A Startup is started by individual founders or entrepreneurs to search for a repeatable and scale-able business model. More specifically, a startup is a newly emerged business venture that aims to develop a viable business model to meet a marketplace need or problem. A startup is not a smaller version of a company, a startup is a company in continuous search for a sustainable and scale-able business model.
According to IBM institute of business value, 90% of Indian Startups fail in the first five years.
In this article I will write about Top reasons why Startups and Businesses fail and what you can do to keep a good health of your business venture.
1.) Missing innovation around customers need.
Most startups fail because of the very reason they started, to provide value to the customers. We need to keep in mind a startup or a business will flourish only if it solves a problem of customer which they cannot solve themselves. it should provide some value to the customer. Most of the business today focus on their money making model not their customer’s money making model. Customers tend to buy or use those products or services that they perceive create greater value for them than competitive offers. It is essential for executives and leaders to create higher value for their Customers than competition can.
lets understand with an example,
Reliance Jio Infocomm Limited, is an Indian mobile network operator. Owned by Reliance Industries. it provided value to the customers by providing a great mobile data package they would only charge for data and not for calls. this was effective for customers because the calls were free they had to pay for data which was relatively less than other telecom operators in India.
2.) Negative cash-flow and negative working capital.
Negative cash-flow and negative working capital are two different things. Negative cash-flow is a situation in which the cash outflows during a period are higher than the cash inflows during the same period. Negative cash-flow does not necessarily means loss, and may be due only to a mismatch of expenditure and income.
Negative working capital is closely tied to the concept of current ratio, which is calculated as a company’s current assets divided by its current liabilities. If a current ratio is less than 1, the current liabilities exceed the current assets and the working capital is negative.
3.) Don’t expand with negative margin.
Expansion with negative margin is the very reason startups and businesses fail. Some startups do not think enough on how they are going to generate profit. Compromising on margin means your business may not sustain long in the future. their is a concept of negative-profit-margin where a business incurs expenses while building a customer base, so in future they may generate sufficient sales to cover the cost. have a look at the e-commerce giant Amazon. Amazon consistently lost money for its first several years as a public company. It first reported a quarterly profit in the fourth quarter of 2001 and, at $5 million, it barely counted. Amazon CEO Jeff Bezos has long maintained that investing in future growth is more important than hitting quarterly earnings targets, much to Wall Street’s chagrin. But you need to foresighted enough to know whether your way of loosing money and getting customer base the right path or their is another alternative to it.
4.) Hire and retain talented manpower.
Manpower, the people who actually work for the organisation, the people who converts your dream, action plan to execution and get the result. there are cases where people come to your company to learn and leave when required. Retaining talented manpower is the key to run your business, to ideate and get it executed accordingly. to counter these issues embed the following points into the culture of the company.
- Recognize and reward good work. Appreciate employees for their hard-work.
- Create an environment that makes your employees feel like an asset to your company.
- Make expectations and goals of the company clear.
- Create an open and an honest work environment.
- Provide opportunities to grow and learn.
- Let your employees know that their is room for advancement in the company
5.) Scalability with recurring revenue model.
Incorporate some methods in your business due to which your one time customer will again comeback to you. Build some methods in your business so that your customers can generate you a recurring revenue. for example the telecom operators they have plans for calls and data, customer buys their plan as it stick to them for the next one month or even year. Printer manufacturers they will give you printers at a low cost and charge you for the ink, if you run out of ink you will again go to same manufacturer to get the ink.
6.) Mixed marketing signal and wrong positioning.
One of the best ways a startup can kill itself is Mixed Marketing Signal, not giving the customer the signal to buy the product, getting your customers confused about what the product is, for whom the product is meant for, who will find it useful, who should not buy it. Positioning your product in the wrong way is very dangerous for example the King-Fisher when it acquired the Deccan the branding was so much mixed the people were not able to understand whether the Deccan was a full-service carrier or a low-cost carrier, the branding was so blur the people neither got into King-Fisher nor in the Deccan. Mixed marketing signal and wrong positioning is one of the biggest reason why startup and business fail. The branding of Thumps-Up is concise and clear “Aaj Kuch Toofani Karte Hai” shows that it is for youth, for the risk taking people, the daredevils, the youngsters.
7.) Releasing products as a laggard.
Releasing your products so late in the market that the market has saturated. It does not mean that you cannot sell. A last mover also has his own advantages over the first mover. for eg the Patanjali (FM-CG Company) was the late mover but it was the fast mover, currently it is growing 200% every year, Dabur, Procter and Gamble, Hamdard, Hindustan Unilever were the first mover but the market share is now dominated by Patanjali.
8.) Save yourself from getting out-competed.
Most of the business fear that they will get out-competed from the giant players in the market, that they will get overrun by the competition, their so called best invention can be easily manufactured by the other big companies, they won’t be able to save their business secret from the competition. to save your business you may go for following points as applicable
- Intellectual property rights.
- file patents for your products.
- Exclusive rights.
- Economies of scale.
- Proprietary technology.
- Brand Equity.
9.) Listen to the feedback.
Start working on the feedback from the customers, it is impossible to look for and incorporate every feedback. Incorporating feedback and making necessary amendments to the product may make it likable to many more people.
10.) Build a complete ecosystem.
A business model should be their to build the complete ecosystem from marketing, sales, engineering design, developers, business leads, Intrapreneurs so when your business runs into a difficult situation a team should be ready to handle the situation.
Hope, you liked the “Top 10 reasons why Startups and Business fail” these were the results of my observations of business, startups who are making to the top and who are hitting rock-bottom in their venture. If you have some more suggestions do mention in the comment column, I would love to incorporate some of your ideas in this post.