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Why Startups Fail: Reasons Behind 90% Brutal Startup Failures

Updated on December 14, 2021

6 Min Read

If you are reading this article, you sure are an aspiring entrepreneur with big dreams, innovative ideas, and grand plans.

If so, congratulations for staying true to your dreams. You deserve great things. You deserve the best!

But hang on there, future entrepreneur. Here’s a hard-hitting fact. A report by Small Business Association indicates why startups fail, 30% of the startups fail during the first year of their operation, 50% collapse within the first five years, and 67% companies roll out of action within ten years.

90% of the startups fail to make their business the next Big Thing.

Why do startups fail? What are the odds for your business to fall under the remaining 10%? What can you do to make sure your business doesn’t crumble like the majority of startups?

You can find out the answer to these questions in this article.

Error 1: Doing it All Alone

Sure, the idea of solo founder sounds exciting, but the hurdles, obstacles, and eventual startup failure don’t always make it worth. It’s not an individual’s efforts that make a company significant, but teamwork and collaboration do the magic.

Where do they go Wrong?

Establishing a company is challenging, and setting it up all alone in a competitive industry, can be devastating. It demands hard work, sheer dedication, and often takes many minds to set up a business. Entrepreneurs who set on this road alone, often find themselves in a complicated pathway. Setbacks and blows make it tough to tackle all this alone.

Having business partners or a team allows entrepreneurs to have different thinking minds, and it all together can make a significant difference.

The Solution:

  • Work with a co-founder to get a critical eye on your plan
  • Before choosing a founder, do a SWOT analysis of all interested partners
  • Primarily assess them on the metric of how they perform in a stressful situation
  • Ensure the co-founder has similar objectives and goals from the endeavor
  • Include a variety of people in your team, with different perspectives and skill-sets

Here’s how you can find a co-founder for your startup

Error 2: Complicated Business Plan

Young Entrepreneurs often complicate the business model with a sloppy presentation, vague plans, and unrealistic assumptions.

Where do they go Wrong?

For any business, no matter how big or small, a business model is the backbone. It’s the fundamental building block, which requires utmost attention. A complicated business model is bogged down with unnecessary details.

Such a plan sets wrong goals, poor benchmarks, and creates confusion – all these elements are just enough to destroy a startup in the initial phase.

The Solution:

  • Create a clear and concise plan with the help of a professional
  • Obtain feedback from potential investors
  • Seek constructive criticism for the plan before finalizing it
  • Review the plan frequently, look for scope of improvement, and improvise it when needed

Error 3: Using the Investment Too Soon

Investing plenty of money in the initial phase of production can crush the business down even before the product is introduced in the market. There are many ways that you can look for opportunities to cut costs in your startup budget

Where do they go Wrong?

One of the naïve mistakes emerging businesses make is using the investment in the initial phases. These entrepreneurs take on investment without any strategy to use the finances. They try to scale the company as soon as they get a good chunk of money, land into critical circumstances and ultimately fail.

The Solution:

  • Build your startup by using the existing resources, i.e. through bootstrapping
  • Bootstrapping helps the new entrepreneur to understand the ins and outs of the business
  • Follow the creative way of entering the business by utilizing interns, volunteers, and by bartending your services

Error 4: Waiting Too Long Before Releasing the Product

Emerging Businesses often underestimate the power of achieving a threshold. They wait too long to make the launch perfect that the concept loses its edge.

Where do they go Wrong?

Many startups wait too long for the launch, and by the time their product is in the market, the scope of what they’ve built fizzles out. They spend too much time and resources to make their development stand out, and yet, at the end of the day, the outcome is negative. Some businesses wait for months and years before introducing their prototype.

By waiting too long to reach the ‘perfection’, these startups miss crucial customer feedback that could help them develop a masterpiece.

The Solution:

  • Stop underestimating the value of a minimum viable product
  • Your first version may be pathetic, but as long as it’s in customer’s hand, you are one step ahead to receiving feedback and making improvement
  • By launching early (or in the beta phase), you will be able to get to the market and test your idea on live customers

Error 5: Ignoring the User Feedback After the Launch

A startup is 100% likely to fail when they turn a blind eye to the user feedback. The feedback is a gold mine to an emerging business. Dig in more, get to the root, and make it big!

Where do they go Wrong?

This is the most straightforward and most obvious reason why startups fail. Once you’ve launched the first version of your product, it’s imperative to take user feedback seriously. Have the courage to accept negative feedback. Not paying attention to user feedback is the guaranteed killer of your startup.

