Quake Capital, an American venture capital firm, has seen many startups that enthusiastically take off, but at the same time, many startups that disappeared after a short time. The latter faced remarkably similar problems, including failure to adjust the product to market conditions, inadequate staff, lack of a robust business plan and many other challenges.
To quantify their experiences, Quake evaluated the startups in terms of their products, business models and staffs, and determined the ten principal reasons for their failures.
1. Lack of Market Demand (42%)
The main reason for the collapse of most startups is the lack of market demand, which prevents them from obtaining the necessary traction to survive in the market. So, before you dive into creating your own products, first think about whether the product can really meets a real need in a better way than what’s available in the marketplace.
2. Lack of Funding (29%)
Many startups don’t get enough funds to pay for operations; or to the contrary, have a lot of money but use it incorrectly or spend it very quickly.
3. Wrong Team (23%)
Having a group of highly motivated, persistent and diverse employees is a key factor in business success. A successful team must have consistent direction if its members are to stay together and work towards the company’s long-term goals.
4. Tight Competition (19%)
When you have better ideas for the products already in the market, large companies can think about creating similar products, and with their greater resources, thereby reduce your available market share. Although being a pioneer can be an advantage, competition can threaten your business longevity.
5. Price Problems (18%)
Many startups find it difficult to maintain a balance between making enough profit to pay all operating costs and at the same time offer affordable prices to attract new customers.
6. Product Mismatch (17%)
For your product to attract the customer, you must fully understand your target consumers. This includes knowing their problems, needs and how your products can help them solve those problems.
7. Business Model (17%)
The lack of a profitable strategy and how to grow revenue will lead to failure. Even if the company has excellent products, in the absence of a solid business model, venture capital firms will question the return on their investment.
8. Poor Marketing (14%)
You have created a new product or service, but you will only be successful if the public knows it exists and understands how it can meet their needs, so having good marketing plan can determine failure or continued operations.
9. Not Customer-Centered (14%)
Bill Gates once said, “Your dissatisfied customer is your best source of learning.” Unfortunately, many startups have failed to adjust their products and meet their needs based on customer feedback.
10. Poor Timing (13%)
Bill Gross, founder of Idealab, decided through his own experience that timing is among the main factors in determining the success or failure of a startup. Using Airbnb as an example, he attributed its success to the right moment. Because of the recession, people really needed to save money, and renting out their houses was a great business opportunity.