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#7 Reasons Why Start-ups Fail

An example of a start-up that was considered ahead of its time, but ultimately failed miserably was Webvan.
#7 Reasons Why Start-ups Fail
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You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Let me be blunt from the start: most start-ups fail. Around Silicon Valley, it is common knowledge that up to 90 per cent of start-ups does not succeed.

An example of a start-up that was considered ahead of its time, but ultimately failed miserably was Webvan. It was a poster child of the dotcom bubble, ultimately leading to the tech market crash in 2000.

Founded in 1996, Webvan was an online credit and delivery business; it was considered a pioneer in the U.S. grocery industry by promising the delivery of groceries within 30 minutes of ordering. Webvan raised close to $800 million from VC funds like Goldman Sachs and Sequoia Capital and raised almost $400 million when it went public. Yet in 2001, the company filed for bankruptcy.

So where did it go wrong? Without going into too much detail, Webvan tried to scale up too fast, too soon. It boasted about its 26-city expansion plan, and signed a $1 billion contract with Becthel to build high-tech warehouses. It started to lose money every year, however, which eventually led to bankruptcy and Webvan’s demise. Interesting enough, however, the ashes of Webvan was resurrected in the form of an online grocery business known as Amazon Fresh. Webvan is just one example of a startup that was extremely ambitious, tried to scale up quickly, and ultimately failed.

Below are a few reasons why startups end up failing:

1.Shortcomings of Founders

Most of the founders started their careers as salaried employees and then ventured to start a company on their own.   Being entrepreneurs requires 24X7 dedications, razorfocused approach and dedications.  The singular priority in the life will be building the company: everything else secondary.  It needs a complete different skill set in people management and dealing with clients/customers.   A significant number of founders, inspite of their burning desire to succeed, fail to transform them to true entrepreneurs.

2.Running Out of Cash

A major reason why startups fail is that they simply run out of cash or they are unable to raise more funding. A key role for a CEO is to determine how much cash an organization has, how much is left, and how to successfully achieve a milestone, which can lead to increased funding.

They lack skills to manageexpenses effectively to preserve cash.  As mentioned before, Webvan failed because they ran out of money.

3.Product Doesn’t Meet Market Needs

Many times startups do not succeed because they introduce a product that just simply does not meet the needs and demands of the market. For some companies, a few rounds of revisions of its products or services can do the trick to meet the market need. For others, if the product is completely off base, then a complete overhaul is required.

4.Lack of Understanding the Market

Start-ups also fail because they lack an understanding of the market. For example, a company can perhaps does not have a compelling enough value proposition to convince the consumer to purchase its product or service. Maybe for a company, the market timing is off – it is possible you are ahead of the market by a few years (like Webvan) and they are not ready for it yet.

5.Overconfidence

Being a confident, disciplined, and focus entrepreneur is a good thing. However, the problem arises when an overabundance of confidence leads to arrogance. This, in turn, can result into your startup failing. Refusing to use advisors or network can lead to mistakes or even the unwillingness to change the product to meet the business requirements or customer expectation can also lead to a number of failures.

6.Lack of Work/Life Balance

It is well documented that a work/life imbalance creates a stressful environment, decreased happiness, and contributes to bad decisions. Many startups, however, fail in this area, as they tend to operate in a round-the-clock crunch mode. With imbalance, this could lead a lack of focus and an increased risk of burning out quickly.

7.Dissent among the Founders

In significant cases, if there is more than one founder, ego clashes.  They refuse to accept the fact that there will be onlyone leader:  others have to listen to the leader.  Democracy will not work in start up environment.  Lack of homogeneous team leads to frustration, backstabbing and finger pointing, and will create an unhealthy environment.

This article is not meant to dissuade the young, budding entrepreneur from pursuing their dreams of staring a company. It is, however, a reality check. It is first important to have a solid business plan in place as well as have a deep understanding of the market you are catering to. Be flexible. Be compassionate. Most importantly, be humble and perhaps your organization will be one of the 10% of those that succeed and thrive.

 
Edition: August 2017

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