Why Startups Fail
Perhaps the only place where “Failure” is accepted as “ Almost Made it , never mind , you have got the right experience now “ is in the world of Startups .Startups by nature are supposed to fail 99% and hence there is no stigma , in fact there is “ heroism “ attached to Failed Startup . Having been a part of the Startup eco system since its inception almost 10 years ago and having been part of many, having mentored many and listening to many first hand stories, I have realized that what fails and what succeeds is not always “luck or destiny” as is frequently attributed but lots of parameters that should be anticipated at beginning of the journey.
Let’s examine some of the main reasons why Startups Fail?
- The idea is supposed to solve a real “pain “ in the world .There are niche market ‘pains’ which Startups Founders identify either through personal experience , or insights or simply the “brainwave or dream which comes in a flash” . Should every such brainwave which will solve the pain be a successful startup? Maybe or Maybe not.
- Gone are the days when just an “idea” could be sold to VCs .Behind every successful startup, there are countless case studies of similar ideas before its time which died a natural death .Obviously there is something about “ timing of the idea” .How do we anticipate that.
- Funding or Bootstrap model – a million dollar question .Who defines the success parameter .A Startup which is bootstrapped and yet cash flow positive or a startup well funded and reaching Unicorn status of capitalization but reeling under huge cash loss. Why VCs chase loss making Startups for nth round of funding yet give a “pass” to break even bootstrapped startup.
- Networking effect for Success – Ever wonder why 90% plus successful startups have IITians / IIMs as its Founders .Is it the “Network” effect where all the major VCs/PEs /Angels are themselves ex IIT/IIMs and the “Alumni” appeal has the final say . Are the IITians /IIMs ultimate coders and “pain finders “ of the world .Obviously it’s not a perfect world .The success of the Startup is defined by the quantum of VC funding rather than end user appreciation.
- Right place /Right time – Ever heard of this phrase where you bump into an Angel /VC accidentally in airport , inside a plane , five star hotel and you strike a conversation leading to investment .Just how does one land at all such right places ?
- ‘Nothing is as powerful as an idea whose time has come “said Victor Hugo. Who can decide if the idea is way ahead or in time .There are countless examples of E Commerce and Social Media networks which were launched much ahead of Flipkart and Facebook and withered away.
- “ The Perfect Team “ – I often wondered how come a group of friends in the same class , same discipline make a perfect team and suddenly specialize in roles of Marketing , Finance , Technology in the Startup.
- Do I Pivot or follow my passion? What if the idea doesn’t show early customer traction? Do I abandon the passionate idea and start pivoting or keep following the idea passionately as most successful startups reveal after their success.
- When do I exit? This is relevant for Bootstrapped and invested model both. When is the journey over and the founder exits. After all “ Companies are made to be sold “ isn’t it
- Technology – Do I do it in house or outsource. What if the idea is leaked in outsourced model and what if I am too late to ‘Go to market “with my in-house development?
- The idea may be great but how easy or difficult it is to replicate the model .After all fundamentally unlike “ Brick and Mortar companies” , startups use technology which is available to all and now courtesy “Open Source “ almost “Free”.
- And finally, the failed startup is all about spending your best years behind the dream that never matures .What do you gain is unlimited experience in introspecting on where all things went wrong and that is something that no Business school case study can ever teach.