In November 2022, Skynova did a study of 492 startup founders and found that 47% of startup failures were due to a lack of financing, while 44% failed because of running out of cash. The study also noted that the ongoing Covid-19 pandemic was responsible for 33% of failures, down from 59% a year earlier.*
*source – CNBC.com Jan 2023
Causes of Unicorns Demise
There is no one-size-fits-all answer to why startups fail, it can happen to the big boys too. Here are some reasons…
1. Failure to Innovate and keep up with competitors
Take Evernote, for example. Once a popular note-taking app, Evernote failed to innovate and improve its product, and as a result, lost out to competitors who offered better features and user experiences.
In today’s fast-paced business world, it’s crucial for startups to keep up with technological advancements and stay ahead of the curve.
2. Inability to attract and retain customers
Quibi, a short-form mobile video streaming platform, failed to attract subscribers and eventually shut down just six months after its launch. Despite its star-studded lineup and high-quality production, Quibi failed to offer a compelling enough value proposition to its target audience.
Startups need to identify their target market and provide a product or service that solves a real pain point for their customers.
3. Fraudulent practices
Theranos, a medical technology company, was shut down after it was revealed that the company had been falsely claiming that its technology could accurately test for a wide range of medical conditions with just a few drops of blood. The company’s founder and CEO, Elizabeth Holmes, faces criminal charges for her role in the scandal.
Startups must always operate with integrity and be transparent with their customers, investors, and stakeholders.
4. Failure to compete with other players in the market
Blue Apron, a meal kit delivery service, failed to differentiate itself from its competitors and struggled to retain customers. As more players entered the market, Blue Apron‘s market share dwindled. And the company was eventually forced to lay off employees and restructure its business.
Startups must identify their unique value proposition and find ways to differentiate themselves from their competitors.
5. Failing to keep up with competitors
Jawbone, a wearable technology company, failed to keep up with competitors such as Fitbit and Apple Watch and eventually went bankrupt. While Jawbone had once been a leader in the wearables market, but it failed to innovate and improve its products, and was eventually overtaken by its competitors.
How to Cheat Premature Death
The reasons why startups fail can vary depending on the industry, market, and competition. However, startups can learn from the failures of others and take steps to mitigate these risks.
Startups should prioritize innovation, customer acquisition, transparency, differentiation, and competitiveness. By staying true to their vision, providing value to their customers, and constantly adapting to the changing business landscape, startups can increase their chances of success.
They will continue to face common challenges, such as lack of a clear business plan, insufficient funding, hiring the wrong team, failure to pivot, and lack of a marketing strategy.
How can they overcome these obstacles?
- Create a detailed business plan
- Secure funding from various sources
- Hire individuals with the right skills and experience
- Be flexible and adapt to market changes
- Create a marketing plan that includes various digital marketing strategies.
Granted, economic uncertainty may continue to pose obstacles for anyone looking to start a new business in 2023.It would also help to leverage the expertise of experienced advisor to increase their chances of success.
This article is written by Christina Lim, Founder and Chief Strategist at Chrisspeak.