Startup Failure—How a Startup Meets its Doom

“Fear of Failure” retreats an individual from realizing his dreams and disassociating himself from the crowd. Whilst in the inverse scenario, risk-takers are greatly revered for doing something distinct which, in turn, offers them recognition, success and monetary power.

The latter precisely fits to describe startup entrepreneurs who come up with brilliant business ideas but after some time those ideas avert to generate revenue. The end result comes out to be company shutdown or closure. These failures are often presumed to be inevitable as there is a revolving myth that 90 percent of the startups fail to sustain. Furthermore, it is believed that the initial five years describes a company’s future. In this period, if an organization deals with market challenges then it proves its mettle whereas the organization that stumbles in the race is considered inefficient.

In today’s globalised business world, businesses and business models are rapidly changing to cope with market trends. Owing to which, customers seek a product that can be acclimatized. Startups who fail to cater to this type of product collapse in the short run and thus, continue to labour to overtake their competitors.

According to Nasscom startup report 2017, “B2B startups show higher stability, with further reduction in the share of B2B in failed startups.” In simple terms, this means that startups dealing in B2C services witness instability in the long run in relation to B2B startups that see soundness in the sector. Some of the examples of failed B2C and B2B startups are:

Failed B2C startups

•    Taskbob- a home service startup
•    Rooms Tonite-  a hotel booking startup
•    Cardback –     an online platform for loyalty cardholders

Failed B2B startups

•    Turant- a hyperlocal logistics startup
•    Parcelled.in- an on-demand logistics services provider
•    Tolexo- a startup rendering marketplace for industrial goods

                                                                    (Source: Nasscom Startup Report 2017)

In essence, ventures recognize its potential in the initial five years and consequently, achieve success or else meet doom. There are various external as well as internal factors that concertedly contribute in the fall of a startup:

Scalability Related Problems

In the initial course, scaling the startup becomes a daunting task for entrepreneurs. This problem mainly arises due to low market demand and sales of the product. Furthermore, cut-throat competition in the business makes survival difficult for startups and hence, results in the shutdown of the enterprise within the first two years.

Fund and Cash Related Problems  

For startups, capital investment is an integral way to scale its business. Though, startups should assess their cash flow from operations before investing capital in a substantial amount. Investment decisions which are not scrutinized can lead to the downfall of the organization. Pepper tap, a startup is a typical example herein; the organization gained success in the early phase however later it leads to a closure because of high cash burn rate.

Failure of a business model

Before commencing a business, an entrepreneur should assess one’s product and plus, consumer behaviour toward the product. Otherwise, the company can face failure in a very short span and even, revamping would not help to acknowledge the product.    

These factors cause the downfall of small and medium-sized organizations in the Indian market. Recognizing and resolving these factors in the early phase of inception can incredibly facilitate the entrepreneurs. In addition, it can assure startups a safe niche to flourish and grow.