Showing posts with label failed business ideas. Show all posts
Showing posts with label failed business ideas. Show all posts

Top Reasons Why Startups Fail

startup failure reasons
Startup Failure is considered a taboo in many parts of the world. However, it is a phenomenon which is highly prevalent and cannot be avoided. Nearly 90% of startups fail within the first 3 years of operations. Top 20 reasons why start-ups fail include the following:

#1 – Building a solution looking for a problem, i.e., not targeting a “market need”

#2 – Ran out of cash

#3 – Not the right team

#4 – Get out-competed

#5 – Pricing/Cost Issues

#6 – A “User Un-Friendly” Product

#7 – I got this product. Now I just need a business model.                

#8 – Poor Marketing

#9 – Being inflexible and not actively seeking or using customer feedback

#10 – Release product at the wrong time

#11 – Lose Focus

#12 – Disharmony with Investors/Co-founders

#13 – Pivot Gone Bad

#14 – Lack Passion and Domain Expertise

#15 – Location, Location, Location

#16 – No Financing or Interested Investors

#17 – Legal Challenges

#18 – Do not use your connections or network                

#19 – Burn Out

#20 – Failure to pivot when necessary


Learning from Failure – Scalability of the Product

One of the important features of a product/service is that it should be scaling friendly and can be replicated in different geographies and markets. A startup product which does not have this attribute will find it difficult to grow beyond a certain threshold.

startup failure

37coins was a SMS based Bitcoin remittance wallet. Despite targeting a big market of around 2.5 billion underbanked adults, the startup failed to assess the reliability of SMS as a medium in many countries. This led to a bad product market fit for a large chunk of the market and hence resulted in the startup shutting down.

Advice – Assess the scaling potential of a business idea before proceeding with it. All attributes of a product must be taken into consideration to assess its scalability.

Learning from Failure – Don't Put All Eggs In One Basket

startup failure

Dine In was a restaurant delivery app whose founder was very focused on getting acquired by a larger player. An incident with an investor led to their downfall.

The founder Evan Graj says in an article - “We knew acquisition was the best course of action,” says Graj. That eventually led to Dine In being approached in February by a major Internet company active in the online food space, and it’s my understanding that by April — and significant legal fees later — a sale had been agreed. Then at the eleventh hour the deal unexpectedly fell through, leaving the restaurant delivery startup “high and dry” and its unnamed acquirer a “no-show”. Adds Graj: “They backed out leaving us with a huge legal bill both for Dine In and myself personally, a huge debt to note holders, and no VCs to turn to. A hard lesson to learn and one I’ll be taking into my next venture.”

Advice – The startup and its growth should be the prime focus on an entrepreneur at all times. Ignoring this for things like funding, getting acquired etc. is a bad practice and must be avoided at all costs.

Learnings from Failure – Infographic

A study was conducted by CB Insights by analyzing more than 101 startup failure postmortems to find out the top reasons for startup failure.

startup failure reasons


The top 3 reasons found to be a part of failing startups were – The Absence of a Market, Running out of Cash & a Wrong Team. These indeed are the 3 most important components of running and growing a startup (along with having a Business Model, which ranks at no. 6).

Learning from Failure – Regulation Issues Need to be Dealt With

When thinking of your business, it is important to also consider how and to what extent Govt. regulation and policies can affect the same. There can be and have been cases where a good and innovative startup idea has been curbed and has eventually failed because of regulation issues.

startup failure

Flytenow was a startup which closed because of this. It was a startup which was looking to connect aviation enthusiasts with pilots and go flying together. The Federal Aviation Administration in the US banned this startup and other flight sharing websites. Flytenow had to shut down eventually.

Advice – As a startup, you would not want to get on the wrong side of regulation. Keep that in mind if it can potentially affect your startup.

