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Why Do Startups Fail?

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It’s early in the new year, and a lot of entrepreneurs might be brimming with confidence at the idea of their startup taking off. The startup story, however, seldom goes entirely well. Worse more in a country such as our own which makes it quite hard to open and operate a business, there are a lot more failure stories than there are success stories.

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So why do startups fail? Well, CB Insights (an analytics company) crunched through some data and came up with a list of compelling reasons why startups fail. Though none of the startups assessed were from Zimbabwe it looked like the reasons they came up with are pretty relevant to our context as well.

Not failing fast enough?

So time and time again we meet people who have fallen in love with their ideas to the point that they can’t see how flawed the businesses behind the ideas are. CB Insights sites failure to pivot as one of the reasons why startups fail. If you don’t realise that you have a bad product, made a bad hire or a bad decision that jeopardises your company then it could certainly lead to the closure of the company.

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A perfect example of this (though outside of the startup world) was Nokia’s decision to keep making in-house software over going to Android years ago. Nokia doubled down on their terrible decision making and chose to go with Windows when they finally decided to switch OS’s and that brought the company to it’s knees. If Nokia was a startup it’s hard to see how they would’ve come back from that but fortunately, they weren’t and they have turned things around. Though they aren’t as dominant as they were back then…

Failing too fast?

This is where it gets confusing. Because startup founders are encouraged to make critical decisions that change the layout of the entity as quickly and as often as possible does not mean you might end up overdoing it. If you over-pivot you might find yourself in the same place that not pivoting would have led you to; the grave.

The CB Insights report takes note of this with an interesting statement:

Pivoting for pivoting’s sake is worthless. It should be a calculated affair, where changes to the business model are made, hypotheses are tested, and results are measured. Otherwise, you can’t learn anything.

Trying too much

Failing too fast can also be tied to another failure touched on later on in the report, which is a loss of focus. This could mean your startup starts going into other ventures. From being a pet store, you begin to offer loans, you start selling coffee, you probably get the idea. Anyway, this jack of all trades approach could leave you in deep waters. Most of the times, new ideas require new personnel and new personnel require money and can also affect the dynamic of existing teams. There are so many things that can be distracted by adding something new so think long and hard before you pivot and as you prepare to pivot.

Burnout

If you’ve started a business, you’ll probably know that IT’S A LOT. In the early stages, founders of companies are doing many roles all at once. You’re doing the books, and working on all other aspects of the business such as hiring. All this on top of the main aim of whatever your business is. This can get taxing pretty quickly and because that’s the case 8% of startups fail as a result of burnout.

Lack of financing

So if you’ve been at any pitching event, you’ll know that most of the startups there are there because they need money. This money will help take their idea of the ground or if it’s already off the ground it will help in scaling the business. What that means is that if these startups don’t get the funding they are looking for, then there’s quite a chance they are doomed.

This is very relatable to startups in African and Zimbabwe especially. There are no VC funds that help startups get funding in their infancy which means founders have to pull out all the money out of a rabbit hat or by doing other things. This makes it harder to get going because whatever it is you’re doing to source that funding needs attention that could be going to the startup you’re trying to take off the ground. Remember we talked about burnout… That’s probably worse in countries such as ours as many entrepreneurs have to dedicate their attention to catching two birds…

Can your startup scale across towns and borders?

This is another one Zimbos should relate to. How many times have we seen startups come up with ideas that can only gain traction in Harare/Bulawayo? Outside these two major cities, the ideas might not make sense because of one reason or another but we have seen this time and time again. One startup in the US put quite perfectly:

We launched our product and got all of our friends in Chicago on it. We then had the largest papers in the area do nice detailed write-ups on us. Things were going great …The problem we would soon find out was that having hundreds of active users in Chicago didn’t mean that you would have even two active users in Milwaukee, less than a hundred miles away, not to mention any in New York or San Francisco. The software and concept simply didn’t scale beyond its physical borders.

Ideas that scale are usually better than ones that do not; it’s pretty simple but trying to see how you can scale your product in the idea phase might help your business stay afloat.

