Main Causes of Startup Bankruptcy
90% of seedlings fail, statistics tell us. This is certainly the lot of any risky attempt. But what are the reasons for these failures? What are the main causes of startup bankruptcy?
Many startups that went bankrupt and we listed below frequently mentioned reasons. Something to give grain to grind to all those who wish to embark on the adventure, but also to all investors anxious to support entrepreneurs over the long term.
1 – Not targeting a real market need
Too many startups try to solve “interesting” problems instead of solving problems that meet a real market need. According to the study, this is the main cause of failure for 42% of respondents who could give several reasons. We do not respond to a universal demand with a poorly targeted solution.
2 – Lack of cash
Money and time are limited and must be allocated wisely. The question of how to spend money remains a frequent question and the reason for their failure for 29% of startups. Despite multiple approaches in the pursuit of ever-elusive product (and monetization) fit, startups end up running out of money.
3 – Not the right team
A diverse team with complementary skills is often cited as the key to business success. The human aspect is therefore also widely mentioned by respondents to explain the failure of the project (it represented 23% of responses)
4 – Too much competition
While startups shouldn’t pay too much attention to competition, the reality is that when an idea is relevant and validated by the market, there can be too many new entrants at the same time. And while obsessing over competition isn’t healthy, ignoring it was seen as a big mistake by 19% of startups surveyed.
5 – The selling price
Determining the price is an art that some fail to master, especially when starting an adventure. It should neither be too low nor too high. What criteria should be used? How to be sure of the right price? This is indeed vital data for the success of the project, as indicated by 18% of respondents.
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6 – Bad product
Bad things happen when you ignore a user’s wants and needs, consciously or accidentally. Once the final version has been released, if it does not correspond to the need and if above all, if the customer does not perceive it as it is, it is a disaster (for 17% of start-ups that have gone bankrupt).
7 – Lack of a business model
All entrepreneurs agree that a business model is important. However, many of the bankruptcies observed are due to the lack of planning of a business model. To attract business-angels or any other seed fund, it is essential to have thought about the question and to have modeled it (17% of responses).
8 – Bad marketing strategy
Knowing your customer base, knowing how to attract their attention and convert them into captive customers is one of the most essential skills of a company, young or not for that matter. All those who think only of their product without knowing how to make people want it actually have little chance of seeing their entrepreneurial experience come to fruition. This is what happened for 14% of those questioned. We often find this case in startups founded by technical profiles, engineers.
9 – Ignore customer feedback
Ignoring user feedback is one of the fatal flaws for most startups (14%). A fault that is all the more unforgivable since in the age of the internet and digital responsiveness, it is easy to quickly find out what customers think of the product or service offered.
10 – Bad time to market
If the product is marketed prematurely, user reception may be very poor and they may have bad memories of it. If released too late, competitors may have rushed into the breach, waiting, dashing all hopes of gains.
Sources: Consultant4Companies, Investopedia, Harvard Business School Publishing
Photo credit: stevepb via Pixabay
