Startups and tech companies are no longer just Silicon Valley things.
With new ideas and innovations blooming in every corner, startups have become synonymous with something out of the ordinary and unique.
And, isn’t that something all of us want to achieve? Something that has never been done before? Something that brings about a revolution of sorts in the industry?
Then again, there’s a popular startup failure rate statistic that 90% of new startups fail.
It exists because, setting up a business, startup or not, isn’t for the fainthearted. It takes loads of planning, strategizing, and constant analysis of how well your business is doing.
Moreover, it’s hardly easy on the financial side too.
But before you give up on your long-cherished startup dream due to some dreadful statistics and data, we’d like to tell you that there’s a way around it.
With a deep dive into the statistics, the reasons why startups fail, and how you can avoid that as a startup, we’ll try to get you to the coveted 10% percent through this article.
How many startups fail: Startup failure rates
Here’s what the startup spectrum looks like according to data and statistics:
- 75% of venture-backed startups don’t succeed.
- Less than 50% of the businesses stay in operation until their fifth year.
- 33% of the startups reach the 10-year mark.
- Cash flow problems are the major reason for startup failure. (Almost 82% of the startups that fail, do so because of cash flow problems.)
- The information industry has a failure rate of 63%.
Since the statistics are usually alarming, it’s always a good practice to take a look. It makes you aware of the market condition and prepares you to take the biggest challenges head-on. Moreover, a closer look also helps you understand what these numbers mean for your business.
Here are a few more specific statistics on startups:
- As we’ve discussed earlier, 90% of new startups fail. Out of which:
- 20% fail in the first year itself.
- 34% fail in the first two years.
- 20% make it to the 15-year mark.
- 60% of startups fail between pre-seed and Series A funding stages
- 35% of Series A startups fail before Series B
- Only 40% of the startups become profitable
- Most startups operate at a loss.
- Startups with a cofounder are 3 times more likely to succeed.
- The major hurdle for most startups is cash flow problems.
- Startup failure rates are mostly the same across different industries as the reasons for startup failures are the same across industries the rate of startup failure across industries is similar as well. Yet:
- Roughly 80% of eCommerce startups fail
- 90% of disruptive startups fail
- More than 75% of Fintech startups fail
- The tech startup failure rate is as high as 80%
- Startups with venture capital (VC) funding also suffer high failures, even though only 0.05% of startups get VC funding:
- 75% of venture-backed companies never return cash to investors.
- Less than 5% of startups break even on cash flow or meet a specific revenue
- 25-30% of VC-backed startups still fail.
Reasons why startups fail
From the wrong product-market fit to the lack of strong leadership, there are several reasons for a startup’s failure. And yes, the place and time can be a factor too. Although you can’t control all the factors, there are a lot of aspects that you can pay attention to and prevent your startup’s failure.
Lack of funds
As a new business that’s continuously growing and expanding, lack of funds is a common problem. Be it for setting up inventory, building your team, or buying equipment, you’d need finances, and that too at the right time. One possible solution is to seek startup funding from a reliable source as you begin and keep a check on your cash flow, profits, and other related financial concerns.
Also, planning your finances in advance as well as having approximate projections of cash flow, profits, and balance sheets can help you avoid financial hassles.
Wrong market
Sometimes it isn’t your business, but your target market. This means: you have a good product/ service at hand but are targeting the wrong audience. In fact, according to statistics, 42% of the startups that fail, do so because of the wrong product-market fit.
Hence, it’s essential to do thorough market research, carry out surveys and focus groups, analyze what you find, and keep a constant check on your market’s responses. This helps you understand if you’re working in the right market and moving in the right direction.
Lack of research
From ending up in the wrong market, designing a product no one needs to overspending, or underspending on various resources, lack of research is a root cause of several problems that businesses face.
By doing your research, you’ll know what you’re getting yourself into, and be better prepared for challenges you might come across.
Bad partnership
A bad partnership can be anything from a lack of equal contribution and collaboration to frequent disagreements and a lack of consensus. These things often go unnoticed, contributing to a quick journey to doomsday.
