“Don’t worry about failure; you only have to be right once” – Drew Houston, CEO & Co-Founder of Dropbox
Every startup wants to be successful. On top of that, doing business is harsh nowadays since the market is highly competitive, and it’s hard to raise funds for emerging companies. Thus, start-up founders are often afraid of making mistakes and taking risks.
So, what are the common start-up problems? What startups have gone in red in 2019 ? What makes them strive on the global market? Find answers to all your ‘whats’ in our article. Speed up to read!
6 Key Reasons Why Startups Fail
Once upon a time, many renowned companies were startups. But now they Facebook, Google, Grammarly, etc. stand in a row of successful ventures. Most entrepreneurs want to follow their path and become the next Elon Musk or Mark Zuckerberg. Seldom do they think of how many hurdles there might be. Here are several of them to look on!
1. Fierce Market Competition
While Apple and Google LLC are expanding in the global AR market, many startups can’t beat them to a punch. Even if they have a brilliant idea, it’s still hard to outpace such renowned rivals. Let's have a look at Daqri, a high-flying startup that sold AR headsets for enterprise clients. It shut its doors in September 2019. Daqri was among the highest-funded augmented-reality startups, but it couldn’t compete with Microsoft and Magic Leaps - the biggest AR giants on the market.
2. Premature Start-Up Scaling
It is considered to be one of the leading reasons why 70% of startups fail. The key danger of premature scaling is poor cost management. Genome Startup, a center that helps startups grow, considers premature scaling as the number one cause of business failures. To mitigate this risk, startups should optimize recruiting and the process of distributing finances.
3. Weak Business Model
The aim of a business model is to connect a company’s product with the right clients. A lot of startups don’t have it at all, or their model is so ineffective that it does not bring any profit. Tutorspree, an educational marketplace for students and tutors, also faced this issue. The startup raised $1,8 million in several rounds and shut its doors in 2013. Another reason for its closure was that Tutorspree relied on SEO to attract tutors and students.
4. The Lack of Market Demand
According to CB Insights, the main reason why most business ideas fail is low market demand. 42% of respondents mentioned it in this survey, which is the highest result among the other 20 start-up failures. So, why does it happen? A lack of market research stands behind this common mistake. Friends Reunited, a popular social media app in the UK, couldn’t cope with market competition well and went in red very quickly after its launch
5. The Lack of Investment Opportunities
Why is it so difficult to raise funds for startups? Well, there are various explanations for that. Sometimes it’s quite hard to prove that your start-up idea is worthy. Also, entrepreneurs don’t have a clear-cut way of attracting investment as this process differs for every business domain. Anki, a startup that developed AI-based robots for domestic use, failed to make its idea alive due to the lack of investment. The company ended up with $205 million of disclosed funding.
6. Poor Management
In the UK, nearly 70 businesses are being registered every hour, and it is estimated that more than half of them will go in vain in the next five years. Jessica Baker, a contributor to The Forbes, points out that workplace efficiency and its effective process organization are key factors that determine a startup’s future success. Unfortunately, most startups have weak management in their core that often comes as a stumbling block in launching their projects on the market. .
List of Startups that Showed Promise and Failed in 2019
Crunchbase reported 491 startups that shut their doors in 2019, which was more than in 2018. The reasons why they flame out were written above, and in this section, we’d like to list the biggest startup’s failures of 2019.
It was a shuttle startup aimed to change the route of daily commuters with fleet vans. Chariot didn’t have high demand for its services, serving only nine passengers per day in New York, as TechCrunch reports. Another reason for its closure was the decision made by Ford, a Chariot’s key investor, to pay more attention to develop independent vehicles, implementing big data collected from car’s sensors.
This startup specialized in AI-based robots that could tell you about the weather and world news, help your kids learn coding, and perform a variety of other activities. Business owners wanted to create a lovable and charming robot that people would be glad to have in their houses. Even though Jibo had a successful crowdfunding campaign, it failed to meet the customers’ expectations.
