Top reasons of start-up failure and how to overcome it?

Every year new start-up’s join the business industry with creative ideas and with a hope to establish themselves as business giants but some fail in achieving this goal.

So, what’s the reason behind it? Why start-ups fail? Is there any solution to overcome it?

In this article, we will discuss why start-up’s fail and how to overcome it to turn your small business into a big one.

Let’s find out probable reasons for a start-up failure..

1- Not a creative product/service
2- Poor marketing strategy
3- Business model failure
4- Diversifying focus on other areas
5- Poor cash-flow management
6- Too much hinge on outside investment

These are some most common reasons for a startup failure. For better understanding lets cover all above-mentioned points with a real case study.

Snapdeal is the best example of how a startup faces the downfall even being at the top in its relative industry.

Snapdeal started in the year 2010 by Rohit Bansal and Kunal Bhal with a hope to became a top-notch company in the e-commerce market. Once upon a time they also succeeded in their goal and onboard more customers than their competitors and grab the top position.

But what went wrong? Snapdeal faces the worst phase and fall from the top rank within a year. During this phase, it losses many customers, cash, high-level staffs and more.  Also, there was a time when Snapdeal founders were in talks with Flipkart to sell it.

So, what are the reasons for its fall down?

1- Not a creative product/ service

Snapdeal launched its business in the year 2010, whereas Flipkart started in the year 2007. Flipkart already there in the market prior to Snapdeal and it’s obvious that they already did a proper market research and had a large customer base. And not only Flipkart, e-commerce giants like Amazon and eBay also penetrate India’s e-commerce market.

To beat Flipkart, Snapdeal needs to launch their business with a new and innovative idea or concept, which was not there. Even if they never thought of including grocery and furniture category. Snapdeal’s product is kind of copycat, not a new one.

As India market is open to all, so it almost difficult to beat your competitor if you don’t have a creative business idea or concept.

2- Poor marketing strategy

For a startup, marketing is the backbone or you can say the pillar on which the business runs. Initially, Snapdeal invested a lot of money on brand advertisement. They made a contract with Aamir to promote their product, and up to some time, this strategy worked great.

Maybe the luck didn’t work out or the fault of its brand ambassador. It lost its fame and faces a huge flak from the public.

Let’s assume for the above reason Snapdeal,  not at fault. However,  we never saw any creative advertisement from their side, unlike Flipkart.

3- Business model failure

The business model is very important and risky for every startup. When Snapdeal was going through a rough phase they spent a lump sum money on rebranding but of no avail. They changed their brand logo as a rebranding strategy and it costs them a lot instead of any gain.

Another business model failure would be a launch of Freecharge without doing a proper market and competitor research. When Snapdeal launched Freecharge, Paytm already became a pioneer digital payment industry/market. But it’s not that difficult to beat a competitor if you have a strong business model. For example, Reliance Jio entered the telecom industry after a decade, yet it grabs the top post in less time and acquired a large customer base.  This never happened with Freecharge.

4- Diversifying focus on other areas

From a business point of view, it always a good decision to diversify your business but only after achieving a stable position in the market for the first business.

Snapdeal launched Freecharge at the time when they were struggling in making Snapdeal a big brand in the e-commerce segment.

Once upon a time, Rohit Bansal (Co-founder of Snapdeal) said this:
“What really matters is whether you can build a successful enterprise or not. It does not matter if one business model worked or not.”

This statement shows that they already accept their mistake they made with Snapdeal & Freecharge.

5- Poor cash-flow management

Snapdeal founders or the decision-making authority used their funds without a proper planning. They spent their money on having more warehouses in every city, hiring more employees but not on providing quality & quick service to customers.

Once some high-level staffs said that Snapdeal founders never shared any profit with its employees, they just keep it to themselves. Also during the phase of its merger with Flipkart, both founders announced to share profits with its employees but they never did and merger also didn’t happen.

6- Inappropriate use of fundings

It’s very difficult to raise fundings through investment for a start-up entity. But after receiving investments it became very important to invest them properly in order to raise more profit out of it.

Snapdeal received investment from Nexus Venture Partners & Indo-US Venture Partners in the year 2011. In 2015 Softbank, Alibaba and Foxconn invested USD $500 million as fresh funding. After having big investors onboard still they fail in their business as they fail to invest this money in a proper way.

Now let’s discuss what we can do to avoid failure?

 

These are some ways to avoid or prevent failure of a startup. Let’s discuss in detail:

Find out the loopholes and rectify it

The first step towards preventing a shortfall would be finding out it beforehand. But how to find out? Always use tools to manage and update your self with business situation. For example money management tool, accounting software, payroll tool etc. Money management tools will help a business owner to understand the movement every single penny in his business. So, that it would be easier for him to take the best decisions for profitable business growth and long-term sustainability.

Self-motivation

Self-motivation is the only way to stand back up from the failure. Never lose your hope after facing a failure or get demotivated.  Take failure as a learning phase and then again do a fresh start with all positive thoughts and with new strategies. You are the only one who can motivate yourself and no one other can help you to get back on your foot.

Consternation is an enemy 

Constertaion is the biggest enemy. Facing a setback or problems are likely to happen in every business as well as in life, so never fear or failure. If you would be able to get rid of this fear then you can face any kind of problems in your business and would be able to run your business smoothly.

Get connected with a mentor

Mentor or guide is a person who has a vast business experience and would be able to guide you to get through any kind of business issues. So, if you are running a startup and you have less business experience then get connect with a mentor or business consultant, who can provide you best suggestions and ways to overcome business problems.

Formulate new strategies

Analyse the problems why the problem occurred, discuss with the mentor and come up with new strategies to prevent future occurrence of this kind of issues.

Conclusion: 

Facing a failure is very common to every business but it shouldn’t be the reason of business shut down. Face the failure with a positive approach and stand back up to make your business successful. The cash crunch is the most common reason for startup failure and the best way to avoid it is by managing cash flow. The best tool to do cash flow management, budgeting, cash flow forecast, financial planning etc. is ProfitBoard.

 

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