Hence, you need to ensure that you have partners who:
- Have complementary skills but can also think on the same wavelength as you.
- Can have constructive debates over various subjects instead of arguments.
Bad marketing
Many successful businesses around the world thrive on their larger-than-life marketing strategies. So, we can safely assume that marketing strategies are an integral part of any successful startup or business.
But what could go wrong? From targeting the wrong audience and giving out a vague message to being all over the place, several things can go wrong due to a bad marketing strategy. Hence, it’s essential to pay attention to the finer details and devise a proper marketing strategy.
Lack of expertise
Although many of us learn along the way as we start and grow our business, having a certain level of expertise is necessary to enter and make a place for yourself in your specific industry. Hence, you should ensure that you learn whatever you can before you get into an industry.
How to avoid failing?
Now, you might wonder: Is there even a chance to avoid startup failure? Although there’s no single right way to run a startup, there are several methods and steps you can follow to increase your chances of success.
Some of them include:
Set realistic goals
The first step toward having a thriving startup is to set a clear and realistic goal. Having a goal gives you a direction to work in and prevents your efforts from running astray. It also motivates you and gives you a solid reason to work for.
Do your research
Now that you’ve set a goal, it’s time to do your research and find out where your business would fit into the industry. Is your product needed? Does it have a sizable market? Does this industry have good growth potential? And what are the challenges people face in the industry?
This helps you do more productive work and stay prepared for both challenges and opportunities.
Plan your business
One of the best ways to secure loopholes in your business idea is to do your research right and formulate good strategies for creating a solid business plan. That’s because a business plan gives a framework for your brainchild and helps you navigate through your business journey smoothly.
So grab a paper or open a document to note down your ideas and research the various business aspects before getting started.
Analyze the risks (and be prepared)
Risks are an inseparable part of doing anything new. The same holds for a startup.
But that doesn’t mean that these risks would necessarily have a bad impact on your business.
If you analyze common risks associated with the industry and prepare for them well in advance, you can easily avoid them or even turn them in your favor. Research can come in handy for you in this aspect as well.
Be passionate
Follow your passion. This is perhaps the most overused advice, but it’s no joke. You’ve found your passion for business and a beautiful business idea. There’s no way to let it go to waste. Instead, you need to pursue your startup idea with an unrelenting passion to do better and know more about the industry.
This will not only reduce your chances of failure but also make the process of doing business more efficient. Passion also helps you stay motivated during downsides and problems in your startup journey.
Assemble a good team
Since we’re on the topic of passion, you also need a passionate team to taste success. So ensure you hire a reliable and committed team. Even if as a founder you believe you can do it all, your startup needs competent team members to support your vision. The team can help you brainstorm quickly, strategize brilliantly, and scale effectively.
Don’t give up
Finally, the most important thing for business success is not to give up when you face obstacles and tough times. Instead, it’s to work harder to overcome slumps instead of feeling demotivated.
Future of startups
Although you might not really know what the future holds for your business, there are a few trends that you should watch out for, and possibly include in your business if you can. Such as:
- Startups are growing outside of Silicon Valley, and most of them will be out of it in the future.
- Subscription-based services and products are expected to grow at a high rate in the coming years.
- Personalized marketing and a customer-centric model are some of the most futuristic things you can do with a business.
- More startup entrepreneurs would be recent college graduates.
- Technology would be heavily used for bookkeeping and financial records.
- Partnerships and collaborations among businesses are expected to increase.
Overall, the future of startups is exciting and full of potential if you go about it the right way.
Conclusion
It’s important to know the statistics and the risks involved to plan and strategize before you go start your business. But it’s also equally important to execute your idea with precision and have faith in what you want to achieve.
At the end of the day, you must also keep in mind that even if the majority of startups fail, there’s still a huge chunk that succeeds and brings about innovation in the industry they’re in.
So, what are you waiting for? Do your research, plan your business, and execute it with confidence.
In the meanwhile, if you need help with your business plan, try a business plan software like Upmetrics to keep up with the cutthroat startup world.
