Why startups fail? Usually, there are a lot of determining factors. However, barriers related to the development of startups are often repeated. Most startups face similar challenges. In our opinion, there are 7 most important factors affecting startups failures, which we are going to present in this article.
Gathering adequate financial resources that are necessary for the development of a startup usually appears to be the biggest challenge. Convincing the investor or getting subventions is not easy. Despite the fact that more and more global and local institutions are helping startups to obtain finances, it is still a matter of the greatest difficulty for startups.
Another factor affecting startup collapse is budget security in a short period of time. Usually, when the external investment is not high enough, startups decide to implement a risky strategy. It is all about fast market integration. It is connected with a need for large financial outlays. In a situation like this, risks of losing financial liquidity increase in the event of ineffectiveness of implemented activities or any other unexpected problems.
The activity of many startups is often associated with the need to use advanced technologies. From the perspective of an evolving organization, this can be a big challenge. In a way, the technology also applies to financing. If it is assured at a high level, then technological challenges or any specific processes can be outsourced. For smaller startups that organize an in-house team, consulting the experienced professionals may be necessary. However, the lack of technological development can be included among the most important factors affecting the satraps’ failure.
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The development of startups is driven by people. Even the best business ideas require an appropriate organization, knowledge and skills to develop it. In this case, the manager becomes an invaluable asset. They are very desirable on the market, so, getting one is often a difficult task.
It is also important to delegate responsibility according to the resources you have. From many available studies, it appears that the majority of strategic decisions in startups are made or accepted by their founders. This is an error that repeats itself over and over again. The ideal management structure includes specialists in various areas related to the development of independent organizations. In this way, balance is maintained and introduces wide knowledge to the startup.
Incorrect market analysis
The selection of a right business model is one of the initial stages related to the creation of a startup. Unfortunately, a boundless faith in the implemented idea may prove to be fatal. Startups often take hasty actions that are not preceded by an in-depth market analysis. Though this should be the starting point. It is necessary to verify the potential of the market, the actions of competitors, determine the opportunities and threats.
In the next stage is to test and verify assumptions. Feedback plays a crucial role. Corrections of a business model cannot be ruled out. Skillful identification of possible problems and product enhancement lead to success.
Scaling the business too early
The development of a startup should be properly planned. Scaling is valid only if the organization is financially stable has a background, and the risk of failure is assessed as relatively small. Otherwise, scaling attempts turn out to be very risky.
Omission of marketing aspects
Even the best product must be sold properly. Competition in many markets is so big that the role of marketing is increasing. Many startups forget about it. Potential recipients must find out about the products they offer. They should know the benefits they can achieve by choosing a specific offer.
Meanwhile, marketing is usually overlooked or marginalized. This happens due to ignorance of realities and financial constraints. It is a good practice to diversify all needs due to financial possibilities. Marketing cannot be ignored in this process.
No contact network
Have you ever heard of the popular saying – ‘recommendation network’? Business knowledge very often helps startups to get their first customers, and even to acquire investments. Having valuable contacts is worth its weight in gold. It’s worth taking part in conferences, events and meet-ups. You will not regret spending time on these activities.