πŸ“ˆ Economics

Why do startups fail?

2 answers
Husain MukadamMake Learning Fun Again! MSc | BSc | 4yrs+ exp. | DBS Certifiedβœ”οΈ17.5k students helped

This is a very hard question to answer, since there may be so many reasons startups fail. In fact 9 out of 10 startups are expected to fail. Here is a small sample of 7 reasons startups may fail. 1. Failure to find unsolved customer pain: Too many founders think that their idea is so brilliant that their best course of action is to build the product, show it to the world, and wait for the money to roll in. However, that common delusion is a major startup killer. In reality, people are reluctant to try a startup's product, because most of them fail. So they will only try the product if it promises to solve a painful problem that nobody is trying to solve. 2. Reluctance to get feedback on prototypes: Plenty of founders refuse to let anyone see their product until it is perfect. There are plenty of reasons they make this mistake - they are afraid someone else will steal their idea so they want to get a big head start, they want to impress their peers, or they are afraid that unless it's perfect nobody will want to buy it. Failing to get feedback from potential customers is usually fatal to a startup. 3. No passion for the market: Don't start a company if your primary motivation is to make money. The reason is simple - to be successful you will need to spend about 80 hours a week with very little pay to make your startup successful. It is not possible to work that hard and be effective unless you believe that your life's mission is to make potential customers better off by providing them your company's product. 4. Lack of skills needed to win: If you think the job of the entrepreneur is to think big thoughts and hire other people to do the actual work, think again. One big reason that startups fail is that the founders can't do the thing that it needs most to get off the ground. Many tech startups flounder and fail because the CEO can't code when coding better than almost anyone else is the thing that must happen to build the product and get customers. 5. Ignoring cash burn: If you don't like watching the pennies, don't start a company. Many entrepreneurs are engineers at heart. They want to build a perfect product and then dazzle the world with their brilliance. They eagerly read about how easy it has been for other startups to raise millions of dollars and think that they will be able to do the same. So they ignore the rate at which they are burning through cash, and assume that when the day comes to replenish their cash coffers, investors will break down the doors to write them checks. 6. Inability to raise capital If you have never raised capital (money) for a startup before, chances are you will be surprised by the time and number of rejections required before you succeed. Even if an entrepreneur realizes that cash will run out, too often he starts the process too late, goes after the wrong group of potential investors, and does not present them information about the company that leads them to want to invest. 7. Weak team, poor leadership A final startup-killer is a leader who cannot recruit and motivate the most talented people for the jobs on which the company's success depends. The simple reality is that if you are not a great leader, it is hard to learn to become one. Moreover, the leadership skills you need to get a company to 10 employees are different than what a 100-person or 1,000-person company requires. That sums up only 7 different reasons that startups can fail, though there are many more. I hope this general answer helps. If you need help with anything more specific - feel free to ask.

Husain MukadamMake Learning Fun Again! MSc | BSc | 4yrs+ exp. | DBS Certifiedβœ”οΈ17.5k students helped

This is a very hard question to answer, since there may be so many reasons startups fail. In fact 9 out of 10 startups are expected to fail. Here is a small sample of 7 reasons startups may fail. 1. Failure to find unsolved customer pain: Too many founders think that their idea is so brilliant that their best course of action is to build the product, show it to the world, and wait for the money to roll in. However, that common delusion is a major startup killer. In reality, people are reluctant to try a startup's product, because most of them fail. So they will only try the product if it promises to solve a painful problem that nobody is trying to solve. 2. Reluctance to get feedback on prototypes: Plenty of founders refuse to let anyone see their product until it is perfect. There are plenty of reasons they make this mistake - they are afraid someone else will steal their idea so they want to get a big head start, they want to impress their peers, or they are afraid that unless it's perfect nobody will want to buy it. Failing to get feedback from potential customers is usually fatal to a startup. 3. No passion for the market: Don't start a company if your primary motivation is to make money. The reason is simple - to be successful you will need to spend about 80 hours a week with very little pay to make your startup successful. It is not possible to work that hard and be effective unless you believe that your life's mission is to make potential customers better off by providing them your company's product. 4. Lack of skills needed to win: If you think the job of the entrepreneur is to think big thoughts and hire other people to do the actual work, think again. One big reason that startups fail is that the founders can't do the thing that it needs most to get off the ground. Many tech startups flounder and fail because the CEO can't code when coding better than almost anyone else is the thing that must happen to build the product and get customers. 5. Ignoring cash burn: If you don't like watching the pennies, don't start a company. Many entrepreneurs are engineers at heart. They want to build a perfect product and then dazzle the world with their brilliance. They eagerly read about how easy it has been for other startups to raise millions of dollars and think that they will be able to do the same. So they ignore the rate at which they are burning through cash, and assume that when the day comes to replenish their cash coffers, investors will break down the doors to write them checks. 6. Inability to raise capital If you have never raised capital (money) for a startup before, chances are you will be surprised by the time and number of rejections required before you succeed. Even if an entrepreneur realizes that cash will run out, too often he starts the process too late, goes after the wrong group of potential investors, and does not present them information about the company that leads them to want to invest. 7. Weak team, poor leadership A final startup-killer is a leader who cannot recruit and motivate the most talented people for the jobs on which the company's success depends. The simple reality is that if you are not a great leader, it is hard to learn to become one. Moreover, the leadership skills you need to get a company to 10 employees are different than what a 100-person or 1,000-person company requires. That sums up only 7 different reasons that startups can fail, though there are many more. I hope this general answer helps. If you need help with anything more specific - feel free to ask.

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