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7 main tips to avoid startup failure

From this article, we are starting a series of posts devoted to the topic of outsourced software development. We will explain why outsourcing is efficient and how to work with remote teams productively, what are the main mistakes that both startups and companies make and how to avoid them. 

A lot of new startups are launching every day, however, only a negligible percentage of them will survive their first year. 

Compared to offline businesses, online projects require risky investments and business undertakings. To start a business it is not enough to have just an idea, you need to arm yourself with business analysis, an expert development team, finances, and the list should go on. 

So, why do a large number of startups die? Let’s first get acquainted with the statistics, and then we will analyze the causes of failures to consider some tips on how to avoid them.

Startup failure rate

Every year, thousands of ambitious entrepreneurs start new businesses worldwide. They feel full of hope. Despite this, the large number of small business statistics shows that by the end of four years term, more than half of startups will disappear.

According to the startup failure statistics provided by Small Business Trends research, the numbers are as follows below. Out of all businesses started in 2014:

  • 80% shut down to the second year (in 2015)
  • 70% shut down to the third year (in 2016)
  • 62% shut down to the fourth year (in 2017)
  • 56% shut down to the fifth year (in 2018)

Given those numbers, a bit more than half of all startups survive in their fourth year. At the same time, the failure rate of startups in four years is about 44 percent.

Top 5 reasons for a startup failure

Before examining the successful stories of bright new businesses, the roots of their failures should be considered to avoid them and thereby increase our chances of success.

Reasons for startup failure

1. No market need 

The lack of research and an attempt to make the most sophisticated product leads to its excessive complexity and rejection in the market. Moreover, the market changes and the product becomes unclaimed even before its release due to the long development process. 

As a result, startups can win the game and become a full-fledged business if they know how to avoid common mistakes. 

2. Ran out of money 

How often did you see new projects where extra money remained at the start? This is a rare case. The budget must be taken with some reserve. 

3. Inappropriate team

Internet projects are highly intelligent, therefore require an appropriate level of expertise from people. In most cases, the project needs the whole team of specialists in a narrow field rather than 1 specialist alone. As a result, this issue is even more acute when it comes to assembling the team from scratch which is time-consuming and risky.

4. Competition

At the very beginning of the project, entrepreneurs avoid long and thorough competitor and market analysis. Consequently, they make a product without considering the possibilities of major market players who have more tools and resources to quickly crush an emerging startup.

5. There is no business model 

Sounds weird? Nevertheless, this is a reality: many businesses do not think about how they will earn, who will pay and how much they will pay, what exactly they will pay for. This is the customer development phase which is often neglected by new business projects. 

How to avoid failure?

The main problem here is that the entrepreneur sees the world through his own prism of perception where he or she is confident in their innocence. Consequently, newly made bosses run an idea blindly believing that all people need this product or service. It turns out that the entrepreneur is making a project not for end-users, but rather for himself/herself.

You need to communicate with the end-user of the product by any means and be prepared to accept feedback whether it is positive or negative. Customer reviews are the basis for creating, modifying, and updating the product. By accepting the feedback, you must develop and thrive in every way possible.

If the startup company has limited time and budget for the project, developing MVP is the best way to maintain a balance between providing core functions and keeping costs at a reasonable level.

Gathering an expert team from scratch seems like a big challenge these days. However, finding your trusted outsourcing partner – is the best advice on how to invest in the right team. 

Nowadays, the world is so unpredictable that you have to have the courage and flexibility to make quick decisions at any time. Otherwise, you can completely lose customers and the whole business.  

A comprehensive marketing plan strives to effectively close the pains of clients and attract them to your project.

Success lies in the ability to hear others. It means listening to the advice of especially experienced industry leaders and being thankful for this attention.

If you want to expand the business you should efficiently delegate tasks for each employee. The best way to delegate is to give your product for development to a professional team of IT specialists. You will see the development process from idea to full implementation using the latest practicesMoreover, entrepreneurs get the opportunity to observe and adjust the work process in real-time and enjoy the result. Furthermore, he or she will have time to globally develop the mission of the company.

Conclusion

To conclude, an entrepreneur must be prepared for the fact that the development and scaling of a newly born startup business is a long and difficult path that will take more than one year. 

In most cases, the collapse of a new company does not occur for objective reasons. More often a “bad” idea is not the cause of failure, but a biased assessment of its potential and/or a poor version of its execution. We wish you productive work and more experienced partners in custom development.


Sergei Artimenia

Director of Business Development

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