In recent days, it’s been observed that start-ups are pulling their shutters down even after getting good response in the market. There can be several reasons or factors for these shut downs as about 80% or more start-ups gets fail in few years’ post launching or some are being acquired in less than its values, like Jabong acquired in $70 million & Yahoo in $4.83 billion which were valued much more then this at time.
Below are few observations listed after post-mortem of few failures…
Funding crunch is a most reason for which so many start-ups have to close the business, as once the business is in the market it has to prove its value increase between funding rounds, and so many times management failed to achieve the next milestone before cash ran out, many times it is still possible to raise cash, but the valuation will be significantly lower or same as it was in previous funding.
Sometimes the investors realize the wrong selection of the investment and after that realization they are not convinced for drowning start-up funding and then it becomes a biggest challenge to save the life of start-up.
Marketing strategies: Start-ups getting fail in the real world mostly due to their week marketing strategies, sometimes this is also observed that companies spent much more amount in the marketing for niche places where the lifetime value of the customers is even less then marketing cost.
Marketing and promotions consume almost 30%+ of revenue, but companies burn the case where the prospective customers do not exist many times.
Inter team support: when the start-ups started falling its impact can be seen in few teams such as sales and finance, but at that time other teams do no support them to be away from blame game for ex. technical team will ask for fund from finance and if they fail the blame will go to finance people that this is because of finance team who did not raise the flag earlier. Teams in a business are interconnected and impacts each other but in crisis time teams are busy in controlling separate operations instead they have to come together to strengthen the business.
To deliver market fit product: Some start-ups fail to deliver which actually required in the market and this is failure from the pilot phase, in the pilot phase team was unable to understand the need of the customer or the expectations from the product we offered. Pilot phase got passed as teams mainly uses the personal contacts for pre-launching and after jumping into market the realization of unfit product launching leads to failure.
Avoiding indicators: Indicators of recession are very clear in all the business but sometime top managements avoid the same with the optimistic nature and they keep trying to continue the same way instead of crisis management, and when the things goes worst only way left is to pull the shutters down.
Analysis gap: Analysis is very important factor that need to be always on top of the mind while operations, Product and Market is required to be analyzed in order to check the status and position in the market, this is same as self-assessment. Most of the entrepreneurs are optimistic and do not spend time in analyzing the position in market that leads towards failure.
Competition: This is a reason by which so many start-ups collapsed in the sea of this cut throat competition, as for a single product there are multiple suppliers and that become difficulties for star-ups as they have to gain profit with least charges. In this era of competition each step in market needs to be unique of its kind so that customer may get attracted and so many start-ups do not stand in market much time because of this reason.
Market conditions/Health: Start-ups are failing in the market due to improper market conditions as well, such as government policies and market trends may ruin the business planning. Change in the customer preference and taste leads to product failure in most cases. Regular fluctuation in price and cost may also one factor.
Few reasons may be less experienced team, poor location, inventory management, high investment on fixed assets, over recruitment in starting phase or so on.
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