Product timing

According to CB Insights, “If you release your product too early, users may write it off as not good enough and getting them back may be difficult if their first impression of you is negative.” This is something Techzim writers face too often when people want us to review their products or services. Sometimes you tell an individual that their product is not yet up to scratch but they insist that you review them because they have seen other people getting reviews. You take an honest look at the product and as you may have guessed that product doesn’t take off. A few updates/tweaks down the line you may have a fantastic product/service but consumers may not give you the light of day to try out your service again. The END.

Ignoring users

GB WhatsApp holding-phone
How users will look at your app when it doesn’t seem to do anything useful

This is quite similar to the failure to pivot where companies are building products and services for the few individuals behind the idea and never taking in any feedback from the people who are actually going to bring in any money if you’re to succeed. If you’re not listening to feedback from the target audience and tailoring the service to their needs then you may find yourself out of jobs sooner rather than later.

Marketing the product

Apparently, failure to market was the bane of many coders and people who like building the products but are not too fond of marketing the products. Building stuff is great but what’s greater is convincing people to actually use the stuff you’ve built and having them pay you.

Balanced pricing

So in an ideal world, you want to perfect your product in such a way that it brings in money but at the same time, you don’t want to price it out of the hands of consumers. It turns out this has actually led to some failures so finding that balance is key.

The businesses that I worry about most in this regards are the ride-hailing businesses that have become common in our city. With the recent fuel increase, I feel many of the ride-hailing businesses are now priced out of the hands of the masses and I’m not too sure if the people they do appeal to are enough to keep them afloat.

Competition

EcoCash, Telecash, mobile money agents
Competing mobile money services

Competition will always be a threat that determines whether or not your business makes it to the finish line. We’ve seen about 7 ride-hailing services get introduced over the last year but of all of these maybe one or two will become profitable. The ones that do would have done so based on outcompeting the others that won’t be able to keep up. It’s harsh but alas nothing can be done.

Having the right team

People working on their laptops
teamwork makes the dreamwork…

This is pretty self-explanatory but one quote in the report speaks to this fact even more frankly:

The founding team couldn’t build an MVP on its own. That was a mistake. If the founding team can’t put out product on its own (or with a small amount of external help from freelancers) they shouldn’t be founding a startup.

No market need

Apparently way too many startups tackle problems that are “interesting to solve rather than those that serve a market need”. In fact, this was noted as the cause of failure for 42% of startups. It really is business 101 that whatever business you start should solve a problem but unfortunately coming up with cool and novel ideas is more interesting than just solving a problem that you face every day.

Of course, there are some problems that are unique to our context and we would like to hear what are some of the things you’ve seen causing startups and entrepreneurs to fail.


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10 thoughts on “Why Do Startups Fail?

  1. Lack of funding isn’t that much of a factor, You can self-fund your startup with a side project or by doing consulting. You can also funnel money from your day job or early sales back into the product.

    Go slowly and focus on serving users. Create something they really want and need.

    Growing without venture capital will certainly slow you down. So it requires patience and if u really believe in your product It will be worth the wait and Venture Capitalists will come knocking no your door/

    1. With certain startups, lack of funding isn’t an issue but for some, it’s a huge blow. Your side projects must be quite lucrative if they can support your business and hire other workers for your startups. And these side projects and full-time jobs are also contributors to burnout down the line. It’s quite tricky…

        1. Facebook?

          Not quite a good example KG. Businesses like Facebook need the numbers first before they can earn money. Remember, the last thing a social media user wants is an advert popping up. Strictly speaking, Facebook is an advertising giant disguised as a “socialising” giant. They “stealthily” push ads against users’ wishes but that’s how it his. Place ads too early and you will certainly fizzle out. Although WhatsApp, is not a startup anymore, they still struggle to find ways to monetise is even though more than a billion people use it!

  2. Yes thanks for the clarification, reminding me of starting Hardware Companies, they require intensive companies and are doomed to fail by burnout If you make a product not better than the giants

  3. *Edit* Yes thanks for the clarification, reminding me of starting Hardware Companies, they require intensive capital
    and are doomed to fail by burnout If you make a product not better than the giants

  4. Great Read. It provides a lot much needed insight to starters;

    One thing I’ve also noted is Legality. Most of us come up with nice ideas and develop prototypes that tick all the right boxes.
    Then down the line, because we ignored or over-looked legal research and processes, we get shot down by investors, shut down by cease and decist claims or get outright sued and arrested.

    1. The legal side is especially a problem in African contexts cause we rarely consider taking legal course for anything…

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