Shocking or not, it is a fact that almost 90% of startups fail. In 2024, more than 5000 startups failed and shut down. The market is competitive and other factors can contribute to a startup’s failure.
21BY72 has worked closely with investors and startups, and we understand the internal mechanics of what makes a startup successful and what leads to a shutdown. Here is a compiled a detailed list of top 10 reasons why a startup fails.
1. Overlooking Product-Market Fit
If there are no customers or if they are not happy, the chances are your startup is about to close its doors. The stats show 42% fail because their
product/service is not needed in the market, and 13% fail because their product does not match their chosen market (source).
Without a doubt, there is an impactful co-relation between product-market fit and a startup’s success. Start by researching the market and the customer before launching, target the right audience and understand their response, this will help you determine if your product is accepted in the market and will it lead to success.
2. Your Team
Your team isn’t just a bunch of employees who work under one roof. The founder, co-founder, and the employees have to work together to make a startup successful. It is found that 23% of startups fail because the team isn’t right (source).
While the founders are the ships’ captain, they need the support of sailors, cooks, stewards, and others to keep the ship afloat and moving. Likewise, a startup team needs to manage marketing, technical support, finances, and more. An inefficient team who doesn’t work towards one goal will not lead to a thriving startup.
3. Financial Mismanagement
How you manage your capital will determine how successful your startup will be. Raising funds too early, too late, or not planning your expenses, in all these cases, if your startup becomes short on money, it won’t be able to survive. That’s why it’s the second most common reason startups fail in India. If you don’t want to be among the 29% of startups that run out of cash and shut down, learn how to manage your finances.
Pro tip: Stick to your essential expenses and track all of them. Be realistic about your financial forecasts and raise funds strategically.
4. Lack of a Business Model
Here is another statistic: 17% of startups fail because they don’t have a structured business model. The task is challenging but rewarding. Once you
have a business model, you have a definite path to follow, then it becomes easy to stay disciplined as well as secure funding. Business models should cover operations and marketing, financial and demand projections, and everything else.
Pro Tip: Create a scalable business model to expand effortlessly, make more profit, and win over investors.
5. Disregarding Customers
Without customers there is no business. Listening to their feedback is not a strategy but common sense. However, knowingly or unknowingly, many
startups completely overlook their target audience’s needs and feedback. So, it shouldn’t be surprising that 14% of startups fail because they ignore their customers. From validating your idea to launching your MVP, keep your target audience at the center of your attention.
6. Underestimating the Competition
19% of startups fail because they have high competition. While there might be other factors contributing to this, most of the new startups fail because of intense competition from both the industry giants and the smaller companies. You cannot exactly avoid competition. You are what makes your business unique, so market it accordingly.
7. Not Pivoting
Pivoting refers to a major change in the startup or business model. Why do it? Because as your market changes, so does your business. Those who don’t adapt generally are left behind. 7% of startups fail because they don’t pivot, and those who pivot can raise 2.5x times after pivoting (source). Timing and how you do it also impact the startup’s success. Therefore, you should consult an expert or investors and do thorough market research before making any plans.
8. Investor Conflict
Investors can make or break your startup. If their values don’t align with startups and entrepreneurs or they become too controlling to safeguard their
investments, failure is imminent. A shocking 90% of VC-backed startups fail, and 73% of the founders lose control of their startups to VC firms (source). Therefore, you should choose a reputable investor who aligns with your values and understands how your industry works.
9. Faulty Marketing
A common mistake a lot of startups make. Innovative and IT-focused startups often think that creating a stunning product is all it takes to make the startup successful. They couldn’t be more wrong. Even if they have an A-class product, it’s useless if no one knows about it. So, focus on promoting your startup product/service to your target audience for sales and to boost your brand image in the market.
10. Inadequate Valuations
Valutions is where most startups struggle. Some navigate the path effortlessly, while some become part of the 18% startup failure rate. You must understand your target audience’s spending capacity, competition, and costs to keep the startup afloat and boost sales.
Conclusion
90% of startups fail because they often do a few essential things wrong. They usually overlook product-market fit, competition, financial projects, and
pivoting when needed. The issues with the team, investors, and ignorance of customers’ needs often result in startup failure. Lack of a structured business model and price-cost management also contributes to the startup’s failure and shutdown. Therefore, startups should research and create a business model to keep afloat and avoid failure.
FAQs
1. How to avoid startup failures?
The first thing that all startups must do to avoid failure is to validate their idea. They should conduct market research and target audience testing to validate their idea and MVP. Keeping the customer’s feedback first can help them succeed and win over the competition. The startups should stay updated on the industry trends and customer preferences to pivot when necessary. Choosing the right investors and team members can significantly impact how the startup works and its success rate.
2. What are the most common mistakes that startups make?
A few common mistakes startups make are overlooking product-market fit, competition, target audience’s needs, financial needs, and price-cost management. Overestimating themselves can lead to unrealistic projects and goals that can lead to losing customers, investors, team members, and more. Poor marketing and lack of a business model are a few drastic mistakes that startups make that lead them to failure.
3. What is the startup failure rate in India?
90% of startups in India fail for many reasons, such as lack of research, market testing, underestimating competition, bad investors, team relationships, and not building a structured business model.
4. Which sectors have a higher startup failure rate?
Some sectors with the most startup failures are ecommerce, fintech, real estate, and delivery startups. A few common reasons for startup failure are the lack of research, demand, product-market fit, competition, and lack of funding.
