Factors causing startup failure

Startups are a lucrative business. Known for its business culture that prioritizes creativity, communication and collaboration, startups allow employees to exchange thoughts and ideas.

Creativity and out-of-the-box thinking have made many startups emerge. Despite their rapid growth, startups have many challenges that result in failure.

Causes of Startup Failure

Startups are fast-paced so they must be able to act nimbly in adapting business practices and achieving rapidly changing goals. Reporting from CBInsight, not all startups can follow suit, so several founders put forward several causes of startup failure:

1. Running out of funds or failing to attract new investors

Because money and time are limited, they must be allocated wisely. Otherwise this can make the business fail. Both the ability to secure the company's money and the inability to attract investors to the company's business are equally important. If you don't take quick action, you will run out of time and money for your company.

2. There is no need from the market

A good idea alone is not enough to make a startup survive. To guarantee that your business can last a long time, you have to ensure that the ideas and products you put out have people interested. For example, wedding dress retailer Brideside experienced huge losses after nearly two-thirds of weddings were canceled due to the Covid-19 pandemic in 2020.

3. Losing competition

Despite the platitudes of startups not paying attention to competition, the reality is that once an idea gets market validation, others will try to capitalize on the opportunity. Although, focusing too much on competitors is unhealthy, ignoring them can also be the cause of startup failure. For example, after six months of operation, the streaming service Quibi was forced to stop operating. This failure is thought to be due to the brand being less strong than competitors, and the launch of the service in the middle of a pandemic.

4. Bad business model

The business model is very important for startups, especially if you intend to build a large-scale business. Therefore, founders must be able to exploit potential as an attraction. That way it will be easier to attract investors and fund the business.

5. Regulations or laws

A startup can sometimes develop from a simple idea. However, sometimes entering legal regulations can kill a startup. This is what happened to Kickstarter which was forced to stop operating in December 2019. The failure of the Kickstarter was allegedly due to the United States imposing a 10% tariff on every product imported from China.

6. Price or cost issues

Determining the selling price of a product is not easy. High prices may be able to cover capital costs, but it will be difficult to attract consumers. While building a business that consumers love is important, in the long term it will be difficult for companies to increase profitability.

7. Poorly matched teams

The inability of companies to recruit the right employees is one of the reasons startups fail. A team with diverse expertise is an important factor for a company's success. Apart from that, the team leader must have the same passion, vision and mission as the company founder. Because if one day the company is left by the founder, the company can still continue the business in the same way.

8. Bad timing

The audience's first impression of the brand and product is very important. If you release a product too early, consumers will think the product is not good enough. This will leave a negative impression on the audience, while changing the first impression is very difficult. Meanwhile, if you release your product late you may miss out on market opportunities.

9. Bad product

Startups that only prioritize business on revenue often end up losing money. Many consumers leave brands  because the products they produce do not match what consumers need. If this happens, consumers will turn to competitors and cause their business to fail.

10. Disharmonious team and investor relationships

Disputes between the team and investors can create disharmonious business relationships. The worst thing that can happen when this happens is that investors will refuse to inject funds, so the startup has no funds and is forced to close.

11. Deteriorating pivot

When experiencing a decrease in profits or a decrease in production numbers because it is not in accordance with market needs, startups can change their pivot strategy. This is done to attract consumers and retain business. If the pivot goes bad, the startup will fail.

12. Burnout

With such a fast-paced business, work-life balance is not something that startup employees often get. Therefore, the risk of burnout is very high. This caused many employees to resign, so  the company lost its best team, and stopped operating.

Of course, it's not just startups, there are other types of companies that fail. However, there are many lessons from startup failure that are very relevant for all entrepreneurs. For this reason, pay attention to relevant planning and strategies in building your business.