The Solution:

  • Stay open to negative feedback
  • Analyze the root to the user complaints as it will help you to iron out the bugs
  • Be honest and open about your progress in making the changes
  • Develop a great relationship with users by listening to their demands and designing the product as per their requirement

Error 6: Hiring the Wrong Employee

Small-scale companies often choose cheap labor over a skilled and experienced employee, and that’s the first step to drowning an emerging business down the drain.

Where do they go wrong?

Employees are an asset, especially for a company that is yet to establish its name in the industry. Your organization’s goals, project success rate, and service quality depend on the efforts put in by the employees. Majority of the startups tend to compromise in these areas and choose non-skilled employees to cut the production costs. This is where they go wrong, and then, within a short period, the company crashes with both financial losses and consumer complaints.

The Solution:

  • Plan your recruitment strategy and have a robust employee screening process
  • Choose a skilled employee over anything else
  • Check the candidate’s background, employment references, and educational credentials
  • Determine the skills and strength needed for respective roles and train your employees for the position.

Error 7: Lack of Direction & Focus

Why is it that two companies in the same industry perform differently, even when the resources and opportunities are the same? Both have twenty-four hour days to work, and yet one fails, and other succeeds. The answer is simple: the failing company lacks focus and direction.

Where do they go Wrong?

This is one of the most common causes of startup failure. Not having the right direction can spoil the business in the long run. Companies make a wrong move when the board of directors take a specific decision without evaluating what that decision could bring for them.The decision can be regarding anything, but its impact can cause a potential threat to the business.

One of the common examples of heading in the wrong direction includes spending resources on social media and PR even before getting the right product for the consumer.

The Solution:

  • As a startup, don’t let your focus scatter into different directions
  • Focus on only two things: your product, and your customers
  • Stop spending the time and resources doing stuff that is not needed

Error 8: Premature Scaling

Premature scaling, hands down, is one of the major causes of startup death. After evaluating over three-thousand failed startups, startup Genome concluded that 90% of the emerging businesses fail because of inadequate and premature scaling.

Where do they go Wrong?

Organizations that rush into things with premature scaling are the ones that fail miserably. They spend money beyond the requirement, chasing the idea that money can bring everything. These employers sure have finances, and they even do the right thing, but they do these things out of order.

Some of the examples include expensive marketing, leasing offices, perfecting product with expensive technologies, and mostly doing all such things that large enterprises do with a great many resources do. A startup without sufficient funding cannot sustain these costs.

The Solution:

  • Don’t scale up unnecessarily. Do what is needed
  • Do proper management of finances and monitor the cash-flow
  • Be sure to hire an experienced and skilled accountant
  • Lower the acquisition costs, increase revenue, make a profit, and then use the capital for secondary expenses

Error 9: Not Having a Customer-Centric Approach

If you want your startup to fail miserably, there’s one magic formula: Divert your attention from the customers and adopt a non-customer centric approach.

Where do they go Wrong?

I should have probably placed this one on the top spot. But, here’s a reason why I choose to place it at last. Remember the ‘ultimate rule’ of having a successful business. It’s like a Do or Die rule that all companies swear by.

One of the common errors young startups make is developing a product or service only for the sake of money. Sure, the ultimate aim of all companies is to earn cash on their products, and increase revenue. But can you name even a single company in the world that is generating high revenues without providing anything useful to the customers?

Need I say more?

The Solution:

  • Create products and services to solve your customer’s challenges, struggles, and frustrations
  • Your business process should take be customer-centric, and not ‘money-centric.’
  • Reach out to your customers. Communicate with them, and embrace their feedback
  • Improve, enhance, and modify your services/products based on your customers’ needs

In Conclusion

Many startups will emerge, and many will disappear. The one that’ll stay in business will be a company that prevents all the above-listed mistakes, and chooses customers over premature scaling, teamwork overdoing it alone, and success over failure.

Your business can succeed in the long run if only you avoid all the common errors startups make. Even if you’ve made these mistakes, it’s never too late to take preventive measures and resolve the issues with an effective problem-solving strategy.

Disclaimer: This is a guest post by Md Mohsin Ansari- Digital Marketing Analyst at Troop Messenger. The opinions and ideas expressed herein are the author’s own, and in no way reflect Cloudways position.

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Md Mohsin Ansari

Md Mohsin Ansari is the Digital Marketing Manager at Troop Messenger - a business messenger that comes with all the requisite features. It is a viable Slack alternative that is spreading its wings across all industries by bringing all the internal communication at one place. Mohsin is accountable for analyzing the market trends, demographics, and dealing with all promotional and media channels.


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