Launching your startup is a risky thing! The survival of the startup depends on many criteria and the entrepreneur must often make critical decisions directly impacting the sustainability of the business.
What are the main reasons why startups the failure of startups ? Is it possible to avoid them? How to ensure the viability of your company? We study everything in this article!
Reason number 1: lack of market
Explanations
One of the main causes of startup failure is the lack of correlation between the new company's offer and the demand, the needs of the market.
Sometimes this is due to bad timing. For example, the innovation brought by the startup 's product or service may not yet correspond to consumer behavior. It is also possible that the demand varies over time and that the product is no longer adapted to the demand.
In other cases, failure can be explained by cultural or geographical differences, making the startup's offering unattractive in certain areas of the world.
Tip
Before launching your product and rushing headlong into a market, you need to learn about the market and know it from every angle. To know if an idea corresponds to an effective consumer demand, it is necessary to rely on statistical elements and field observations.
This in-depth knowledge of the target clientele involves conducting in-depthmarket studies and questionnaires to ensure the relevance of the product or service, which must meet a real need.
Also very important, conducting test phases, launching a beta version or an MVP are ways to ensure the popularity of the offer proposed by the startup before its commercialization.
While doing this testing andanalysis, you may realize that your idea does not hold up or that it is not completely relevant. Don't panic, adapt your product, make it focus on the real needs evoked by your target, in a word, pivot !
Reason number 2: lack of cash flow
Explanations
Lack of cash is a reason for failure for both startups (which are often looking for a business model and have to meet a runway by financing themselves with equity) as well as for established companies that have a positive net result.
Indeed, when liquidity is insufficient, the company can no longer meet its commitments and enters into suspension of payments. This situation often leads to bankruptcy and the dissolution of the company.
Tip
It is important to allocate cash wisely, especially during a period of growth when everything accelerates. An effective way to manage your cash flow is to establish a forecasted budget that allows you to analyze cash inflows and outflows accurately.
Spending should also be adjusted to the macroeconomic situation. For example, when interest rates rise and you enter a downturn, it can be more difficult to raise money. It is important for startups to focus on profitability rather than growth.
Reason number 3: an imperfect team
Explanations
When creating a startup, it is crucial to surround yourself with the right people. Whether it's the foundingteam or the employees, making sure that all members are driven by the same ambition, and can cohabit in the same culture is essential.
It is also important to ensure that the foundingteam has the necessary skills to launch its product. Rather than outsourcing production or development, you need to be able to launch the MVP independently, using the skills of the founding team.
Ensuring good cohesion and alignment of ideas is also crucial. Indeed, some disagreements between the founders are so strong that they can doom the startup to failure. It is also important to communicate well within the company to ensure the commitment of allteam members and avoid any tension or loss of motivation.
Tip
It is essential to ensure a diversity of profiles and skills within theteam. It is also important to communicate well to motivate the troops and ensure productivity. If there is a disagreement between the founders on the strategy to adopt, the ideal is to talk to an outside person to mediate the conflict.
To best recruit and ensure that candidates are aligned with thecompany's values, it is important to take time to write a job posting that attracts the best candidates and emphasizes the important characteristics of the position and the company.
The more thorough the description, the more likely your recruitment offer will attract the right people for the job.
Reason number 4: Too much competition
Explanations
If the product or service you plan to commercialize is already validated by the market, or if your innovation is simple to replicate, you may face intense competition.
Competition is a good thing, it pushes people to do their best. However, it can get out of hand and doom companies to failure.
In order to conquer the Chinese market, for example, Uber and its local competitor Didi spent billions to attract customers with promotions. This costly strategy led to the takeover of Uber by Didi.
Tip
In order to avoid entering a market that is too competitive, it is important to conduct in-depth analysis and market research. To face new entrants, it is essential to create a competitive advantage. This can be patents, commercial relationships and partnerships, critical size or brand image, for example.
Reason number 5: poor pricing and/or product
Explanations
Another important reason for the failure of startups is a poor product or service , coupled with inappropriate pricing. The selling price may not be relevant to the positioning of the product or service marketed. Worse, it may be below cost, leading to a negative gross margin.
Tip
It is important to position yourself clearly to serve a niche market in the early stages of your business. In addition to ensuring an impeccable customer experience, it is important to think about attractive pricing without jeopardizing the startup's finances.
Reason number 6: Lack of a successful business model
Explanations
The Business Model is the economic model of your company. In other words, it is the strategy to put in place in order to create value and ensure the sustainability of the company.
The absence of a business model, or an inadequate business model, means no or insufficient revenues for the startup, a situation that leads straight to insolvency.
Tip
While startups generally fund themselves with equity and wait until they reach a critical mass before monetizing their offering, it is important to have a clear idea of how the company will generate cash.
Is the business model based on a subscription system, commissions, advertising? Do you plan to expand your offer and diversify your revenue sources?
Reason number 7: poor marketing strategy
Explanations
Another reason why startups often hit a wall is a poor knowledge of their target customers coupled with the inability to get their attention and convert them.
This is often the case in startups founded by technical profiles who focus more on building the product than on business development.
Tip
In order to establish a good marketing strategy, it is necessary to have an in-depth understanding of the behaviors and needs of your target customers. To do this, in addition to analyzing and conducting in-depth studies, it is necessary to constantly exchange with its customers and collect their opinions, ideas and feedback.
In order to establish a rigorous marketing plan, you need to define the brand image that will help you position your product in the market. Then you need to determine the channels through which you will communicate with your potential customers and convert them.
Will you reach your customers through digital marketing on social networks? Through email marketing or outbound ? With content marketing and inbound?
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How to solve these failures and boost your productivity?
As we have discussed throughout this article, there are a number of solutions to solve these various failures and get your growth back on track. However, these different solutions involve additional costs and require quick financing.
Karmen and its Revenue Based Financing are here to support your cash flow!
Indeed, Karmen allows digital companies to finance their growth in a non-dilutive way and very quickly.
At Karmen, the investor has no direct ownership in the business and does not require fixed payments. Payments will be based on the company's revenue . Karmen uses a tool to anticipate the future revenues of a business.
In concrete terms, if your income decreases during a month, the royalties to Karmen will be reduced proportionally . Conversely, if the company's revenues increase drastically during a month, the royalties will increase simultaneously.
Karmen offers an alternative to fundraising that allows more companies to finance themselves.
Indeed, Karmen does not have any particular requirement on a business sector or an ultra-tech product as a venture capital fund may have.
Getting a quick loan is the essence of Karmen's offer, as a business can receive cash in less than 48 hours.
Conclusion
The survival of the startup depends on many criteria. Whether it is the macroeconomic environment, the characteristics of the market and the competition, or even cash flow management, the entrepreneur must take the time to analyze in order to make an informed decision and ensure the viability of his company.
To do this, it is important to surround yourself with the right people, to manage your cash flow frugally, to ensure the relevance and quality of your product or service. Finally, it is essential to have an in-depth knowledge of your target clientele as well as the characteristics of the market.
