What's behind the failure of most startups?

Every year, countless startups are launched, but only a very small percentage actually survive to become profitable. Studies show that only 20% of startups are able to survive for more than 5 years and only 8% manage to survive beyond 10 years. Clearly the odds are stacked against a new startup founder.

Why do so many startups fail? What are some of the pitfalls which founders can avoid? And, what are some of the common mistakes that founders make?

Branding


As crazy as it sounds, some founders suffer from a love-sickness for an excessive spend on branding. But here's the thing – customers care more about what the startup can do for them! So, the founder needs to shift focus to value-building and getting the product to the market and postpone the high brand spend to a future date. No startup has an infinite marketing budget, and money needs to be spent wisely. The product needs to be in front of users as quickly as possible, so they can provide feedback that can be used to improve the product.

Sales

Revenues don’t flow automatically into a startup. Founders need to connect with customers, convince them to buy their products and also discover the pain points encountered.

The new science of “product-led marketing” is often misinterpreted to mean that launching a great product leads to a wave of sales. It requires a business strategy that applies product-led principles to the marketing function and puts the product at the centre of customer experience. Founders also need to be the startup’s first salesperson and the face of the company, talking to potential customers face to face, convince them about the product.

You can't do it alone

Founders need to have a great team to execute on the vision and deliver products as quickly and reliably as possible. A good co-founder can prove critical. Hiring the right people with the right complementary skills to deliver the business objectives has to be done deliberately and purposefully.

Product

After the excitement of launching a new product, founders need to continue listening to users and adjust the product to meet their needs. It is the users who are ultimately responsible for the success or failure of the product.

Founders should always start by asking themselves the following two questions: What problem does my product solve? Do I have a solution for my users that is different from what already exists on the market? If your answer to these questions is "yes", then the startup is probably on the right track. This will also mean figuring out what features are absolutely necessary for the product when it is launched and what can be added in due course.

Burn

“Have money, burn it!” Ouch! Those cowboy days are over. As investors closely monitor the spend, a startup is expected to take prudent steps to ensure the sustainability of the business, growing at a controlled pace without using cash reserves too quickly and with a disciplined approach to track costs. An investor wants to see traction and not just big ideas or nice charts!

Awards

Recognition from peers and the industry is always motivating to any entrepreneur. Gaining the awards that are genuine and ones that give good exposure and platform for the startups to grow their network and their business is crucial. Founders need to be mindful of awards that are offered in exchange for sponsorships. They may seem like a great idea but in reality, they can often lead to more harm than good.

Funding

Once a startup gets investments, the arduous task of building a scalable business model starts. This is the ammunition that triggers building of efficient sales and distribution channels and delivering an exceptional customer experience across touch points. It calls for hiring a team that can deliver on the promises. Getting funded is an important landmark but can never be considered as a sign of success.

Building a successful startup requires time, hard work and perseverance, not just luck or magic. It requires patience and a lot of focus. Keeping a long-term perspective in mind and being invested in it for the long run is critical. This is a marathon and not a sprint. Ultimately, avoiding some of the common fatal mistakes can only improve the chances of success for you as a startup founder.

(The author, Ninad Karpe, is the founder and partner at 100x.vc)