Learning from Failure – Have a Plan

Having a plan helps the team move forward in a proper manner. Not having one results in different members of the team putting energies in different directions, thereby resulting in a loss of time, effort and money.

importance of a business plan

Boo.com was an ecommerce company which went bust despite launching on a big scale, in multiple countries. Besides the other challenges they faced, the biggest factor for their failure was the lack of a project plan which resulted in a complete lack of communication within the team. As was said after it went bust, Boo did not fail as an ecommerce company, it failed as a company in general.

Advice – Do not start investing time and money without having a plan.

Learning from Failure – An Idea Should be Explainable in 1 Sentence

If your startup idea cannot be explained in 1 sentence, it lacks focus. A few words for the business model and a few for the market targeted. If either of these are not certain, we tend to go into explanation mode which tends to make the idea statement longer and lacking focus.

startup failure

Amiloom was one of those ideas which lacked focus. In an article by the founder, he acknowledges the same – “We believe that Amiloom is an extremely innovative product better than anything currently available for helping you meet the people most likely to become a part of your life. Amiloom is a connected device that forms a network of people with common friends, shared tastes, and who only need to go as far as the device was handed to meet up with each other.
The problem is that no one knows this. When you see a picture of Amiloom you have no idea what it is. In 2 lines of text there is no way to explain both why and how it works. We have built it and are telling the world, but no one can hear us, few people understand us, and the masses are not coming to us.”

Advice – Stop and write your idea statement. If it does not fit into 1 sentence, you need to think and focus further.

Learning from Failure – Co Founder Disagreement Harms The Startup

Building a startup is a long and difficult task. In order to do so, the team must be aligned in the same direction and must have a common vision for the startup. If there are any conflicts within the team itself, growth is not possible. It is similar to pulling any object. If 2 people do not pull it in the same direction, it does not move at the rate if can if both pull in the same direction.

co founder disputes

This is what happened to my first startup Bitequest. We were a team of 3 co-founders. I believed that an online restaurant discovery tool was the right way to build the company while the other 2 felt that building an offline restaurant call center was the right way to move. Due to internal conflict, we noticed that our startup had stagnated for a period of more than 8 months. Eventually, I exited the company.

Advice – Founders are the parents of a startup. Having a similar vision and understanding is a MUST to raise the startup in a uniform and optimum way.

Learning from Failure – A Wrong Concept Spells Failure

A startup built on a wrong concept is likely to fail. By wrong concept I mean a space which is either not present, very small or is not one which can be monetized. Though a startup may be able to create some value initially, the inadequacy of the targeted space will eventually result in the startup failing.

startup failures
Ratemyspeech was a startup which focused on improving presentation skills using a community based feedback platform. The startup had to be closed down due to fact that most people did not care about a service like this and would not be willing to pay any money for it. As the founder says in this article – “Most people (95+%) just don’t care enough about their presentations. So they will not take the time to prepare a draft speech, upload it, expose it to scrutiny, then take the feedback onboard and rework it. The rest, the less than 5% on the other hand takes it very seriously, and many of them have a strong network of people who they can ask. But they wouldn’t pay for some service to make this a bit easier. For them, we would not be able to deliver value.”

Advice – Research the market you are targeting time and again to ensure that it is big enough and monetizable for your startup to sustain.

Learning from Failure – Sustaining in Businesses with Delayed Revenue

A lot of businesses have a particular characteristic associated with them, i.e. they take a lot of time to start generating revenue. One such business is the News Business. This is a business which requires a lot of investment of time, skill and money in order to build a brand and a product which can engage its users. Revenue starts once it is able to do so.

startup failures
Circa News was a news startup which tried to atomize content to deliver the latest news. Its mission was to create a news company where unbiased and concise information could be found. Though the team realized that generating the first revenues would take some time, they tried to raise venture funding to last out the initial phase which they were unable to do so and hence had to close down eventually.

Advice – News startup should realize the nature of the business they are entering and should make their plans accordingly.

