Why Do 90% of Startups Fail and How to Invest In A Right One

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Many people dream of building and owning a successful startup. However, creating a startup is not a walk in the park. It is an arduous endeavor that entails struggles and challenges, especially in its early months or years.

Aside from the complicated and lengthy process of establishing and running a startup, there are numerous hurdles that founders need to navigate. According to Forbes magazine, 9 out of 10 startups fail within the first three years of business.

We all know that having a lucrative business idea or a revolutionary product does not guarantee success. You need to be fully ready to face challenges as well as the grit to steer your startup towards your goal. There are many reasons why startups fail, from lack of market demand to legal challenges. Knowing the top causes of startup failures can guide angel investors or crowdfunding supporters in choosing the right company to invest in.

Here are the common pitfalls that can cause the demise of a promising startup.

Lack of market demand. Revolutionary and successful startups are those that solve an existing market problem. If a product or solution fails to create demand, its downfall is inevitable. When choosing a startup to invest, it is vital that you check the products they offer.

Lack of qualified team members or employees. Startups require a diverse team with the right training and skill-set. Startup founders may have a lucrative business idea but the lack of dedicated team and qualified manpower can make it difficult to implement your business plan. The team complements the skills and talents of the startup founder. Disharmony in the organization, either among employees or investors, might result in a failure.

Unreasonable pricing. The pricing of a product is vital to its success. Products that are too expensive are less competitive which can hinder its success. This makes it important to check and compare the startup’s product line and pricing before investing.

Insufficient funds. Aside from time and effort, money is vital to the smooth operations of a startup. The amount of funding a business needs vary greatly. When scouting for a startup to invest in, you need to consider how the team plans to raise additional funding. They need to have a clear financial plan that outlines how and where they will source funds. Many startups fail due to lack of funds.

Poor marketing. Startups need to reach the right audience. This makes the marketing plan a vital part of business. An effective marketing is able to convert leads to actual sales. If a startup is unable to market their product successfully, then it might not be successful. Be sure to invest in a startup with a good marketing plan.

Ignoring changing market needs. They say that change is the only thing constant, and this is true even to businesses. Customer needs are ever changing it is vital for startups to come up with solutions and products that meet their demands. Look for a startup that has a good feedback mechanism and continuously innovate their products suit the customer needs.

Inability to compete in the market. Even if a startup has a unique product, there will always be competition (plenty of it). Understanding and studying the competition is necessary but startups should not overly focus on it. Instead, they should work to continuously improve their product. As investor, you need to look for a competitive startup that is geared towards innovation.

Absence of a business model or plan. In crypto crowdfunding platforms like Stokr, the business model of a crypto startup is explained thoroughly to investors. This can guide contributors or investors in choosing a company with an effective and doable business plan. A good business model should have a scalable strategy on how to acquire customers and convert them into sales.

Lack of commitment. Renowned and highly successful entrepreneurs are known for their passion and grit. The same is true with startups; the founders need to be fully committed towards their vision. The lack of this intrinsic trait can lead to failure. So, when investing on startups, you should choose a company whose leaders are fully dedicated to their vision.

Legal challenges. Lastly, legal complexities can stand in the way to success. It could be with the intellectual property rights, inability to cater global audience, non-compliance with standards or regulations, breach of contracts, etc. There are many legal questions that can cause a promising startup to fail. As such, if you’re planning to invest in a startup, make sure that it has all legal requirements. It pays to run a quick background check about a startup’s legitimacy. Due diligence is vital to avoid being scammed.

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