Why startups fail

There are several reasons why startups may fail. Some are specific to a venture, and hence would vary from situation to situation and startup to startup. One of the most common reasons of course is poor execution or lack of execution capabilities.

However, even with high quality teams there are some common hurdles that startups face and which can be fatal. While the list is not exhaustive, the following are some of the areas you might want to watch out for.

 

Overestimating the value of the value proposition – going wrong in the assumtions

Entrepreneurs are passionate about their concepts and products/services. Sometimes this enthusiasm manifests itself as unrealistic optimism, with overestimation of revenue projections being the most common mistake.

It is important to that you share your assumptions on conversions, revenues, repeat purchases, sales cycles, etc. with a few people who are not directly involved with the venture and see if their views conform your enthusiasm and optimism.

If many people do not share your optimism about revenue projections, it is prudent to budget for a lower number. You may continue to aspiring for higher numbers as per your view, however plan and make your financials work with lower numbers.

 

Changing the business model often

One of the most common mistakes entrepreneurs make is to make changes in strategy and direction too often and without giving enough time for one strategy to be implemented. Often this change is considered as being nimble, and is assumed to be the nature of being a startup. However, while it is possible for startups to change direction, when you do so should be a very well debated and considered decision.

Being underfunded

Quite a few startups fail because they run out of money to continue, even if they are doing well. Underestimating costs and overestimating revenues can sometimes leave even good ventures cash strapped.

Not having a clear plan

Often many entrepreneurs start with a broad understanding of what they plan to do, bootstrap to get started and assume that as they grow they will figure out a way to scale. Trying to find direction when you are growing can be dangerous. It is important to plan well ahead to ensure that you have a smoother ride as you grow.

 

 

 

Advertisements

Author: Prajakt Raut

Prajakt Raut is the founder of Applyifi.com, and author of the book for startups - ‘Starting Up & Fund Raising’ Prajakt personal goal in life is to encourage and assist a 100,000 people to become entrepreneurs. _____________ Prajakt is the founder of Applyifi - an online platform that provides startups a 36-point scorecard and assessment report on the venture's investment readiness [www.applyifi.com], and helps them improve their odds of getting funded. Prajakt is also the founding partner of The Growth Labs, a platform where growth-stage companies get sharp, incisive advice from senior professionals and experienced entrepreneurs. [www.thegrowthlabs.in] Before starting Applyifi, Prajakt was the head of operations at IAN, founding member of a leading incubator, and the Asia-Director for TiE (2004 - 2007). Previously Prajakt had co-founded Orange Cross, a healthcare services company, and was part of the founding team member of Idealake Technologies. While in college Prajakt had founded a printing business and has spent over 10 years working in leading advertising agencies. Prajakt’s book, ‘Starting Up & Fund Raising’, helps startups understand an investor’s perspective, and helps them improve their odds of getting funded. The book also helps entrepreneurs understand the building blocks of a business.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s