5 Reasons Why Tech Start-ups Fail
Did you know that a staggering 60% of start-up businesses fail within their first 3 years?
In fact, 20% of start-ups don’t even make it past the 12-month mark, says the Telegraph; these figures are seemingly alarming, particularly for any readers that are looking into starting their own company.
But (phew, there is a but), what if I told you a few common mistakes that have been made by brands in your industry, so that you can prevent the fate of your business ceasing as a futile fraction in the next failed start-up report?
There are many reasons why a new business might fail: bad management, funding, lack of creativity, the list could go on and on. It is important to recognise that a failing start-up might result in different instances, other than simply shutting down operations.
Techworld explains that failure is a subjective term; a business dubbed as 'failed' could also be a brand that simply didn’t return on investments. Or maybe, the business pivoted so far away from its initial aim that it became a whole new start-up altogether.
1. No market need ❌
Most business owners (especially those in the tech industry), commonly begin their entrepreneurial journey by searching for gaps in the market that could be filled by their next big, pioneering creation.
But, according to a 2019 CB Insights report, 'no market need' is the number 1 reason for failure in start-ups, noted in over 42% of cases. It makes sense really, doesn't it?
Start-ups fail when they are not solving a market problem.
Customers seek products that provide solutions for their problems, so as a business in the tech industry, you should be striving to detect demand for potential products that will make the users life that much easier.
We all know the old saying, 'Give the people what they want,' and it really is that simple! The audience must want your potential product otherwise it will not sell, resulting in (yep, you guessed it) another failed business venture.
Entrepreneur Media pronounces a few ways to avoid this dreaded scenario and generate demand for your product:
📚 Conduct Research
And more importantly - pay attention to it. Your company should aim to figure out what customers need and want through surveys, test groups, feedback on social media and reviews left on your website.
🤴 Establish yourself as a leader in the industry
Positioning yourself as a leader or expert in the industry will automatically make people want your product a little bit more. An excellent way to do this while becoming more visible, credible and influential is by getting published, our article '5 Ways To Get Published In A Magazine Or A Newspaper' explains how to do this.
💰 Repeatedly prove your products' worth to the audience
Your business needs to promote its new product and prove that it's solving a problem to incline the audience to buy. You must create incredible content with the aim of entertaining and informing your target audience of the value of your product.
2. Ran out of cash 💸
Another major reason for a tech start-up failing is due to money, or lack thereof.
Heading back to the CB Insights report, companies that 'ran out of cash' is actually the second largest reason for a start-up failing. But this reason doesn't really explain why it failed...
It is important to divulge further than this statement because a successful business doesn't just run out of money, there will almost always be an underlying problem that caused the cash flow to dry up.
A key job of the business owner is to understand how much cash they have and can spend and whether it will be enough to carry the company to a cash flow positive. ➕
It is a good idea to create an effective financial plan to firstly secure your start-up investment and then to help manage any day-to-day operating costs.
3. An uncooperative team 👯♂️
Considering that a start-up business is commonly made up of a small team in a highly stressful environment, having a good, co-operative team is extremely important.
In reality, starting a tech business usually involves just two people working in partnership - one as an expert in one area, and the other as an expert in another. Investopedia expresses that your ideas for the company might be conflicting, or one partner might put more effort in than the other, which can lead to a failed partnership and a dissolved business.
One way of avoiding conflicts with your team before they arise could be by establishing a clear business plan which lays out the duties of each partner/ team member. This way, all parties know their role, which means there is less space to clash.
4. Poor marketing and branding 📺
"Startup marketing and branding are such integral components of company development because they help a new business establish an individual brand identity." says 36Creative.
Formulating a strong brand identity is crucial to attract and retain a loyal customer base. First of all, it allows the business to form an image of who they are, their core values and what they bring to the industry, therefore enabling all stakeholders of the business, internal and external - to have a clear understanding of the company's vision.
Moreover, formulating a leading brand identity can allow a business to differentiate itself against the competition. The tech industry is increasingly competitive and highly demanding so as a start-up, you must stand out to gain visibility which will enable you to reach your target audience.
5. A failing business model 📐
Like most things, making an effective plan is the key to success, and this is most definitely the case when starting up a business...
I've said plan, but your business model is actually slightly different: The Business Plan Shop compares the business model as "the mechanism through which the company generates its profit while the business plan is a document presenting the company's strategy and expected financial performance for the years to come."
In simple terms, the business model describes how your company is positioned within the industry, and how it organises its relations with suppliers, clients and partners in order to generate profits.
Think of your business model as a roadmap to business success. If you have a bad business model then your start-up will more than likely head in the same direction.
With the help of GoForth Institute, I have condensed some top tips for creating a winning business model that will contribute to your start-up's success:
⭐ Put aside your excitement and make a realist evaluation of the potential success of your business idea.
⭐ Aim to figure out elements such as: what problem you are solving and for whom, how you will create customer value and how your product or service will get to customers.
⭐ Try to anticipate all the revenues and costs you can.
⭐Take your time and consider all possible areas of concern.
That summarises 5 major reasons why tech start-ups might fail. I hope reading this article will help you and your business to identify and avoid areas which might go wrong so that your start-up can thrive, grow and succeed 💫
Please leave me a comment below, I would love to find out what you think of these reasons, did any of them shock you?
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About the author
Jasmine is a Public Relations assistant at the High Profile Club. She is currently completing a BA degree in Marketing with Public Relations at London South Bank University and has a keen interest in PR and the fashion and communications industry.
After growing up in Hampshire, Jasmine decided to move to London in order to pursue her career aspirations and work amongst some of the most established thought-leaders in the world of public relations and communications.
Find Jasmine on LinkedIn here.