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Why 9 out of 10 start-ups fail to build a successful business model?

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Start-ups & Failures

To begin with this topic has been discussed several times before but is just a different view which may resonate with some of you. And also I am not an expert on this subject but an entrepreneur witnessing entrepreneurship closely to its skeletal being.

Common ground

All entrepreneurs have some common trait of getting bitten (smitten) by this ‘keeda’ (bug) earlier in their life. Some are aware of it and some unaware but eventually fall into this trap. Yes you read it right, ‘trap’ as it always leads to failure more than success with all its baggage like failed person, degrading social image to parasite living on parents/spouse at their productive age and many more.

WHY?

Why do most of the entrepreneurs fail so miserably and why only few or 1 out of 10 become a unicorn?

Some serious answers, right?

Actually ‘YES’ and in a way ‘NO’ too.

‘YES’ because if doesn’t work as revenue model then their ideas are not going to be implemented in the market resolving the societal issues.

And ‘NO’ because entrepreneurs are people essentially with ideas, novelties and different (read ‘out of box’) approach to problem solving and not making the biz model work. That is not their concern. They play and brood on their ideas and solutions to add value in society.

Scalibility

The bigger issue would be “is the idea scalable?”; meaning in simple terms a start-up is an organization searching for a repeatable and scalable business model.

Ultimately the bottom pitch is the bottom line of the business model evolved over the unique idea. So why do investors invest in these ventures knowing too well the risk associated with it? I think nobody has the right answer or formula for this kind of investing but it’s more to do with hope of disrupting the market and greed of the returns.

Investor box

Here I would like to mention different types of investors, largely three types; one is the ‘out of the box’ type, second the ‘hard facts’ type and third the ‘neutral’ type.

The ‘out of box’ type thinks this is the unique product/service which would disrupt the market. They usually have entrepreneurial background in some form or the other.

The ‘hard facts’ types are brutal in their approach with solid business model. These are normally inculcated later in the life cycle of start-ups when the ‘out of box’ type are exiting. They would be hell bent to get the bottom line out of red with whatever methods possible to the extent of changing the product / services. They are hard core business guys and interpret the business model and people in profit/loss figures.

The third type namely ‘neutral’ types who are the balanced guys with right dose of entrepreneurial and business approach. But as they have very highly evolved mentality they are seen investing in high stake businesses and rarely in start-ups. But once in a while you may see them investing in start-ups. These breed have history of doing business for long enough time (now retired) with steering their empires or businesses out of hardship not once but several times. They have a very evolved and balanced approach unlike the other types mentioned. They have simple common sense questions to entrepreneurs and always guide entrepreneurs to ask oneself the tough and brutal questions with simplified answers. Examples may be a) Are there enough customers for your product / services?; b) Will your product / service itself be marketing tool for your business? and many more.

Reasons & success

So the reason of the failures may be lack of right investors struggling with the start-ups to their deserved end game, lack of right start-up with wrong investors OR many other reasons. You may add your experience and give a reason as every start-up is different with its personal point of view and circumstances.

The point is how are you overcoming these obstacles into advantage and  leveraging to its implementation,  managing the start-up to value addition & profitability.

Your comments & opinions are welcome.

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2 Comments

  1. hi vinayak,
    as you mentioned, everyone has their own perspective on this topic! thanks for sharing yours.
    you’ve categorised investors into 3 categories. i was just curious to know how many investors have you met professionally to come to this conclusion? or was it a part of your online research/observations that you’ve made these categories?

  2. Hi Asha, thanking you & Alok for all your efforts. I have met more than 10-12 investors till now since last 4-5 months. I have a start-up in real estate sector. Before that I met 2-3 investors about 9 years back (not knowing they were called investors) for other product in health care sector (dental). I know 2-3 entrepreneurs and their encounters with investors at personal level. I have stop approaching them & based on their feedback trying to refine my biz model (value addition to real estate services) and reaching a level where they would approach me . I know it is a difficult task but like to follow it anyway. So as to answer you, it is both meeting with the investors mentioned and some observation. The categories are just to identify to understand them from my prospective. It may not be so define.

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