Learning from Failure – Avoid Being Over-Optimistic

The Optimism Bias of entrepreneurs is a common problem which can seriously affect the way the entrepreneur thinks about a startup, thereby affecting the startup as well. As the name suggests, it is a cognitive bias which impacts a person’s judgement about a particular event (startup in this case) and makes him/her feel that the chances of a negative outcome are very low.  An entrepreneur, at all times, should think about the startup without having a bias. Only then can the entrepreneur assess the startup’s progress correctly and plan accordingly.

startup failures

Tale of Tales was a startup which used to create narrative based video games. It was making a video game called ‘Sunset’, which the team felt was very good and would be a success. With this bias, they ended up investing much more time and money then they had initially planned. As a team member said “Surely we can make that amount back in the first month of sales!” This did not happen though and there was barely any income to keep the company afloat.

Advice – Think reasonably and practically about your startup. Biases affect judgement and hence the business itself.

Learning from Failure – Passion Drives a Startup

You must realize that starting a company is a long and tiring process. You start a company, face obstacles, pivot, then scale, then fail, pivot and so on. So with some many challenges along the way, what drives you? Passion & the excitement you feel when you talk about your startup. The day this passion starts going down, you are bound to give up.

startup failures

Jeanette Cajide is a great example of an entrepreneur burning out. She started Blurtt, an app for creating and sharing digital expressions through photos. She started the app on 2009 with a very different concept, curated photography for creating and sending out postcards from your phone. On not being able to scale up, she pivoted to another model in 2010, and another one in 2011 and finally the final model in 2012. She was trying to reach a model which was scalable and which was ‘investor friendly’. She then realized that she was probably not doing what she had set out to do and was feeling burnt out as a result of this roller coaster journey. She finally closed down the startup in February 2014.

Advice – An entrepreneur’s passion is the energy which drives a startup. This energy helps you find the right path and keeps you going. The day you feel the energy is going down, it might be time to close down.

Learning from Failure – Plan your Cash Requirement

Running out of money is a common cause of startups failing. You may be building a great product, but money in the bank is what can keep you going. Planning your cash requirements accurately upfront itself ensures that you do not get into a position where money, or the lack of it, blocks the path to reach your goals.

startup failures

Drawquest was a startup looking to create a drawing community online. The product got great traction. It was downloaded more than 1.4 million times in a year and had more than 25,000 people using it on a daily basis. What the business was not able to do was to monetize this traffic.  The startup could not raise investment as well and eventually ran out of cash.

Advice – Financial planning is crucial for any startup. Planning out a requirement of cash helps the entrepreneur thinking about arranging the same, without having to run out of money.

Learning from Failure – Identify a Real Audience

The first step for an entrepreneur after identifying a business idea is to identify and validate is the idea has a certain audience and target market. Having a few group discussions or surveys of potential customers is a good way to do so. Working purely on a hunch may result in an entrepreneur realizing certain facts and trends later on and facing difficulties along the way.

startup failures

Travelll was a startup which was trying to leverage the power of social media to the travel space and ended up creating a travel inspiration portal. The team felt that this was a model which was successful in a lot of other spaces and should be replicated for travel as well. Despite a reasonable start, they realized that the audience for this space was very limited. People travelled only 1-2 times a year, as against other activities such as fashion, photography which were more engaging and regularly used by customers. The startup tried to pivot along the way, but eventually closed down.

Advice – A ‘real and substantial market’ is required to build a scalable business.

Learning from Failure – Marketing Drives Growth

A lot of entrepreneurs tend to get so focused on the product that they forget to focus on putting it in front of the target audience. No matter how great your product, it means nothing unless customers get to know about it. Right from the very beginning, an entrepreneur must plan who the product is good for and how the business can reach the target audience in the most effective way at the minimum cost. Not planning for marketing can prove disastrous for a business.

social networking failures

Kinly was a startup which was trying to be a ‘Facebook for your family’. Given the dislike of a lot of users for Facebook, the product got a good initial review from its earl users around and got selected into an incubator as well. The mistake made by the startup was that because of this irrational optimism, the founders decided not to take on any investment, which they required to market the product. The product eventually died a slow death.