As Wikipedia stated, it was the mobile marketing automation product that delivered services from the famous marketplaces to buyers. Kahuna Inc. applied ML algorithms along with neural networks to improve buying experiences, define their common behavioral patterns , and optimize pricing. Although the company raised $58 million of investments, it went bankrupt in early 2019.
This Israeli-based startup developed autonomous vehicles with an innovative depth-sensor system. Oryx Vision strived to reinvent the vehicle market with its revolutionary idea of autonomous vehicles. Its total funding accounted for $67 million. Ram Wellingstein, the company's CEO, commented upon the startup’s closure and explained his failure as inability to meet the market demand.
The goal of this startup was to explain how to play VR games for non-gamers. The users of Vreal could walk as avatars and observe the way of playing games. It’s still a secret why the company closed its doors. Vreal raised enough funds in several rounds ($15 million of venture capital) to launch the first version of their product, but it couldn’t handle the VR market competition. Another reason for its closure was that the company had quite a tight niche, as only users with VR headsets could use its services.
The startup developed highly scalable open cloud services for the communication industry. Layer, Inc. used carrier-grade VoIP (Voice over Internet Protocol) systems, which are reliable and thoroughly tested networks. Even though Layer, Inc. had a disruptive product idea, it announced its closure in October 2019. The leading cause of why Layer Inc. failed is its inability to stand the fierce market competition.
What Makes a Successful Startup
There is no ideal way to turn your business idea into reality and make it a highly profitable startup. Actually, it’s a hard way for every entrepreneur. If you strive to establish a successful business startup, there are several points that need to be taken into account before you embark on this journey. So, let’s describe them one by one below!
Solid Knowledge of the Market
Those entrepreneurs, who are equipped with information about the market, have high chances to succeed. Other than that, good marketing research contains competitor’s analysis, cost fluctuations, and an excellent understanding of clients’ preferences. Altogether, it will help an entrepreneur to launch the product on the market and impress investors with a start-up idea.
Vision That Challenges
Every business venture has its ups and downs. This way, the approach applied by visionary entrepreneurs must be at hand. With clear vision in mind , it’s easier to go through obstacles, take risks, and discover fundraising opportunities for your project. Steve Jobs was a good example of a leader who managed to found Apple, a world-class leader of computer software and services.
Stellar Teams with Shared Values
‘Tight-knit’ teams are great for startups. When you share common goals, interests, commitment, motivation, and vision with people you work with, it is easier for all employees to stay motivated. Recruit your teammates wisely and think of the qualities your ideal candidates must have. When you meet the first difficulty, your employees will be your primary assets in turning your startup into a successful venture.
A customer-oriented approach is a sure-fire solution for every startup, as winning hearts and minds of clients will definitely make your business prosperous. Basically, a customer-oriented approach applies information about the market and consumers’ tastes. The more you know about the target audience, the higher is the chance your startup will succeed soon.
Effective Financial Management
Efficient cost management is what differentiates market-leading companies from flops. Ernst & Young (E&Y), a leading consulting company, suggested top-down and bottom-up forecasting as suitable approaches to manage finances for startups. Equipped with these tactics, it’s easier to predict and analyze losses within a specific time frame and market share.
Excellent Fundraising Skills
If you know how to pitch your product and keep the investor’s attention, you can be sure your startup idea will see the world soon. In fact, it’s also the main responsibility of a startup’s CEO to find angels and raise money. There are various platforms that might ease the process of finding accredited investors for you like Angels 1000, SeedInvest, FundersClub, and many others.
In our article, we’ve equipped you with essential knowledge of why startups fail and what makes them striving. Apart from that, you’re also informed about an approximate number of unsuccessful business ventures of 2019 in AI, VR, e-commerce, and communication industries. With the knowledge of all these pitfalls, you are sure to overcome whatever problem you might meet on your start-up journey and make your business idea successful!
At LITSLINK, we help startups address their pain points by providing high-quality development services. Don’t hesitate to drop us a line, and schedule a call with our software experts!