Why Do (So Many) Startups Fail?
Vishal Kataria, Founder of Content Sutra, points out 92 percent of startups fail within the first two years. 42 percent of startups fail due to no market need.
All these are statistics.
No market need, running out of cash, get out competed, pricing — these aren’t real reasons why startups fail.
In the last year, I’ve written for a dozen startup and small enterprises. And I’ve identified the real reason for their failure — the f-word.
I’m talking about finished.
Andy Hargadon, head of the entrepreneurship center at the University of California-Davis, says that for many people, “twenty years of experience” is really one year of experience repeated twenty times.
The same can be said for many startups.
They spend months (or years) developing a product behind closed doors. When they’re satisfied, they launch a ß-version and build a marketing strategy around it. Instead of building what customers need, the strategy is, “We made this. Now how should we position it?”
If things work (which they rarely do), founders consider themselves worthy of appearing on the front page of TIME magazine.
If things don’t work (which happens often), they blame external circumstances like lack of funding, market not ready, no good people, and so on. Instead of pivoting, they try the same tried-and-tested (and failed) techniques again and again.
This is the most common reason why startups fail. The statistics are proof.
To avoid this deathtrap, here are 4 things every startup must do.
According to marketing guru Seth Godin, pursuing funding to sustain losses is an excuse for startups to not collect money from customers. It’s a sign that startups are not sure whether customers will buy what they’ve built.
Look, I get it.
In the initial phase, a startup with a novel idea might make losses to get customers on board. Amazon is an example.
But when this becomes a sustained habit, the focus shifts from customer needs to investor needs. That’s a surefire path to failure.
Having paying customers indicates that the startup is doing something right, that the startup is focused on the needs of customers and stakeholders.
Such startups will have investors flocking to them like geese. But they will not depend on investors. Because during lean phases, they still will get revenue from paying customers.
Traction doesn’t just help startups get the word out. It also helps them get feedback on their product. Thus, they don’t waste time building a product which no one needs.
According to Gabriel Weinberg, traction and product development are equally important. He suggests that a startup should spend 50 percent time on product development and 50 percent time gaining traction.
Traction doesn’t just mean press releases and media appearances. It also means testing the Minimum Viable Product, targeting popular blogs, content marketing and business development to on board new customers.
As I mentioned in the first point, getting new customers is a sign that you’ve got something that people want.
Traction will slow down product development. But it won’t slow you down from taking a successful product to the market because you’ll spend time building the right things into your product.
Traction should be part of the product development strategy, not an afterthought.
In an app named Burbn, you could check in at particular locations, make plans for future check-ins, earn points for hanging out with friends, and post pictures of meet-ups.
But the founders realized that the mess of features made the app confusing and that photo-sharing was the most popular feature. So, Kevin Systrom and Mike Krieger scrapped everything else and retained the photo-sharing feature.
And Voila! Instagram was born.
According to you, how would Instagram fare if they thought they were finished with an end-to-end, intuitive, innovative, all-in-one app?
Twitter didn’t start with @ replies, retweets or hashtags. WhatsApp didn’t start with file sharing and group chats.
Each successful product evolved one step at a time. They still consider their products to be in ß-mode and build features in it based on user feedback.
Ship a few features and analyze how users engage with them. Use the data to give your users more of what they want.
You can create a delightful dish, garnished with salads, dressings, and toppings. But if the dish doesn’t have enough salt (or has excess salt), the visual appeal accounts for null.
Most companies try to give their customers a lot. They try to be first movers and create new trends. But customers use just three out of their hundred features. That’s why most attempts at innovation are feeble. Not to mention time spent in building features people don’t need.
Are we still wondering why startups die because of no market need?
Successful companies, on the other hand, ask themselves, “what won’t change in the future.”
For Amazon, it’s low prices, fast delivery, and a vast selection. For Warren Buffett, it’s investing in companies with strong long-term fundamentals.
Pursuing new trends is far riskier than focusing on core needs that won’t change and executing them better than others.
Startups with strong foundations grow slower than others. In fact, they appear to move like tortoises while hares race ahead. But in the long run, the tortoises outrun the hares who run out of breath (and funds).
For these tortoises, there is no finish line. They keep moving, succeeding, and growing.
Jerry Nelson is an American freelance writer now living the expat life in South America. His work has appeared in some of the planet’s largest — and most respected — media outlets, both under his own name and others’ as he frequently ghost writes.
Never far from his coffee and Marlboros, Jerry is always interested in discussing future work opportunities. Email him at jandrewnelson2@gmail.com and follow him on Twitter.
Hire him through Fiverr at Fiverr.com/jandrewnelson
Originally published on Quora
Why Do (So Many) Startups Fail?
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