Start-Up Failures: Here are 5 Main Reasons Why Your Start-Up Might Fail

While starting a business, an entrepreneur looks forward to a long-term and successful venture. However, many businesses are not able to survive the market and competition beyond a certain point. According to a study by IBM Institute of Business Value and Oxford Economics, titled ‘Entrepreneurial India’ as many as 90 per cent of start-ups in India fail in the first five years of their establishment. Starting an enterprise is often easier than sustaining it in long term. Apart from the CELL- Capital, Entrepreneurship, Land and Labour- there are various factors that need to be considered while setting up the enterprise. Myths Around Startups: Here Are 3 Popular Myths Which Every Entrepreneur Should Ignore.

A business might fail because of several reasons including human, physical, technical, and legal among others. A entrepreneur should therefore be cautious enough while taking and implementing various administration and operations related decisions. Here are the most common reasons for business failures-

Lack of Innovation and Novelty

One of the biggest reasons of a business failure in present times is lack of innovation and uniqueness in the product or services offered. If an offering lacks novelty, it becomes difficult for the start-up to create its own identity and USP. As a result, the already existing and establishes players easily sweep the new entrant out of the game. According to a survey, around 77 per cent of the venture capitalists believe that lack of innovation and novelty is the main reason behind business failure in India.

Lack of Financial Management

Another important and prominent reason for business failure is the lack of financial stability in the firm. Usually an entrepreneur seeks outside help for funds to start the business. Improper management of the funds causes huge to incur huge losses. With proper financial management, a start-up soon start experiencing liquidity crunch, which has a direct and spill over effect on all the operations of the business.  A balanced cost structure is important to keep the business afloat. An entrepreneur should try to get a mix of equity and debt both as firm’s capital.

Lack of Proper Marketing Strategy

A start-up needs to be very careful while deciding upon its marketing plan.  Communication is indeed the key in every business, the way an enterprise communicates with the customer, medium of communication and its channel play key role in creating awareness about the product. A proper and well researched marketing plan helps the firm to understand the customers, and how to influence them. Advertising, public relation and sales promotions are main components of a marketing strategy, which help in establishing the product in the market. Without it, the product struggles to find get recognised.

Lack of Legal Compliance

Every country has its own set of legal requirements that a firm needs to fulfill both- before starting the business and while running it. A failure in meeting these results in severe repercussions, including the collapse of the enterprise.  Start-ups have to duly follow all the laws related to incorporation, entitlement, customer protection, and taxation among others. Not only can its non-compliance leads to winding up of the company it can also attract huge financial penalties for the entrepreneurs.Here Are 4 Kinds of People To Avoid When Starting a Business.

Lack of Cultural & Social Acceptance –

A business operates in a society that is governed by certain rules and regulations, if a firm fails to live up to the cultural and social expectations it is bound to fail. The start-up should not hurt the religious, ethnic and cultural sentiments of its existing and potential customers. It is important for a firm to understand the respect the cultural and social orientations of the place it sets-up the business in and incorporate those values in its marketing and communication plans.

A good entrepreneur studies and analyses various external environment factors that might affect the business. Proper understanding and implementation of various elements of a business environment is also important to ensure that the start-up doesn’t succumb to outside shocks and threats. It also helps the business to seize the market opportunities.