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Why Do Start-ups Fail

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With government’s focus on ‘Make in India’ initiatives, sluggish job market, high aspirations of individuals, low patience level of majority of people in their respective jobs, desire to have control in their own hands, wide options for arranging finance for the idea in hand, etc. people are actually getting inclined to become entrepreneurs, i.e. the owners of their fate. Hundreds of start-ups enter the market on daily basis but not everybody is lucky enough to survive. But why do they fail? Do they all open their business with blind eyes? The answer is ‘No’. Business is not everybody’s cup of tea. There are ‘n’ number of reasons that can cause malnutrition for a business that leads to high death toll rates for start-up ventures. Some of the major reasons for failure of start-ups are as follows:

Unmatched market for products

When an entrepreneur jumps to implementation of a particular idea without conducting the market research or without understanding the market and buying sentiments of customers, then there is a large possibility for non-acceptance of their products. There are plenty of cases where the product has a good market but may be not in the country where business operations is being carried and the entrepreneur fails to identify the real place for its products or services. A wrong place to market your products can never bring right results.

Optimism

Many people open a business because of their optimism and love for an idea. One of my friends opened a business with a belief that within a year he will be in a position to capture the market strongly and will recover the entire investment. He was sure that second year onwards he will start earning huge profits. But in first six months, he realized that he only had half of the information and in order to capture the market he still have to make huge investments in marketing and branding his firm. Since he was out of the funds and was already in so much of debt, he couldn’t get more credit from the market. Finally, due to lack of his brand awareness and his irrational optimism, he winds up his business in 15 months and sustained losses.

Poor Management

A start-up requires a more sound knowledge of various aspects of business and takes more efforts than a running business. In such cases, an entrepreneur need to have expertise in areas like marketing, finance, production, people management, purchasing, selling, vendor management, etc. However, the fact is most of the first time entrepreneurs lack business and management expertise. Poor management often results in high costs, high employee attrition rate, long pay-back period, zero to low profitability (sometimes even negative values), minor share of market and so on that can collectively make the survival of business difficult.

Initial blunders in Planning

Make a wrong plan and you will end up turning on a wrong road.

a) You successfully planned and implemented your capital investments but fail to make a fair estimate of operating funds/ working capital.

b) A wrong decision on the location of your business marks the beginning of failure.

c) Ignoring your competitors or standing up with a belief that you will be able to defeat the old market players with your robust strategies. That in fact, is great of you but the ones who are already in market for long won’t let you hamper their business. Remember, you are only a particle of them.

d) Flaws in the idea itself can never lead you to the road of success until you work on changing your paths at a timely stage. Otherwise, the delay will cause more damage only.

Unplanned Expansion

“Dil maange more” – the uncontrollable feeling of hunger for expansion without realizing your potential, financial soundness and market often proves to be devastating not only for start-ups but also for existing businesses.

No presence on Internet

The world where we are living is now an internet world. From finding a lane to a vendor to good food to every damn thing (including people), internet is the one and only one biggest helping tool. You call a prospective candidate for interview, he will first check your website and other details and then decide whether to appear for an interview or not (well that depends on his necessity for this job). If your business is such that internet can add to your revenue generation then no presence on internet can be fatal to you as it may mean that your business is still non-existing. Moreover, a mere presence is not sufficient, you need to promote your web presence as well.

A well researched, well planned and well managed start-up in right market at right location has fewer chances of failing.

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