Why do startups fail?
One of the biggest things in the country right now, especially in Fintech space, is the advent of startups. On a daily basis, more ambitious Nigerians are riding on advancement in technology to provide new ways of doing things or improved methods of solving various problems.
Although as soon as startups hit the market. Everyone is talking about a particular one. Everyone is inspired by yet another one, some folks get jobs as a result of that new business on the block. And unfortunately, in second to the third year, that rave-of-the-moment startup is dying or is completely dead. I stopped thinking and imagining why most startups fail, I decided to dig into it.
Interestingly, I found out some credible work done by a couple of guys in collaboration on various projects to highlight the most common among myriads of reasons why many startups have failed. Different startups have failed for quite different reasons.
Several factors have contributed to the failure of various businesses in different climes, the topmost reasons identified are universal and applicable to many a market in countries of the world.
How can startups survive?
In a study done by CB Insight of 101 failed startups, very many killer problems were identified in the post-mortem analysis of these dead small businesses.
The percentages represented in the chat, if added up, will be above 100. The reason for this is that a startup tends to fail for more than a reason.
Thus, the ranking emerged from what was responsible for the failure of most of the startups examined. The founders of these startups were magnanimous enough to share their bitter experiences.
And they were plain about it.
Thus, what drives a post like this is not just some hypothesis. The issues addressed have killed many startups. Count yourself very lucky to have found this. You would probably find one or two issues to avoid or areas to work on earnestly to avoid failure of your startup.
We will briefly look at the top five of the deadly problems startups succumb to. The major reasons many promising startups have failed include pricing, competition, wrong team, funding, and product market fit.
Pricing –How does pricing kill startups?
How do you actually arrive at the amount you price your product or service? It is mostly by assumption if I may suggest. After putting together costs of factors of production, you add an average amount that guarantees a profit, right? Have you ever been worried if your price it either too low or too high?
When a reasonable number of customers stop buying, apart from those who explicitly state price as a factor, how many can you attribute to wrong pricing yourself?
How much does competition control the price of your product or service?
Fixing the most appropriate price for your offer is a black-market-affair.
But as a startup, pricing is what you should give considerable attention to. Find out from time to time, how price encourages or discourages your customers from buying.
Bentley and Volvo are major market forces in automobiles, would someone buy a Volvo car instead of a Bentley just because the latter is more expensive? Cutting price is not always the first thing when in sales draught, experiencing high attrition or stiff competition, kindly look further. The solution might just be right on top of your nose.
Competition –How much attention should startups give to competition?
Many times, startups are advised to ignore competition and just do their thing! Much as ignoring competition makes you concentrate on building a great product, being totally oblivious of what their major competitors were capable of doing have killed many a startup both in Nigeria and abroad so far.
One popular case that comes to the mind of my mind is MySpace VS Facebook. People ’around the world back then were trapped by the Internet familiarity MySpace brought. Most people didn’t give Mark Zuck and ‘thefacebook’ a chance. What happened to the top-of-the-world MySpace down history lane is now story for the gods.
19% of the times, startups failed because they couldn’t catch up with the versatility and aggressiveness brought to the game by competition. Don’t be obsessed or be frustrated by the growth of your completion. And don’t be complacent when you top your market. Nothing lasts forever. Your competition won’t fold their hungry hands and watch eat it all.
One tool you could use to spy on your competition is Ispionage. For your competition’s buzzworthy content, campaign, marketing strategy, ad word and PPC keywords, check it out and thank me later.
Wrong Team –How can a bad team send startup to early grave?
Does anything feel cooler than working on a project you love very much alongside team mates who motivate you and keep you enthusiastic to get together? Maybe few things for many people, while nothing beats that for some. 23% of failed startups identified working with a wrong team as major reason they failed.
It might be that one person is trying to be everything or some members’ authority are unquestionable or some members just happen to lose the steam along the way and there was no one to re-kindle their first love.
This has been confirmed from success stories of many startups. When a business is just starting out, team members have to be clear on their vision and be passionate about the course they are out to pursue.
Each member sees the growth of the startup as growth in their career and personal lives. That is what will keep the team together when times are hard.
And ask for help from people outside the team when necessary. Don’t form island of knowledge as the most stupid question is the one that was never asked. Life isn’t a bed of roses, growing a startup isn’t either. But, surely the hustle will be worth it someday.
Funding –What is the role of lack or misuse of funds in failure of startups?
Postmortem analysis of dead startups by CB Insights shows that 29% of them died as a result of running out of cash, not getting enough cash to pull through or spending heavily on futile strategy while effective strategy got no solid financial backing.
Mark Essien, CEO of Hotels.ng, when recounting his experience in two years of running Nigeria’s foremost hotel booking platform, narrated how he spent the initial investment of $75,000. Lucky for him, Spark was there to raise another $150,000.
In Mark’s case, what he felt would get Hotels.ng going for a while went into salaries and cost of setting up the company within the first six months. What if he didn’t get timely intervention from Spark?
Many startups have died untimely as a result of running out of cash, whether because of poor budgeting or sudden inflation. Startups must be as frugal as possible and just be careful not to fall victim of financial famine. It is also good for startup owners to nuture good relationships. Apart from investors, crowd funders, early adpters and associated brands can be of help when times are hard financially.
“If you want to go faster, go alone. If you want to go further, go with someone.” Startup incubators can have your back if you subscribe to one.
Always think of synergy as a startup owner. Never ride solo!
Product Market Fit –Does your product solve very pressing need?
One thing many startup owners have is passion for their business. They love what they do. But the great question every startup in Nigeria should PRESS PAUSE, right now and answer is, ARE WE SOLVING REAL-LIFE PROBLEM or just building AND SELLING FANCIFUL PRODUCTS?
While streamlining and iterating your product or service for your market, don’t forget to research your target audience’s underserved needs. What needs do they have that are not adequately met?
I was part of a heated conversation on a tech platform not long ago. A startup guy was frustrated that people were not willing to pay for his product.
At the end of the day, the toughest question emerged. What problem does your product solve, how affordable is it for an average Nigerian and of what significance is it to an average Nigerian?
Bad enough, that is what has killed or is killing many Nigerian startups. The hailing Nigerian startups are either building what they love instead of what their audience love or trying to sell what is not needed by or affordable to an average Nigerian.
You sure can look out for more insight on how to achieve market fit for your product/service here. Change is the only constant thing in life. No matter the stage your startup is, you could streamline it to meet pressing needs of your target segment.
If you offer a product/service your audience cannot do without, or you can sell to them why they shouldn’t breathe without your product, sales won’t be a headache for you.
At Voguepay, we provide support for all business types and sizes at all stages. Much as we provide secure stress-free payment processing, we pride in many business support tools for our merchants.
Wanna know how it works? Learn more.