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Why do 90% start-ups fail?

Why Do 90% Start-ups Fail?

“About 90% of startups fail”.  Failory

“Across all industries, startup failure rates seem to be close to the same”.  SBA 

“90% of Indian startups fail within the first five years of inception”.   An IBM Institute study 

Entrepreneurs believe their ideas could skyrocket by starting a business. but the risky reality is that startups are subject to risk, and probably more than we would imagine. On the bright side, 10% of startups are successful every year and know what it takes to defeat the odds of failure.


USA Start-up Failures Statistics

Currently, there are 31.7 million small businesses in the United States, which make up 99.9% of all businesses. Many small businesses open their doors each month, but the failure rate is high. As of 2019, startup failure rates are at about 90%.  21.5% of startups fail in their first year, 30% in the second, 50% in the fifth, and 70% in the 10th year.


Indian Start-up Failures Statistics

Almost 80% of venture capitalists say Indian startups lack distinctive business models, as the vast majority simply copy existing successful models from elsewhere without any local insights.


Expectations vs reality of entrepreneurship:

Entrepreneurs are enticed by success stories launched and beautifully portrayed by media agencies, mostly, with survivorship bias. 


They have strength in one or couple of divisions of a business to be successful, and are mostly unaware of the other significant divisions of it. 


At times, they take those other crucial divisions of business for granted. Marketing, training of resources, growth planning, defining growth plans, defining core values and business goals and keeping them aligned with strategies are such most ignored divisions. 

 

Investors thrive on hype. Their ultimate goal is to have a potential idea that can mint money. They calculate, forecast, and study risk as well as profitability. Still, investing in startups is like gambling only. This is why the majority of the conventional venture capitalists (VCs) lose the money.

 

Even after getting huge funding at different stages, being in limelight in the media, showing big hopes, the industry has witnessed many big players vanishing away from the market.


Start-up failures Reasons:

Most of the reasons why startups fail early are related to innovation and leadership, including poor business strategies, inappropriate business models, inefficient planning, faulty customer insights, poor marketing strategies, or lack of growth planning, original ideas, focus, agility, and tech capabilities. 


Launching Stories Recommendations: 

Launching stories recommends businesses should also study failure grounds deeply. Not to be demotivated but to be on reality grounds. Moreover, for the reasons below:

 

 1. Avoid those failure reasons.

 

2. Take precautionary actions.

 

3. Plan the risk ahead of time.


What if, instead of studying success tales, we look at failure stories? In the midst of the excitement, it’s easy to forget that the majority of businesses fail within the first 3 years of their existence. When the dream dissipates, reality sets in. The most rational thing an entrepreneur can do is examine why startups fail, identify a problem, and consider how to avoid it.


CB Insights on Startup Failure:

The CB Insights research portal did post-mortems of 101 failed startups. The agenda was to identify and outcome was to list out the most common reasons for their failure. (the statistics exceed 100% since there are usually more than one reason to fail). Here is the list with key strategic reasons: 

 

I. Lack of Business Strategy -77%

Product without a business model – 17%

No Market Need – 42%

Inappropriate Pricing Model -18%

II. Failed Strategic Marketing – 27%

Poor Marketing – 14%

Product Mistimed – 13%

III. No Growth Strategy -36%

Get Outcompeted – 19%

Burn-out – 8%

Failed Geographical Expansion – 9%

 

I. Lack of Business Strategy

A business strategy is the milestone for success or failure for any business. Majority of businesses fail in lack of innovation and leadership to drive business strategies. Business strategy is the one constant that goes on and syncs all the other aspects of business which may contribute to its success.


Lack of financial resources, human resources, business ideas, marketing, business model, go-to market planning, sales, etc. , all of them can be fixed if an appropriate strategy is in place. A right business strategy should consider the vision, available resources, goals, competitors, audience behaviour, vendor and stakeholders, possible business situations, unpredictability of the economy and uncertain market scenarios, etc. 


A positive, wholesome, well-thought/researched and progressive approach is a mandate for a successful business strategy. The essentials in a business strategy are :


A. Strategic Planning
It undertakes analysis of business environment dynamics and available resources, defining vision, core values, conceptualisation of business ideas, strategy development, and more.  It also defines the pillars, lining and values which create identity and individuality of your business.


At Launching stories, before we launch any business, product or service in the market an in depth study is important. Research says 42% of the startups fail because there is no product/service need in the market. So, a business should get assistance from experts of the industry who can help them with insights on market, audience, competitive products, future possibilities, and product upgrades. 


