Why Many Gen Y Startups Fail

This is a post I have been working on for quite a few weeks now and only just concluded that it’s got enough information and ready to be shared. Each day I stumble on myriads of blog posts about how to succeed in business or how start-ups succeed, I rarely see people talking about failure in start-ups and how to avoid it. Failure is hard, it is exceeding difficult to bare. However, it is also a state we all find ourselves in at some stage in our lives. If you ever find yourself in this state, just make sure you learn from the experience and use it to better yourself.

“A failure is a man who has blundered but is not capable of cashing in on the experience” – Elbert Hubbard

A start-up is like any other endeavor in life, you either succeed or you fail. I have seen and read several stories recently about failed companies and all that has inspired me to put together the most popular reasons why startups fail.

When one builds a start-up, it is (usually) because the person has found a hole in the market. He has found that the market demands a certain product that is either not yet available or is available but in a way that doesn’t completely satisfy the people. I have found that most start-ups that failed to get off the ground did so for practicing the opposite of this. This culminates in my first point.

Supplying what wasn’t demanded.

I find that majority of start-ups that never failed to cut it ignored the number one principle for whatever reason. People only pay for what they want. Many entrepreneurs believe they can come in and “create a niche” out of nothing or spark demand by putting a product out there. There are certainly times when this will work but most times it doesn’t. You will end up investing money and time into creating this product that doesn’t appeal to people hence killing your business.

When Apple came up with iPods, it was because people needed a way of carrying music around easily. Music was already there, and people wanted a way to have their music with them when they are outdoors, indoors and on the move. The existing means were chunky and unattractive. See that was the demand and Steve Jobs of Apple Inc. was kind enough to order John Rubinstein to build us one.

Having a bad team at the helm.

I once heard at a start-up convention that it was a terrible idea for one person to start a company by himself. The speaker went on to say it was a huge red flag and can be interpreted as saying the founder couldn’t convince anyone to partner up with him maybe because the idea was garbage or the founder has a questionable personality. I agree to an extent that it is always good to have partners. That way there will be people you can share ideas with, brainstorm if you are not so sure about a next move, lift you up when the blues are catching up with you and so forth. But I don’t necessarily agree that it could mean failure for you. What I do think will bring failure is having the wrong people building and running the start-up. It could be one person or 10 people, but if they are not right for the task for whatever reason, you will run into problems.

Sacrificing Value for Profit.

The purpose of building a start-up is to make profit. People might beat around the bush and say oh, I wanted to create something people really needed and make life easier for us all, not so much for the money. I don’t like when people say that. Yes maybe you did want to make life easier for everyone but you decided to patent and market it because you wanted to make money off this “help” you are giving people.

Regardless of how much you itch for profit, make sure you don’t maximize it at the expense of the long term value. You want your customers to believe in you to give them the best value for their dollar. It’s not too farfetched that there are entrepreneurs who use cheaper raw material to build a product because it increases their profit but in so doing sacrificed the quality of the product and the trust of their customers. Eventually they will realize that someone out there makes the same product with better value for the same cost, and they will stop patronizing you. So, advice:  don’t jeopardize long term value for immediate profit. It will kill your start-up

Poor Funding.

This is a popular one. Many times I close my eyes and just imagine how many great ideas are still only ideas or prototypes because the founders cannot secure enough cash to make a full functioning product. There must be loads of them. It is important that Entrepreneurs do extensive research into the several methods of getting early investments before they start building. When you have limited budget, it could lead to a limited product. It could lead to the entrepreneur cutting back on a number of features or parts of the start-up that are critical to its survival. There are several ways to go about seeking funds for a start-up but keep in mind that it takes a great product, a great team and a great bit of luck to actually get the right amount of funding.

Unfavorable Location.

When Y combinator was built, they did so with the idea of putting founders in a place that will favor their growth and keep them away from distractions. When building a start-up it’s a good idea to be in a place where the market for your product is highest and where the industry has its best players in. Why do you think silicon valley is home to most web startups in America? It’s because the gurus are there, that’s where investors, experts who know the A-Z of the web startup industry move themselves to. They want to be around likeminded people who will keep inspiring them.

Bad Marketing.

If you build the world’s greatest product and no one knows about it, then you will fail. Marketing is absolutely critical to the success of a start-up and no wonder most start-ups spend a huge chuck of their funds on spreading the word. Someone once told me that “if you build a great product, people will come”. I completely disagree. They might come but like 10years later and you will probably have failed 9 years before that anyway. Key to a successful startup is the marketing plan. You must know which target market will purchase your product and come up with a brilliant way of getting the word across to them. If you don’t, chances are that ‘It’s a wrap’!

There are certainly several other reasons why start-ups fail, here are just the most popular ones I have noticed and wanted to share. If you do know any others, kindly share with the rest of us.

Tagged as: entrepreneur, failure, funding, location, marketing, startups