Five Reasons Why Startups Fail

Mitrobe Network

A large percentage of startups are more likely to fail than they are to succeed. This is the grim reality we must accept. Some of the reasons why startups fail  especially in Africa could be due to certain external factors like market forces, government policies, or infrastructures like electricity, internet, and transportation, that is, factors beyond the control of the enterprise.
But more often than not, startups fail due to conceivable and obvious reasons like mismanagement, choice of business model and funding.
People often conflate startups for businesses. However this isn’t entirely right, a startup and a traditional business are different and have peculiar focuses. This will be explained in a subsequent article.
Just so you’re clear, though, a startup is primarily designed to grow fast. They have something which they can sell to a very large and easily accessible market. This conception differs when it comes to businesses. Here are Top 10 Startups in Africa Solving African Problems.
Generally speaking, businesses don’t need a big market. They only need a market which they can reach and serve.
This is why most startups – Piggyvest, Farmcrowdy, Paystack, Opay, etc – are tech-inclined. Digital businesses can reach a large and diverse market because they are not constrained by time and space, unlike traditional businesses that operate in physical markets.
This desire for fast growth, however, contributes to the high, potential risk of business failure associated with startups despite most of these startups received high-end backing from venture capitalists and risk investors.
Here are five basic reasons why startups fail in Nigeria.

1. Designing The Wrong Product

A careful survey of failed startups revealed that the main reason for their failures was because there was no market demand for their products. The importance of understanding the needs of an existing market cannot be overstated as it determines the progress your startup will make, if any. If there’s no demand or need for the product or service you’re providing, then there is a high probability your startup will not be around for long.
When building a product, you must consider who your potential users are and if they have demand for the product at that time unless you will be planning for a disaster. This is the reason why car-hailing startups like Max ride, Uber, Oride among others are having huge successes in Nigeria. They recognized the lacking transportation system obtainable and capitalized on it.
You must be realistic enough when designing a startup to ask questions like: Am I looking to solve an existing problem? Or am I looking to make changes to the ways people live and how businesses run? Do I want to leverage on a clear area of need or to restructure an already existing model? You would be wise not to plunge into a market with both feet. Testing the waters with one foot, probably a trial product or service to determine if there’s a need for that product or service will stave off disaster. Remember, failing to plan, means planning to fail.
2. Funding
Funding strictly rivals the wrong choice of product in our reasons why startups fail. Many startups that have failed in Nigeria didn’t necessarily fail because of insolvency – being unable to pay debts – or unprofitability of their business models, but because of a lack of funding. You need money to finance your business and offset the numerous hurdles you are bound to face. Most startup owners are guilty of promoting features not crucial to their startup survival and not having feasible budget plans.
This is wrong and is a recipe for failure. You can not really go far if you do not have enough capital and while some startups operate with the foreknowledge of this, they decide to head in any way with the hopes that revenue generated in the business will carry it along. But then, what happens when profitability is not instant?
Investors have tremendously aided startups in Nigeria in recent time as seen in Zuckerberg’s backing of Andela and Paystack’s backing by Y combinator. However, while a venture capitalist’s backing gives your startup a bit of a runway, mismanagement of funds will spell doom. Talking of mismanagement…

3. Resource Management

Resources could be human or capital and is also another reason why startups fail. How effectively you manage these will determine the length your startup stays. Starting and managing a business is no mean feat and requires a whole lot of dedication, hard work, and diligence. Sadly, a management with absolutely no experience in running a business will struggle to deliver.
You must carefully select your team as such. A startup is as good as the people behind it. Do you have the right team? Do they share your ambition and dedication? Do they have the requisite skill and knowledge required in the business terrain you are traversing? These and many more are questions worth asking.
 Mark Suster says, “Individuals don’t build great companies, teams do.” But while building your team, remember, a good team can make an average product and run a brilliant company but a great product will most definitely be run down by a terrible team.

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4. Poor Marketing

Do you know that even when you have the proper team that has helped develop a product right for its intended market, your startup will still fall if you have a poor marketing structure? Marketing to a very large extent decides not only the success of your startup but the level of its success. Sadly, most inexperienced startup owners are more invested in building great products than they are in finding a way to sell it.
Much has been said about why a poor knowledge of target audiences and their demands is the first reason why startups fail.
However, it must be belabored, the fact that getting the attention of potential users of your product and converting them to leads and then customers, is one of the most important skills you must possess to make your startup a success. A good marketing strategy helps fill this need and must be properly prepared and analyzed, with professional help if necessary, to ensure your startup does not fall victim to this pitfall.

5. Short Term Focus Rather Than Long Term

As mentioned at the onset of this piece, one incredibly characterizing trait of startups is their focus on fast growth and quick benefits This is tantamount to thinking in the short-term which truth be said, in a country like Nigeria where startups are certain to be besieged by a number of challenges, is not advisable.
This here is another reason there is a large number of startups that have hit the blocks and been washed down the drain a few months or years into their creation. Put simply, it is another reason why startups fail.
Take it or leave it, building and running a credible business is as daunting as it is exciting. You need a whole lot of distinguishing features to set you out from the rest. While efficient branding is one on the part of your product, the ability to stay persistent, committed and motivated is just as important for entrepreneurs not to lose focus too early in their adventure. Of course, before going into a business every right-thinking individual will have set goals and objectives. However, these must be structured in the long term to relieve yourself of unnecessary pressures that might end up toppling that nascent startup.

Can you now recognize the basic reasons why startups fail?

Most likely you can – wrong product design, lack of funding, epileptic team management, poor marketing strategy and the mad rush for quick success. Notably, another reason why startups fail is that very few founders actually get started because they are passionate about solving a problem that no one else is solving.
Oftentimes, startup founders have the desire to either become known as a CEO, make quick money within a short period or escape the turmoil that is working under a difficult boss. Whichever your intentions are, ensuring your startup attains fruition starts with recognizing these loopholes and acting accordingly.


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