Why startups fail? If do, then it’s not the end! – A Case Study

Mar 9, 2017
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In recent times, we have seen the birth of incredible new-age startups in India.

The Indian business network has seen a significant growth for the startups – both in terms of the number of startups operating and the amount of funding secured.

What are common among these startups?

Startups are:
  • Technology-based and innovation-driven
  • Launched by motivated, educated, dynamic founders

These startups are altering a variety of industries, such as e-commerce, healthcare, transportation, education, logistics and real estate.

The bitter truth about starting up and running a business is that 4 out of 5 companies flop every day, and in some companies, the failure rates are higher.

Success stories are significant but there are always many failures which pave the way towards that victory. It is important to talk about these failures. Sharing these stories help others learn and avoid repeating mistakes.

“More than 1,000 startups shut down in India every year.”

Life is a numbers game, and so is business.
  • 50% of all new business fails within five years.
  • Founders who have failed at a prior business have a 20% chance of succeeding versus an 18% chance of success for first-time entrepreneurs.
  • 95% of entrepreneurs have at least a bachelor’s degree.
  • Scaling too fast, too soon is the number one reason most new companies fail.

Why Startup Fails?

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The most common reason for failures was the lack of an organized team, differences with co-founders, unfamiliarity with the business, poor marketing, a lack of a strong business model, lack of funds, dropping sales and rising competition.

Some main reasons are:

Lack of funding

  • Lack of capital is important factor for these shut downs.
  • 29% of startups run out of cash before they’re able to get fully recognized.
  • As a result, about 75% of startups that are funded by VC (Venture Capital) are never able to survive.

Poor Business Plan

  • Big reason for failure of business – A poor business plan!
  • Business plan will give you a clear idea of your processes.
  • Failing to create a business plan might lead you to lose.

Unawareness against Competitors

  • Many entrepreneurs start actively with a solid plan but fail to mark the start and end line of competition.
  • 20% of startups fail because they can’t keep up with the major players in their industry.
  • Now, the market is loaded with alternatives and we just need to have the right selection.

Unprepared Launch Team

  • The founding team itself can be a fence for the startup if the right people are not hired for the job.
  • 23% of failed startups had dispute among the support team as a hurdle to success.

No demand

  • No matter how great your business plan is, it’s almost useless if there’s no one here to buy.
  • 42% of startups fail due to a lack of demand in the market for their products or services.

Here are some of Indian startups who failed and shut their operations because of prevalent reasons.

1) TinyOwl

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  • Food delivery startup ‘TinyOwl’ shut down its operations in May in all cities except Mumbai.
  • Founded in 2014, the startup faced some financial problems and fired more than 600 employees between September 2015 and January 2016.
Future Plans

This move is, however, only temporary, as the company is looking to re-brand itself and return with a better product.

“Just because we could not get the unit economics right in the first attempt does not mean there is no scope in the space.”

Harshvardhan Mandad, co-founder of TinyOwl

2) PepperTap

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  • On-demand grocery-delivery startup ‘PepperTap’ shut down its operations in April.
  • Founded in 2014, it’s rolled back as consumer-centric app in April 2016.
  • The move to shut down its operations came due to pressure from rivals including Grofers and Bigbasket, which secured ample funding.
Future Plans

PepperTap plans to aggressively adapt logistics technology and explore further the B2B Logistics sphere.

3) Fashionara

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  • Bangalore-based Fashionara, founded in 2012 closed its operations in May 2016.
  • Unsuccessful attempts to raise money or find buyers were forcing some of the fashion portal to close or scale back their operations.
  • It got shut down after struggling amid declining business and cash crunch.

4) FranklyMe

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  • Another name in the failed startups list is FranklyMe!
  • It was a video micro-blogging website founded in 2014.
  • It has been a well-funded company; it failed to capture the market attention and closed down all of its operations in February 2016.

Key Takeaways from these Failures

“Failure is difficult to handle, but there is no better teacher.”

  • All these failures offer much to learn.
  • Most important point is that the Indian market is in budding stage and basic challenges stop startups to become profitable.
  • A lot of companies could have been saved if just the smallest amount of preparation was undertaken.

Features of startups that do well:

“Successful entrepreneurs understand that they must work on their business, not in their business.”

There are some key qualities that will scale you up for success in the startup world:

Perfect Product Knowledge

Fast Company Growth

  • Growth- fast growth is what entrepreneurs crave, investors need, and markets want.
  • Rapid growth is the sign of a great idea in a hot market.

Need Corporative Team

  • Teams that are able to recover together also working together through tough times.
  • Startup teams must have the skill to change products, take up a new marketing approach, adjust to different compensation plans, rebrand the business, or even tear down a business and start all over again.

Conclusion

A good product/service idea and a solid technical team are not a guarantee of a workable business. A startup cannot segment its responsibilities, these are meant to overlap. Those irksome issues of business development, business model, and scalability are some of the most important components and you have to take care.

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