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Factors that most frequently cause the closure of startups

Factors that most frequently cause the closure of startups

Those who own a startup know how complicated it is to survive in this market for a long time. Although many startups thrive and grow quickly, most of them end up failing. According to a study by CB Insights, 70% of startups fail before they are 10 years old. So what are the factors that kill startups the most? Let’s explore some of them below.

1. Lack of market demand

Many startups are created based on an innovative idea or technology, but this does not always mean that there is a real market demand for the product or service that the startup is offering. Lack of demand can be fatal for a startup, because without customers, there is no revenue and eventually no business.

2. Lack of adequate funding

Many startups say they have shut down due to lack of money. But 8% cite, specifically, the lack of investors. In particular for the so-called “follow-on” rounds – when the company has already received a first round of investments, and would need a second contribution to continue leveraging the business.

Startups often need a large initial capital investment to get started, and often need additional funding as they grow. If a startup cannot raise the necessary capital, it may not be able to grow enough to become sustainable and may end up closing its doors. 

3. Lack of qualified staff

A strong and experienced team is essential to the success of a startup. Many startups are created by a single entrepreneur, but as the company grows, it is important to bring in people with complementary skills and experience. If a startup fails to build a qualified team, it may struggle to deal with the challenges that arise along the way.

4. Fierce competition

Startups usually operate in highly competitive markets, where large established companies and other startups are fighting for the same market share. If a startup cannot differentiate itself and stand out from the competition, it may struggle to attract customers and grow.

5. Problems with pricing

What is the right price for your product? This is one of the most difficult questions that a startup has to answer.

There are several methods that help in this definition. One of the first steps is to invest heavily in validation. Understand in depth how your customer thinks, what his price sensitivity is, and how much he is willing to pay. Another technique that can be very useful in this process is to unite the pricing strategy with the concept of problem/solution fit to reach the ideal price to be charged.

CB Insights’ research brings the case of the startup Delight IO, which created automations for cell phones. The company’s most expensive plan cost US$ 300 dollars. But customers never complained that it was too expensive. They just missed a more complete product (and maybe even paid more for a better-finished product).

6. Unfriendly product

It is fundamental to pursue Product/Market Fit – that is: to make sure that your product makes sense for the market. It’s no use having an amazing solution if it’s not what your customers are looking for. Many startups focus too much on winning massive customers or creating very practical products. But they forget to make it user-friendly.

Even worse is when the product is really bad. Hence the importance of creating a minimum viable product (MVP) and having an open mind to pivot at any time.

7. Lack of strategic planning

A clear strategy is essential for the success of any company, and startups are no different. Many startups focus on building their product or service without thinking carefully about how to market and scale it. If a startup doesn’t have a clear strategy, it can get lost along the way and end up failing.

8. Financial management problems

Financial management is crucial to the success of any company, and startups are no different. If a startup does not have sound financial management, it can end up wasting valuable resources or not managing its cash flow properly. This can lead to liquidity problems and even bankruptcy.

9. Lack of focus

Startups are usually created by passionate entrepreneurs who have many ideas and often want to pursue them all at once. However, if a startup does not focus on a single idea and execute it well, it can end up scattering and not reaching its potential. Lack of focus was named as a reason for the closure of 13% of the companies.

How to avoid the factors that most kill startups

In summary, startups can face a variety of challenges and obstacles along the path to success. The first step to avoid your startup falling into the same trap as so many others is to invest in knowledge. It is worth looking for the best books, movies, lectures, podcasts, and courses to find mentors who can help you see points that were not so clear before. Knowing well the cases of those who have failed also helps not to fall into the same mistakes.

adm geral

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