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How to avoid failures of StartUp: Reasons & Solutions

blog22Every startup has its own set of challenges and roadblocks. Some are external, while others are internal. But no matter what, every startup eventually runs out of cash. Sooner or later, most startups discover that they’re unable to continue running their business operations indefinitely.

This happens for a variety of reasons, including lack of funding or simply an inevitable decline in business activity. Unfortunately, there’s nothing you can do to prevent failed startup habits from ruining your future as a business person.
However, by taking the time to analyze these habits and learn how not to fall into them in the future, you can significantly reduce the risk of starting over again as a startup founder.
The advice given by Tom Eisenmann to many first-time founders and how it can backfire in his book Why Startups Fail: A New Roadmap for Entrepreneurial Success,
Just do it! 

Great entrepreneurs make things happen and move fast to capture opportunity. Leap too soon to fall flat on the fac. When that happens, founders may find themselves locked prematurely into a flawed solution.
Be persistent!

Entrepreneurs encounter setbacks into their stride, go back at it; showing determined and resilient but shouldn’t turn into stubbornness, so it could be a false start. Delaying a pivot eats up scarce capital, shortening a venture’s runway.
Bring passion!

A burning desire a power to change the market, world and can also attract employees, investors, and partners who’ll help make their dreams a reality. But in the extreme, passion can translate into overconfidence—and a penchant to skip critical up-front research. A blind passion may lead to avoid a genuine customer need.

As resources are limited, entrepreneurs must be frugal and make clever ways to make do with less. But if a start-up consistenely fails to deliver on its value proposition because team may lack crucial skills, its founders must decide whether to hire employees with those skills. If such candidates comes with high salaries, a frugal founder might say, “We’ll just have to do without them”—and risk being stuck with bad bedfellows.

Due to rapid growth attracts investors and talent and gives a team a great morale boost may tempt founders to curtail customer research and prematurely launch their product. Also, fast growth can put heavy demands on team members and partners. If team lacks necessary skills, growth may exacerbate quality problems and depress profit margins.
Be an expert at your craft

We all have our specialties, and as a startup founder, you’re no exception. If you go into business with the mindset that you’re an expert at everything, you’ll likely end up with a spectacular failure on your hands.

You’re better off focusing on one or two key areas of expertise, and then banking on other areas of poor judgment to save the day. Otherwise, you’ll end up with an unprofitable startup and a history of failed ventures. Focus on your strengths, and you’ll be much more likely to succeed as a founder.

Make the most of available resources

You’ve likely experienced this firsthand when you’ve been a startup founder. When you’re the only one in your company making a significant amount of money, you have the luxury of focusing on the things that will help your business succeed. It’s easier to ignore the things that will make your startup unprofitable and cash-strapped.

Rather than ignoring the expenses that are necessary to keep your business afloat, try to maximize the resources you have available to you. This will help you avoid wasting money on things that are no longer necessary. For example, instead of ordering a ton of inventory when you only need a few dozen shirts, try to order a few more shirts but get more use out of them. This will reduce the inventory you have to inventory even more.

Always work towards a business goal

As a startup founder, it’s natural to want to make millions of dollars from day one. This is, after all, the entire point of starting a business! But many startups fail because they don’t know how to scale their business in a profitable way.

Once they realize this, the founder-leader-owner problem becomes very apparent. As a startup founder, you’ll constantly be balancing your personal goals (such as financing your company) and the business goals (such as making a profit or achieving a certain scale).

It’s important to have a strategy for achieving both personal and business goals and to do this, you need to be very clear about what your business’s short- and long-term goals are.

When you’re a startup founder, you never know exactly where you’ll be successful or where you’ll run into trouble. This is the essence of risk-taking, and as a startup founder, you have the power to take risks that could drastically change the direction of your company.

For example, one of the most successful startups in the Internet space is Facebook. The company has proved itself by growing its user base by a factor of 100 over the years. At the same time, another Internet startup, YouTube, has done well by making videos but has failed completely due to the same reason.

This is a business that’s built on a very risky concept – creating content that people will want to watch. There’s a high risk that YouTube will fail, and it may never reach a profitable stage. This is why it’s so important to be prepared to change your approach if things aren’t going as planned.

Make sure you have contingency plans if the occasion arises, such as outsourcing certain tasks or creating a business plan if you find yourself in a situation where you have absolutely no idea how to proceed.

Don’t mislead users with content orads

Advertising is an essential part of any business. However, when it comes to startups, many founders approach the adage “never talk about money” with anæsthetism. In truth, the first step to making any advertising campaign successful is to identify the right audience.

Unfortunately, the vast majority of startups don’t have the necessary skill set to create effective micro-plots. As a result, most advertising ideas either go completely wrong or are simply ignored. One of the best ways to avoid this is to be extremely clear about how you plan to monetize your business.

For example, if you plan on charging monthly fees for your product, you need to clearly outline how you’ll make money from it. Likewise, if you want to use advertising as a source of revenue, then be as transparent as possible about how you’ll make money from that as well.

