Startups come to disrupt our traditional thinking and regular economy. But in many of the cases, they are disrupted because of fund shortage, failure in marketing, lack of team synergy, and domain knowledge.
Serval studies back up this statement. In 2019, the failure rate of startups was found 90%. Research indicates that 21.5% of startups fail in the first year, 30% in the second year, 50% in the fifth year, and almost 70% in their 10th year. In another study of 5196 start-ups in Australia found that the annual failure rate on an average of 9% per year. Most importantly 64% of the business failed within the 10th year.
In other depth study shows that this failure rate varies across the business sectors. I have extracted a research finding (below table) for our better understanding. Here researcher categorized the business into ten sectors and estimated the survival rate for each sector. For example, only 25% of firms in the information sector ( Including technology) survive seven years. On the other hand, almost 44% of health service businesses got success this seven-year period.
Obviously, you are very curious to know the reasons for failure. In your mind, you keep an assumption that a fund crisis could be the reason for failure. Surely it is one of the problem areas. Research shows that 56% of the failure is the cause of marketing mistakes. We put a lot of effort into new idea generation but invest very little time and energy to find the appropriate product-market fit.
For example; Amazon realized a gap in consumer product offerings and they are giving the fastest delivery at higher prices. They have invested a huge amount of money in the warehousing and delivery system. On the other hand, Wish and eBay sees it in different ways they emphasize cheap pricing. Even they do not consider the fastest delivery. They are collecting the goods directly from the source and deliver them to the ultimate consumer. In both cases, there are gaps in the market. But our offerings should be matched with the target market.
The second biggest problem is the team problem. Almost 18% of start-ups failed because of this reason. It is all about the knowledge gap. Team members do not have appropriate knowledge and understanding about their domain. Interestingly research finds conflict of interest, team member’s friction is the minor causes under team problems.
Of course the finance comes in the third slot. It holds the almost 16% of reasons for failure..
Apart from finance the other problems are tech problem ( 6%), operation problem(2%) and legal problems (2%)
Thanks for reading.