Why Startups Stumble: Revealing the Key Reasons for Failure

When you initially envision creating a groundbreaking startup, the idea of failure might not immediately cross your mind. However, it can appear later, potentially haunting you until the very launch.

Entrepreneurs must keep in mind that failure is an integral part of success and growth. Even so, there are ways to minimize the chances of a complete flop. This article will cover everything you need to know about why startups stumble and what you can do about it.

It’s not a lottery – but 90% will not make it

Yes, the statistics indeed show that only 10% of startups manage to surpass the initial point. Additionally, approximately 70% of new businesses face failure within the first five years, with 10% closing within the first year. By the end of year 5, about 50% of startups will have shut down.

“I failed 4 times before coming up with the idea that was the jackpot.

As nothing seemed to be working, I started wondering: why am I successful in the corporate world but struggling as a startup entrepreneur? But I didn’t give up,” explains Vitalijus Majorovas, a successful co-founder of Pulsetto at Kilo Health.

It’s a beneficial mindset to embrace: even if you encounter failure, you have the opportunity to try again and repeat this process five times in a row. The drive and growth mindset are ultimately key factors that contribute to a person’s success.

Nevertheless, understanding the primary reasons for failure and identifying the aspects you need to perfect can bring you closer to launching a startup that stands among the 10%.

So, what are the criteria?

The team dynamics and leadership

The failure of startups can attributed to issues within the team dynamics. One of these can be an incorrect attraction of roles, which can lead to a lack of productivity. Also, the timing of hiring is important as it can disrupt the balance within the team and hinder the process. 

Attracting the right people is important for the success of any company, but it’s important to note that it’s not the sole reason why startups fail.

This leads us to the other point – ineffective leadership. Still, some think that having experienced managers and helpful advisors can make up for a founder’s weaknesses. If a new business is showing promising results, it can attract these experienced people, even if the founder isn’t perfect. However, if the business idea is just okay and not super exciting, it might find it hard to attract the best talent.

Either way, leadership is important, and having the skills to lead a team effectively contributes to success, and it’s possible to do so even without having experience.

Vilius Cesnauskas, Chief Business Management Officer, explains that the most crucial role in the world of startups is played by a person’s ability to adapt to changing situations and navigate through them.

“Leaders who have already gained experience in management often wish to apply it in startups, but here, it may not be necessarily as significant. For a startup leader, it is important to be able to rise above the often comfortable position of a manager and descend to the level of a creator-craftsman, using their own hands to do what is most needed at the time. 

The leader also needs to communicate effectively with all related project groups – from the internal team to investors. Especially in the initial stages, managing high complexity is not as important as high-quality management of the comprehensive project.”

Running out of money and not researching enough

Besides having a team that has a united vision, and a CEO that knows how to lead, there are a few other factors that you should consider.

Inadequate market research can be one of the key pitfalls. This emphasizes the importance of thorough market research to gain a clear understanding of customer needs and preferences.

Cesnauskas explains that new startup ideas emerge by examining changes in the market and shifts in consumer behavior across industries.

“Our research team assesses trends and seeks out the best business opportunities. Simultaneously, we come up with ideas ourselves. The product takes shape by considering three key aspects: identifying a problem we can solve for the consumer, determining how to introduce the product to the consumer, and figuring out how the product will make a mark in the market. 

Then, we have a clear understanding of how our product will look and what strategy we’ll use to bring it to the market. 

Apart from this, you need to make sure that the business model is sustainable and scalable and can lead to financial stability.

“Later, we crunch the numbers for the profitability forecast of such a startup and decide whether we’re willing to invest our capital for potential returns,” adds Cesnauskas.

Running out of money is among the most common reasons why startups fail. But this all goes back to the importance of having good market research. In addition to that, it’s advisable to have a stronger business plan, more financial backing or investors, and better marketing strategies.

Easier said than done, right?

It’s not as confusing as it might seem. There are specific steps you need to take to create a solid business plan, including conducting a financial analysis, outlining your marketing and sales strategy, seeking feedback, and more.

Do you have a drive to turn your ideas into reality? Use your skills and check out the Co-found Program.

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