Advice – No matter how good a product, it cannot succeed if not visible to customers. Scaling beyond a certain level requires investment in marketing.

Learning from Failure – Business is for Profit

The first rule of business is that we are in it to make a profit. If we cannot, it will not sustain. There exist a lot of areas where real problems do exist, though making money is difficult. We need to clearly analyse and research whether the sector we are entering is monetizable and to what extent.

startup failure stories
Poliana was a startup which faced a harsh reality about the sector it was operating in, Politics. It was a political startup aiming to make the communication between political parties and the citizens easier through the use of technology. The team’s entire focus was on making Poliana a great product by solving the problem they had identified, and not on making it a business. What they realized was that owing to the nature of concept they had and the space they were operating it, it became very difficult for them to make money out of something which deserved to be free.

Advice – A startup should definitely be based on solving a problem. However, care should be taken in assessing whether the problem is in a space in which the business can generate profits.

Learning from Failure – Negative Unit Economics

peppertap closed

Peppertap was a pioneer in the hyper-local grocery delivery space in India. By October 2015, they were one of the top 3 grocery delivery companies in India, doing slightly more than 20,000 orders per day. It just announced a few days back that it is closing down.  

One of the biggest reasons for its closure was the negative unit economics the business model faced. In India, discounting has been the most commonly used tool by startups to attract customers. Peppertap was also using the lure of cheaper prices to attract customers. Also the committed delivery time (of less than 2 hours) meant that company was having to spend money to create spare capacity in its logistics and supply chain. This too had a significant cost.

The startup was effectively bearing a big loss on every sale owing to discounts and the logistics costs. Since this loss was not visibly looking to come down drastically even in the longer term, the founders decided to close the startup.

Advice – A startup can bear negative unit economics in the short term. However in the longer term, positive unit economics are a must for the business to sustain.

Learning from Failure – Building Sustainability

startup failure

Springpad was an organizer for all kinds of projects and tasks such as home improvements, interior design projects, movies to watch and so on. It closed it’s doors in mid 2015. The startup had over 5 million users and a product which users loved. The main reason for it’s closure was the inability of the startup to create a sustainable business model within time.

"We built a heck of a product," Springpad cofounder Jeff Janer says. "But we didn’t build the business. In that respect, given our background, we wanted to provide useful information to people that could be monetized. That meant considering micro-transactions. We were considering organizing guru Peter Walsh’s Instant Kitchen Organizer as a free example for a series of different room organizers that we would launch as paid notebooks for purchase, or generating income from affiliate conversions, but we never rolled out a premium or freemium offering based on notebooks or anything like that. We had to make the choice of going for ad support or a freemium model. We went down the ad support path, which just required a lot more scale than we could ever achieve." (excerpt taken from this link)

Advice – Look at building a model which is not just scalable but also sustainable in the longer term. 

Business Ideas Likely to Fail

failed business ideas

There are certain kinds of business ideas which I feel are more likely to fail than others. These are generally not able to create substantial value which can help them sustain in the long run.

The ‘Amazon for a Niche’ idea: A lot of new entrepreneurs tend to look at ideas like this. I had a friend who was able to create a successful ecommerce store for dog food in India. Once Amazon entered this space, it’s sales was at par with this startup’s within a period of 4 months. Similar examples can be seen in other online spaces as well.

The ‘Craiglist for a City’ idea: Similar to the above, some entrepreneurs feel they can create a ‘Me-too Startup’ in their city. Unless their scaling is commendable, surviving once a big player enters is difficult.

At the end of the day, I feel the true valuation and survival chance of a startup is totally dependent on the value it is able to add to the ecosystem as a whole.