Be transparent about your financial condition

Your financial condition should be your top priority as a startup founder. This is because you’ll be responsible for not just financing your startup but also for its daily operations. It’s therefore crucial to maintain as much transparency as possible with your financing and business operations.

Rather than keeping things under wraps, share your finances with the world and let your investors know what you’re up to. For example, when you go in for a funding round, don’t keep it a secret.

Don’t email your investors and say you’ll share details about your financing at a later date. Instead, share your financing details with the world and let them know what you’re working towards.

A Reference to Research

Ganesaraman Kalyanasundaram, in his research paper ‘Why Do Startups Fail? A Case Study Based Empirical Analysis in Bangalore’, published in Asian Journal of Innovation and Policy(2018) 7.1:079-102 explored the issues of relating to- startup life cycle,- its entrepreneurial characteristics and factors, – causes of startup failure and the mode of entrepreneurial exit.

1. Startup Life Cycle To examine the critical factors determining success or failure of startups, broadly, the life cycle of tech startups would comprise three stages: emergence, survival and stability, and success and accelerated growth.

Emergence: The entrepreneur Focus is establishing & funding  POC (proof of concept) of product. Theentrepreneur himself funds the cost of POC, in most cases building  MVP (minimum viable product). Target market is be defined strictly and earn revenue. The brand will be build by right marketing efforts should lead to early revenue realization.  

Survival and stability: This is 2nd stage to establish & get firm foothold to move into the next orbit and the entrepreneur attempts to capture new market while retaining existing customers. This is helps him to get external sources of funds and identifying the right funding partner are given focus here. At this stage, the financial requirements will be of a higher magnitude, while maintaining the focus on execution of operations.

Success and accelerated growth: Now the product has attained the required maturity with steady revenue stream is well established.

Now the author tries to identify characteristic of entrepreneurs themselves for plausible factors that differentiate success and failure of tech startups.

2. Entrepreneurial Characteristics and Factors Gartner,1999 identified inherent characteristics (financial skill, business skill, technical skill, personality traits) that push them to pick challenges and execute them and acquired characteristics (skills and competency through the job, prior consulting career, sector experience) give them the confidence to explore new opportunities.  

This makes the entrepreneur tide the challenges by and large. When the acquired characteristics and inherent characteristics are high, the startup evolution is easier and the startup is formed. Internal factors are within the reach of the entrepreneurs and they have command over them such as finance, market, product features, human resources and they can vary the same to get the desired outcome. 

Entrepreneur in their efforts to establish the startup, should manage multiple challenges, while having limited resources at their disposal, and the proportion of factor requirements varies based on the stage in which the firm is operating.

3.Causes of Failure The reasons could be one or many at any stage of the startup evolution: uncertainty surrounding the decisions can lead to actions or inactions, event characterized by a steady decline in revenue and a steady increase in the cost of a firm, mobilizing additional funds through debt or equity, emotional attachment to the startup and the product created and it restricts them to change the management from the founder team to a professional management team, additional personal investments leading to family pressure, option available to the entrepreneur is to initiate a management change and this may curtail his power in the startup, blocking the transition from the quality of idea to the quality of management.

4. Mode of Exit of Entrepreneur (Exit from Firm or Ecosystem) -Rational entrepreneurs should stop funding but they continue to commit resources to a failing course of action. Author stress that the entrepreneur should have an exit strategy and the quality of exit is important.

The entrepreneurial exit is a liquidity event and not a failure event. They refer startup as their baby and exhibit psychological attachment to the startup they have created, the summary of it can be found in Table below.    

exit summary Inferences:

Ganesaraman Kalyanasundaram analysed four cases on similarities and dissimilarities between successful startups and failed startups that  have enabled to derive some inferences and key lessons, as:

MVP should be created in minimal time &should be tested to ascertain the market fit early by avoiding grand product approach.

After market fir, revenue realization must be done at the earliest. POC (proof of concept) at the early stage of the product should not be prolonged and the product must earn its revenue in every transaction to be viable.

Partners or team should have the complementary skillset, a heterogenous skill mix is must to propel the startup ahead.

Startup creation with domain expertise may help in a successful startup

The desire to be financially independent at a higher level with ESFJ personality type characterizes the successful entrepreneurs.

Mentors to guide the team( founder, co-founders) and for initiate marketing, decisions

fail and successful startup

It was observed that all founders had a minimum of one professional degree and had the passion for the technology-based product and service development.

The MBTI( Myers Brigg)personality type of ESFP appears to be dominant among the successful entrepreneurs. It is observed that the successful startup entrepreneurs are note motionally attached to their startup, and they are ready to explore the exit options.

They had the burning desire to succeed and formed partnerships as they embarked on the startup effort. All the startups had high technical staff strength, their salary cost was higher and attritions were not impacting them.  

Bottom line

A startup is only as successful as the founders who run it. No matter what you do, you can’t replace the skills and experience that comes with being a startup founder. Rather than letting these shortcomings ruin your startup, learn from them and avoid these habits in the future. With a little bit of effort and hard work, you can make a successful startup and become a successful businessperson.

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