Why many startups fail?

Why do many startups fail?

The fun fact is that there are startups formed every 3 seconds, which leads to 11,000 per hour, and among those startups almost 90% of them fail within the first year. Many people think that most startups are tech related, the reason behind this is that most successful startups are tech based companies such as Amazon, Facebook, Google, Uber, and other Silicon Valley startups. 

About the 90% of the startups which reach the 2nd year, only 30% survive till 10 or more years, all other fail between 1 to 9 years. The investments for these startups range from $5000 to $25,000. The startup which are successful sometimes compete directly with another large established company, and at times those large established companies either buy these startups or invest in them. Startup like Whatsapp and Instagram apps which was later bought by Meta (Former Facebook). 

The main reason which these startups fail is due to wrong timing of the product, failing to do research about the product and improper or wrong marketing and promotion. some startups also fail due to cash flow issues. These startups try to launch a product without doing proper research about the product, market, niche, and other important factors.

There were startups which got popular during the time where the market leader faces a negative situation or some drawbacks, eg. when Whatsapp was facing the privacy issues, Telegram and Signal became popular among Whatsapp users.

Some startups have become market disruptors, eg. When Hi5 was growing, Facebook came into existence and disrupted the market and put Hi5 out of business. Some notable ones are Internet Explorer and Yahoo was overtaken by Google Chrome. 

Another reason why startups fail is due to less knowledge about the product. The product will be more successful when the founders have a good knowledge about the product and also some prior experience in developing or selling similar product. Research shows that over 90% of entrepreneurs hold a bachelor's degree and some are MBA holders, but people like Richard Branson, John Mackey, Bill Gates, and few other famous entrepreneurs have proved that you dont need a degree to be successful, commitment and hard-work is important to be successful. 

Another reason why Startups fail due to conflicts between the founders, this happens if there are more founders and when the founders' direction or passion changes in long run, then this also can lead to either failure or drop out projects. 

One of the important reasons for failure is not having proper planning, no contingency planning for unforeseen crisis or market conditions. eg, many restaurants which were opened just before covid had to close down since people stopped going out for restaurants and many people were scared to order food from restaurants and started cooking within their houses.