Why startups fail

There are several reasons why startups may fail. Some are specific to a venture, and hence would vary from situation to situation and startup to startup. One of the most common reasons of course is poor execution or lack of execution capabilities.

However, even with high quality teams there are some common hurdles that startups face and which can be fatal. While the list is not exhaustive, the following are some of the areas you might want to watch out for.

Overestimating the value of the value proposition – going wrong in the assumtions

Entrepreneurs are passionate about their concepts and products/services. Sometimes this enthusiasm manifests itself as unrealistic optimism, with overestimation of revenue projections being the most common mistake.

It is important to that you share your assumptions on conversions, revenues, repeat purchases, sales cycles, etc. with a few people who are not directly involved with the venture and see if their views conform your enthusiasm and optimism.

If many people do not share your optimism about revenue projections, it is prudent to budget for a lower number. You may continue to aspiring for higher numbers as per your view, however plan and make your financials work with lower numbers.

Changing the business model often

One of the most common mistakes entrepreneurs make is to make changes in strategy and direction too often and without giving enough time for one strategy to be implemented. Often this change is considered as being nimble, and is assumed to be the nature of being a startup. However, while it is possible for startups to change direction, when you do so should be a very well debated and considered decision.

Being underfunded

Quite a few startups fail because they run out of money to continue, even if they are doing well. Underestimating costs and overestimating revenues can sometimes leave even good ventures cash strapped.

Not having a clear plan

Often many entrepreneurs start with a broad understanding of what they plan to do, bootstrap to get started and assume that as they grow they will figure out a way to scale. Trying to find direction when you are growing can be dangerous. It is important to plan well ahead to ensure that you have a smoother ride as you grow.