Top Reasons of Startups' Failure

Most entrepreneurs think they’re building the next unicorn. In reality, over 90% of them fail within first 5 years.

As per the study by IBM Institute and Oxford Economics:

• 77% of VCs believe that lack of pioneering innovation is the major reason for the failure of an Indian startup. Most startups are mere clone of successful startups (primarily of US). Although, this can create value in the short-term but lacks sustainable expansion and low competitive barriers to competition, hence mere 4% of Indian Startups have the wherewithal to become "unicorns".

• 70% of VCs believe that startups fail because they fail to hire right kind of people.

• 65% of VCs believe that funding is one of the major challenges for Indian Startups.

• 53% of VCs indicate that inexperienced leadership is a key reason for startup failures.

• 45% of VCs assert that the presence of proven leaders is an essential ingredient in their willingness to invest in startups.

• Lack of adequate mentoring and poor business ethics were cited as other major reasons for the failure.

CB Insights polled over 100 entrepreneurs from failed startups, in order to find out the top 5 factors, which were responsible for their company’s downfall. Entrepreneurs must learn from these valuable insights, to avoid their own startup's failure.

1. No or Low Market Need: Addressing a significant market is an fundamental requirement for any startup to succeed. If the market for your product or services is limited / too small, then even the most innovative startup may not survive. Most often, entrepreneurs are too optimistic in launching a product / service, which no one wants to buy!

2. Ran out of Money: How long would your startup sustain on bootstrapping, if the fundraising was difficult? Half of the battle is won, if you've a product/service has a proven market as well as business model to sustain for at least a year. This is an area where an experienced business adviser can be invaluable!

3. Not the Right Team: Successful teams require a diverse set of skills, a shared goal, and complementary personalities. If any of these aspects are lacking, it can severely impact the productivity and effectiveness of your company.

4. Lost to the Competition: Complete clarity on what your competition offers and unique value proposition are essential in attracting the potential customers. But if your competition provides better value and/or at lower costs, even loyal customers will switch.

5. Pricing / Cost Issues: Much like the previous factor, your product or service must be priced lower or competitively and if your cost of operations are higher than competitors, then it must be made apparent, why your services provide a greater value than theirs.

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