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Why do Startups Fail?

Updated: Sep 28, 2021



In India, the rate of companies starting up is growing incredibly. In fact, India is the third-largest startup ecosystem in the world. In this environment, thousands have failed and thousands have succeeded, each one leaving behind lessons for future entrepreneurs. According to the IBM Institute for Business Value’s survey in collaboration with Oxford University, the biggest reason that startups fail is because they aren’t creative enough. They lack pioneering innovation. “Despite India’s entrepreneurial strength, as many as 90% of startups fail within the first five years.”


Some major roadblocks described by the report are:


  • Almost 70% of startups believe the reason they failed is because they failed to hire the right people.

  • 65% of entrepreneurs say that they failed because of problems in funding. Poor business ethics and inexperienced leadership also contributed majorly to failure.


Five Big Reasons for the Failure of Startups


  • Market Problems


Various startups in India have failed because they create a product that has no demand. 42% of entrepreneurs identified this as their error.


  • Running out of cash


One of the most common reasons for failure, there are many reasons why startups could run out of cash. So, the startup must properly manage its assets, debts, costs, and revenue from day 1.

  • Business Model Failure

Some entrepreneurs assume that simply by building attractive websites or designing attractive ads, they will sell out their product or services. However, it’s not that easy. It’s important to focus on how you will acquire customers and what the cost of it will be. Every demographic of potential consumers is different and may be attracted to different things.


  • Inefficient Team

There should be proper communication between the founding visionaries and the team members so that the startup can grow. The more versatile the team, the likelier they will succeed. Startup teams must be flexible regarding products, plans, market approaches, rebranding, and even industries. They should even be ready to tear down their business and restart as a completely new business. There is a reason why startups with co-founders have a higher success rate than startups with single founders; teamwork pays off.

  • Competition

Competitors playing on the same field will not give up easily. One startup’s success can be another’s loss. As such, understanding the reasons why startups lose to competition is crucial, especially for first time entrepreneurs.


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