What are the most common reasons for startups to fail?

In my observation startups fail because of any one, or a combination of some of the factors below:

  • Poor implementation (usually due to poor planning of operational aspects of converting the idea into a business on the ground)
  • Assumptions on costs, adoption rates, revenues, operational efficienc, etc. prove to be wrong
  • Value proposition not as meaningful to users as hoped by the founders
  • Founder disagreements
  • Company running out of money… or founders unable to sustain low take home for much longer than they had estimated
  • Failure to get funding or follow-on funding
  • Poor product-market fit
  • Poor product / service (though I have rarely seen companies die because the product or service was bad)
execute prepare plan
More often than not, it is either because of poor quality implementation or because the team’s assumptions on costs and revenues and other factors were inaccurate, which meant that they either run of out money a lot quicker, or the business case becomes weaker and as a result they run out of energy, enthusiasm… and eventually capital to sustain the operations.
I therefore always recommend to teams to overestimate on costs and underestimate on revenues in their excel sheets. When working on your excel sheets, try to work out the worst case scenarios (as those may turn out to be true as well) and build your foundation to deal with the worst case scenarios too. Think of what your response and plan is going to be in different scenarios – the very optimistic, optimal as well as the very worst case. Either of these scenarios could play out, and if you are not adequately prepared for any one of them, the end result will be a disaster. (Even if you have planned for sub-optimal scenario, and the in-market response is phenomenal, unless you are able to quickly adjust your plans and create resources, infrastructure, processes and people to deal with the growth, the business will flounder).
Entrepreneurs tend to be unrealistically optimistic on their own and their team’s implementation capabilities and often tend to understaff and underestimate the time and costs required to make the business work. (At least that’s my observation from the Indian startup eco-system). And that’s why I recommend to startups to talk to a lot of people. Advisors, mentors, investors, customers, other entrepreneurs… anyone with a more experienced perspective on that subject. Get a realistic view of how things work and what challenges you are likely to face as you start implementing your concept in the market.
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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.

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