor’s funds effectively. It not only means investing in profitable avenues but also making sure that businesses do not incur too much spending which does not bear any returns.
It is critical to choose your team, interns and employees correctly. One needs to understand the needs of the company and attract talents accordingly. Failing to do so will not just increase the people in the company, but it also means a waste of limited resources Many start-ups today fight to have the right team so they end up hiring the smartest applicants who don’t really complement each other in terms of strengths and weaknesses. Hiring a properly balanced team is the key to start-up success. The right team is not composed of perfect and intelligent people instead, it is all about people who share strengths with one another and mitigate each other’s shortcomings and weaknesses.
Pricing / The Sale Price
The sale price can be everything for consumers. As a start-up, a product that’s too expensive or too cheap might not be a wise move. The price should not be too low or too high. It should be just right and something that is reasonable and will be embraced by the customers or clients. It can be known by experimenting and studying the competition. First, we need to check what competitors do and also need to calculate the costs in order to offer a price that covers costs and makes some profits. The business need to experiment with pricing until it finds the right one.
Lack of market understanding
Many entrepreneurs provide service/product which does not solve the market problem a customer faces. An entrepreneur first needs to understand if there is a market need for the product/ Service and if is it solving an existing market problem.
Markets are volatile and ever changing. Before tapping into any field, one needs to keenly understand and perform thorough research on the market needs and its conditions.
While commencing an entrepreneurial journey one requires a level of courage and lots of homework to stay stable & growing in the venture. Enduring, persevering and holding your grounds while working on makes your start-up successful and optimistic, no matter how hard the situation gets. To avoid Start-Up Failure visit us at Top Management Consulting Firms in Chennai