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Startups Gone Wrong: 5 Main Reasons Why Most of Them Fail

Data gathered from several companies showed the most common mistakes.
ILLUSTRATOR ANTONELLA P. VENTURA
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With every new business idea comes a whole can of worms waiting to spill out. It can be especially tricky when it comes to navigating the world of startups and beyond.

Startups offer unique products and services that improve on old ones or address new problems altogether. Founded on innovation with the intention to “disrupt,” startups aim to change the status quo in whatever industry they plunge into. And while some have been successful in their own right (think Facebook and SpaceX), a lot of others are not quite as lucky.

That's why data company CB Insights chose to find out the main causes behind startup failures. By rummaging through over 100 cases spanning three years, the firm has come up with some of the most common mistakes and pitfalls that these industry disruptors may face. Here are the top 5 reasons why startups fail:

5| Legal Challenges

While an idea may seem simple at the start, it may turn out to be complicated due to the different legal do’s and don’ts that come with it all. That’s why every startup should have a lawyer on call in case the law itself becomes the startup’s biggest impediment.

In the case of Bluesmart, a smart luggage manufacturer, the legalities posed a challenge for them. The bags that they sold provided a way for airline travelers to track them as long as they had cell reception in the area. However, with a new American airline policy that banned smart luggage with non-removable batteries, there was really not much the company could do but shut down. 

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4| Faulty Business Model

Having a well-thought-out business model is no doubt a huge help to any company, and the opposite of this could just as well drag the entire firm down. Lumina Network’s case may be attributed to this issue, as it wasn’t able to adjust itself to the pandemic. This caused delays in customer deployments. 

In a statement, the startup said the following: “We have also found that COVID-19 has actually redirected funds away from automation projects and into building-out raw infrastructure, further delaying adoption.” The company’s business model was not designed to adapt to future crises, making its closure inevitable.

3| Knocked Out By Competition

There’s a lot of competition in the harsh world of business, with several companies always trying to somehow out-innovate each other or capitalize on each other’s weaknesses. And in the various attempts to outdo the competition, one is almost always bound to lose. Such was the case for Reach Robotics.

Before it was shut down, the company resided in a competitive consumer robotics industry. Silas Adekunle, a member of the startup, mentioned in a post that this was a challenge that they were willing to undertake “with consistent passion and ingenuity.” The environment at the end of the day was much too competitive, and it became difficult to keep up.

2| No Market Need

Sometimes, however, there are startups that don’t exactly solve specific consumer needs. A startup idea may seem as though it solves an interesting problem at first glance, but it may turn out to not fix any need at all. Great ideas are all good and well, but if there’s no demand, then there’s no future.

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Quibi, a mobile-oriented streaming service, shut down merely six months after launching because of this problem. The company wanted to serve the need for short tidbits of entertainment that lasted between five and 10 minutes. But with the pandemic forcing consumers to binge hours’ worth of shows and movies, having bits and pieces to watch on Quibi just didn’t fit the need at the moment.

1| Not Enough Capital

The number one reason why startups fail boils down to money. Often, big ideas require big cash as well. This is why getting the attention and approval of investors is important. The case of Daqri, which is an augmented reality startup, had to close down because of this. They burned down more than $250M, and they weren’t able to get new funding from investors. Besides that, they had to compete with the leagues of Magic Leap and Microsoft, which had much more funds and networks.

These are only five of the many possible reasons why startups fail—there are still many more that any aspiring owner has to watch out for. When it comes to building a successful business, it all comes down to proper planning and resources. It’s a matter of understanding what sort of value your startup is going to bring, and how you can ultimately bring it to people.

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Teresa Marasigan
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