Business Management
2 min read

What are the top 3 reasons why start-ups fail?

Paola Bellia
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The number of start-up companies founded every year has been increasing since 1996. And so has their failure rate.

Over the past few months, I had the pleasure to interact with many entrepreneurs who have started their own business in Switzerland and abroad. The sentence I heard the most? “Starting you own business is not easy. It is common knowledge that 90% of start-ups fail”.

But why is that?

A Real market need

One of the key issue behind such failures is that for every $30 billion company like Airbnb, the online hospitality marketplace that has changed the accommodation sector, there are countless other products that no one wants to buy.

Without a proper evaluation of the market, potential entrepreneurs simply take a leap in the dark and risk to waste time, money and resources.

Pearl, an automotive start-up founded by ex-Apple engineers, raised $50 million dollars back in 2014 for the development of “RearVision,” a solar-powered backup camera operated digitally from a smartphone. The company shut down in 2017, as a result of consumers refusing to pay such a higher price for a feature most of today’s cars already have.

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Sustainability of the business model

Your idea is trendy, the market likes your product and is willing to pay for it. But will your company last without being financially sustainable in the long-term?

This was the case of Sprig, a company aiming at producing and delivering its own healthy food to consumers at the beginning of the wellness trend, the right product at the right time. The company had its own kitchens and even its own drivers, all operated by full-time staff members. These represented fixed costs that Sprig had to face even in the absence of costumers, and when the business didn’t have enough demand it saw itself forced to shut its doors, despite an initial investment of $60 million. The competition, which simply relied on contracted employees, managed to create a sustainable model, expand and succeed in the long-term.

Entrepreneur VS leader

Being an entrepreneur with a marketable product is different from being a leader who drive both the brand and the employees towards success. One of the main traits of successful leaders is the capability to adapt and evolve. Those who fear changes, won’t last long.

Think about MySpace, one of the first social networking sites, extremely popular first in the US and soon after all over the world. The company was a pioneer and had huge growth potential. Then, in 2009, it started losing its crown to Facebook. MySpace failed to adapt to the changing online environment and its features quickly lost their uniqueness and appealing.

Indeed starting a business is not easy, especially in today’s unpredictable and over-competitive economy. But starting with the right foot will certainly increase an entrepreneur’s chances of success.

Following are 6 key questions for entrepreneurs before planning to start their next venture:

  1. What is your purpose?
  2. Does the product already exist? If yes, what makes it different? If not, what is its utility?
  3. Who would be willing to buy it & how much is the consumer willing to pay for it, including yourself?
  4. What is your strategy to mitigate the risks involved with this venture?
  5. Which skills do you need to improve in order to manage a successful start up?
  6. What’s next to do?

This article fist appreared on the Lausanne Hospitality Consulting -LHC Knowledge Box

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