DECODED - Top 5 Reasons Why Startups Fail

24th August 2020


It is easy to get caught up with start-up success stories when start-up failures are more common in this era. CB Insights have found that more than 70% of tech centric start-ups fail. In fact, Harvard Business School claims that the number is almost 90%. San Francisco-based start-up ‘Jawbone’, electric car start-up ‘Better Place’ and ‘’ are a few names part of The 5 biggest tech start-up failures ever. There are ample reasons why start-ups fail and we are going to do dive deep into these reasons. We are not going to list out 20 reasons start-ups fail but will only mention the 5 important ones.

There is no specific reason why start-ups fail as there is an amalgamation of several reasons responsible for it. There is no survivor ship bias when it comes to surviving the entrepreneurial ecosystem. Standard numbers in the start-up world show that 1 out of every 5 million non-funded start-ups reach unicorn status. Unicorn status is reached when a start-up is of valuation $1 billion or more. 

Starting a start-up is not easy, and looking at the number of failures makes it all the more difficult. Entrepreneurs and start-up founders must be good at risk mitigation. Successful entrepreneurs always learn from other’s mistakes and try to avoid them in their start-up journey. 

Here is a list of top reasons why startups fail:

Lack of Market Demands

What is often seen in the start-up scene is that the companies do not figure out whether the market requires the product they are selling. A common mistake and belief in most start-ups that have failed are that they find their invention appealing in the market without conducting proper research. Companies should validate their products in pilot projects or even in beta tests before launching them in the market. Doing this will reduce their chances of failure, help them understand their target consumers, and significantly lessen their failure and market rejection risk.

One should also calculate costing of the entire process before starting a business with respect to the demand of the product. For example, if you are planning to start an App based start-up, you should calculate how much would it cost to build your dream app using an online calculator.Funding along with market demands if not known has the potential to turn a little failure into an enormous one.

Lack of Skills 

Many founders fail to understand the skills required to be a successful entrepreneur. They should concentrate on industries that value their educational background and skills alongside their professional expertise. This will inject the determination and practice into the business and hence, increase the chances of success. It is essential to have skills that complement well with the entire team. A business needs to have someone good at sales who can prepare a pitch to sell the product.

A business requires someone good at marketing who understands the market scenario and the relevance of the product in the current market situation. Similarly, someone good at bookkeeping who keeps a track of all finance-related issues and ensure enough funds in the company account to carry forward with the work. A business needs people who are good at management, who can manage the team and make sure everything is working seamlessly. Someone good at project development to create a relevant product and ensure that it is made as per the current market demands.

Customer service is also extremely important. In house legal and business development employees will help the business land in the second phase. It is also essential to read, study and experience both theoretical & practical knowledge to give you an upper hand against your competitors and prevent your company from crashing.

Market May Not be Ready for Your Product

Some companies launch their product way ahead of time when the need and demand for the product are not there. Some also make the mistake of launching their product too late when the market is already saturated with similar products or the demand for such products have extinguished. The critical factor is always to be aware of the current demands of the market and thoroughly check into competitors’ behaviour when sales are not ticking off. It would be the best time to call a STOP for the product and pivot and invest time, capital, resources, and efforts in another market. 

Ignoring Customer needs

It is extremely important to launch a viable product and get customer feedback on regular intervals for product development and testing. The company’s biggest asset is its consumers, and it must be given importance. This also allows you to build a bridge with your consumers and incorporate changes in the product to hook your customers to the next version of your product and services. This is one of the top reasons start-ups fail.

Poor Marketing

The buzz that you create with your product matters. No matter how great your product is, it will go down if no one knows about it. Proper marketing ensures spreading awareness about the product in proper ways. A start-up does not necessarily require a PR team initially but to get the buzz going, the product must be advertised appropriately through social media channels and press.

You must also make sure that it is published in magazines and websites popular and authoritative for your target audience. If the product is not marketed correctly, no one will know about it; therefore, no one will buy it. Spreading awareness about the product may seem a waste of time and money to some people, but in fact, it plays a crucial part in getting the business up and running and is fundamental for a company to survive. 

Failure of a Business model (Bonus Reason)

Business model is the base foundation of the business. It dictates the commercial and economic viability of your business to make value and money. Many companies fail to look at the business model because that is one reason why start-ups fail.  An inefficient business model will lead to having no scalable ways to acquire customers, low or unknown value of customers, and is characterized by high costs to acquire customers. 

Final Thoughts

While it is unavoidable to fall into situations listed above, the team must take responsibility and address the issues and make sure to make timely efforts to ensure the wellbeing of the business. 

It has been commonly seen that start-ups fail when they are not solving a market problem.A diverse team with different skill sets is crucial for the start-up’s success, along with a product that is relevant to the target audience Having said all that, a start-up must also ensure it is free from legal complexities which have been the core cause of failure in many start-ups.

We at Valere Labs are in constant pursuit of evolving alongside the industry to ensure that our clients get the best product and best of our advice so that technical reasons don’t become a reason for failure of their start-up. We have experience with both B2B and B2C applications. Our expertise optimizing funnels and performance will convert users at a high rate. We provide Custom Mobile App and website Development. We have deep experience in data sciences and we can also convert more leads through an expansive range of digital marketing services.

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