Why do Startups Fail

Why do Startups Fail

India is the 3rd largest start-up ecosystem after China and the US. I know this motivates you to be your boss but at the same time, 90% of the start-up fails during the first five years reported by the Institute for Business Value and Oxford Economics. Many companies become invisible within a few years. I know this is so depressing and demotivating for all the coming Entrepreneurs, but It is worth discussing before it’s too late. You can be among the Unicorn like Byjus, PhonePe, etc… Start-up needs to understand the reasons behind the failure.

 Lack of Funding:

It is very important to raise funds at the right time for the right allocations. Emergency funds are necessary to keep for any obligations, purchases and It may also help you to deal in a crisis like COVID.

Doodhwala was started in 2015 and shut down its operations in 2019 due to a lack of funds to meet competition among the market.

Lack of Innovative Business Model: 

Entrepreneurs these days enter the same businesses without any innovation or with the disruptive business model. You need to solve other problems instead of diving into the same market. You need to understand consumer’s needs before its too late. There are many business models that you can focus on like subscription, Broker, bundle, etc.

Do you know about the Aditya Birla Payment Bank which winded up in 2019 due to an unviable business model?

Negative Cashflow and Working Capital: 

When current liabilities exceed the current assets working capital becomes negative. Giving huge discounts and coupons on the products and services to penetrate the market without cumulating profit and spending too much on equipment, an increase in accounts payable may lead to negative cash flow. Start-up keeps on expanding with negative cash flow and working capital which is not sustainable.

Wooplr was founded in 2013 and shuts its operations in 2019 due to expansion with negative Cashflow and working capital as per the report released.

Before spending’s think twice if your business is struggling with a lack of capital.

Inappropriate Revenue Model: 

It is very important to forecast sales and revenue with the model you have decided or past data from similar companies. Many start-ups are unable to survive due to the loss-making revenue model. At least make your start-up to breakeven point.

Tazzo bike rental startup was started in 2014 and it was capital intensive startup but there was no profit revenue model due to which Tazzo shuts its operation in 2018.

Lack of Experience and talented manpower: 

Hiring the right people at the right time is the most important factor in your new business. The team must consist of towards person, away from the person, detailed people, Intime people, through time people, global people, feeling people, thinking people, and procedure person. Thousands of startup fail due to lack of Industry experience. You need to have some understanding of the Industry or you should have mentors who had already achieved in the past and had lots of experience.

           Want to be among the Unicorn you need to understand these mistakes.