B. Business Model Framework

It ensures inclusions of required value proposition and USP identification, feasibility check & validations, ROI checks, prototyping, SWOT analysis, and more. A rightly done business model framework can not only make your business profitable but also survive in economic uncertainties and competition. 


As presented in the statistics above, 17% of the startup failures are in lack of a business model while 18% belong to inappropriate pricing models. 


Launching stories helps you research the market, audience, craft a strategy that meets your business goals, available resources, while ensuring your business is competitive enough. We also help your business design the right business model with the most profitable and effective pricing models. We ensure right channelisation for capitalising the revenue.


C. Business Planning

It includes defining business tone, execution plan, timelines, exploring growth potential, and more. This is basically a plan to execute strategic planning and apply the business model framework in a detailed manner. 


D. Go-to Market Plan 

To execute the business planning successfully, a GO-to-market plan is very much important. It defines the standard operating process (SOP development), microscopic & streamlined plan for execution, monitoring, reporting, and more. It streamlines all the execution and moderation activities. 


II. Failed Strategic Marketing

Usually when an entrepreneur steps into the business world, he steps in with an amazing idea or product along with huge fundings and investments. They think it suffices for the success of the business, but it is not so. 


Most of the VCs and angel investors face losses when it comes to the results. Reason being, only a great idea with funds isn’t sufficient. Along with the right business strategy, a right marketing strategy is also equally important. For a successful business, an impactful, effective and strategically designed marketing plan is a mandate. 


27% of the startup failure reasons are around marketing strategy failures. A right marketing strategy is the one which contains 7P’s of marketing, rationally, as per specific business/product/service requirements. These 7P’s are – Product, price, place, physical evidence, promotion, people, and process. 


Also, it is important to understand which marketing channels and methodologies will work for your business and for your specific marketing goals. Even if you have the same business and product as your competitors, also the same audience, you should not replicate the same marketing strategy for your business as your competitor’s. 


Launching stories does in-depth business, industry, and market study aligned to your business as well as marketing goals. Launching Stories uniquely craft marketing strategies for each individual business we work with. We ensure that every marketing strategy we craft, leads to launch as a success story for your business. 

Strength of Launching stories’ marketing capabilities is its versatility of marketing methods, channels, creative ideas, smart strategies and hands on experience in creating the right mix of them. We believe in result-oriented strategies, which is not only about developing strategies but its execution, monitoring and reviving them on time.


Here is the list of key marketing methodologies by Launching Stories: 

1. Brand Development

2. Account-based Marketing (ABM)

3. Advertising & PR

4. Digital Marketing

5. Marketing & Communication

6. 3rd Party Marketplaces and Channel Partnership

 

III. No Growth Strategy

Another major reason why start-ups don’t survive in the long-run are having no growth plan in their strategies. As many as 36% of the start-ups face failure in lack of growth strategies/plans for their business.

A growth plan helps business grow and be prepared against contingencies. Stagnancy is not what any entrepreneur would be expecting for his/her business. Stagnancy ultimately drives to diminish. An upward moving growth curve is the sign of a healthy and potential business in the industry to survive and thrive.


A right growth strategy includes the growth frame for business inclusive of legitimate opportunities and optimised resource allocation of individual initiative for growth. Growth can be multidimensional- product-specific, geographical, audience-wise, demographically, team and/or business operations expansions. 

Looking at the key statistics for growth strategies and startup failures, below is how the start-ups are trending: 


A. 19% of the start-ups get outcompeted, even if their ideas were unique when started. Industries have a hyper competitive nature of the market. As soon as the new potential idea launches in the market, competitors take it as an opportunity, and outcompete the business. 9% failed in geographical expansion of their businesses.


They may use different strategies for it, to ensure a major part of the market pie in their plate. These strategies may include pricing, geographical expansion, product versatility, product upgrades, usability for the audience and many more.


B. 8% start-up elimination due to burn-out. In the run of success start-up teams end-up vanishing by burnout. It is important to balance enthusiasm with work-life balance. It is important to avoid unnecessary burn-out while chasing the ambitions. Strong, diverse, closely monitored and highly motivated teams are the key to avoiding such scenarios. 


Launching stories help you with monitoring as well as executing the strategies and growth plans with its own team dedicated to your business. Businesses can focus more on their business operation with less hustle and stress, while a balanced work life, avoiding burn out. Alternatively, we monitor and ensure avoiding burn-out and continuous training for upgrades with your teams as well.

 

References :

1. Failory

2. SBA

3. An IBM Institute study

4. CB Insights