The grim reality is that around 90% of startups fail. Now you’re probably telling yourself that your idea is sufficiently brilliant to ensure your startup dodges the grim reaper.
However, it requires more than simply an innovative concept to get a startup successfully underway. Thousands of would-be entrepreneurs have brilliant ideas that fail to launch because of a failure to do adequate research.
7 Common Causes Of Startup Failure
Many of the problems that startups encounter stem from a lack of experience. First-time entrepreneurs often struggle to anticipate the potential pitfalls that lie in wait for them. Research is a proven method of filling in the gaps in experience or mitigating risk from unknowns to overcome information deficits and equip the startup to succeed.
1.Not Addressing A Tangible Customer Need: The IndexMedical Story
Debuting in June 2000, IndexMedical combined a search engine with a review site targeting the pharmaceutical/medical device vertical. It enabled visitors to search for medical products, read reviews, and view images.
While the idea was solid and its website functionality good, insufficient attention devoted to understanding the dynamics of the need it was supposed to be servicing.
The information gap could have closed with Market research into customer behavior, complemented by a customer profiling exercise.
2.Failure To Manage Cash Burn: The Pets.com Story
Today, a poster child for cautionary dot com tales, Pets.com promised its online shoppers would save cash across a wide range of pet products. Launched in August of 1998, by late 2000, the startup crashed after burning through $300 million during its brief twenty-three-month life.
The startup could have got a handle on its cash burn through cash flow analysis, supplemented by budgeting and planning, and ad-hoc financial modeling to illustrate their cash/fund management.
3.Failing To Sell Your Product Or Service: The WebTV Story
WebTV was a sexy 1996 development, successfully kick-starting the fledgling Internet TV sector.
While it delivered on its promise of low-cost web browsing, recruiting thousands of new users, WebTV arguably failed to understand the dynamics of how many units it needed to sell to carve out a sustainable business.
Its owners neglected to mitigate their risk via market research and trend analysis, which would have helped them anticipate the rapid evolution of the Internet and the plethora of devices that would come to access.
Also, investing in human resources to plug the gaps in expertise such as marketing and sales specialists. Offering stock option incentives with a lock-in period would also have helped them recruit this talent.
4.Inadequate Funding To Grow Your Business: The WebVan Story
WebVan was an online grocery eTailer promising Walmart pricing, high quality, and an expansive product selection.
While WebVan was looking at one of the biggest IPOs in corporate history, they didn’t research alternative cash-flow scenarios for their embryonic business.
Funding environment assessment and investor identification, screening, and profiling, and force field analysis could have identified the need for an aggressive phased capital raising strategy rather than relying on a single monster IPO.
5.No Landmark Leader Shaping Your Company Vision: The Ask Jeeves Story
Ask Jeeves was an early natural language search engine. Bought in 2005 by IAC, its name altered to Ask.com. It later changed its model from search to Q&A.
These changes open a window onto the role strong leadership plays in positioning a startup for success. Sound leadership would have demanded clarification of the business model via business research.
Without a strong advocate of the original Jeeves concept, the business failed to mount a compelling case for its survival or carve out a defendable niche in the marketplace.
6.Inadequate Brand Differentiation from Competitors: The Color Story
Color started as an innovative photo-sharing app. Its early promise was to combine geography with social data. It raised $41M in its initial funding round.
Research into competitor analysis would have helped Color differentiate the brand and to create a group of loyal customers using brand affinity research complemented by customer preference surveys.
Color ultimately failed to demonstrate an understanding of those features and functionality that could differentiate it from other segment entrants via a phased development strategy.
7.Dire Customer Service or A Dismal Customer Experience: The SixDegrees Story
One of the original Internet-based social networks, Six Degrees, was soon followed by MySpace and Friendster. The startup anchored on the belief we are all connected and thus should interact with our social connections in an online space.
Six Degrees could have fine-tuned its customer experience via user behavior research to better user experience. However, Six Degrees fell by the wayside, arguably due to its unsatisfying user experience. It failed to put itself in a position to nurture a good first impression and didn’t appreciate the power of negative word of mouth.
Final Observation
Numerous entrepreneurs had failed before they succeeded. Indeed, the majority of today’s most high-profile entrepreneurs experienced disappointment before achieving success. Commissioning customized reports from your research company will enable you to implement a more informed decision-making process, having researched the critical aspects of your startup’s model, while identifying its stress points.
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