5 Reasons Why Startups Don’t Pay Back Investments
There are many reasons why companies don’t take off. Startups are always risky and unknown. Obligations to investors appear, which are not always satisfied. According to CB Insights, 70% of new tech companies fail, as well as 97% of startups that get crowdfunded.
Most startups fail because of a mismatch between product and market needs. Here appears lack of resources for scaling and conflicts between the founders. How to recognize each of these traps and avoid falling into them? Let’s talk about this in more detail.
So, why do startups fail?
1. No market need
It is the most common reason why startups fail — creating a product or service that the market does not need.
The problem is that an entrepreneur can create something that no one wants or, even worse, something already exists in the market.
To prevent this, securing a market for a product or service is essential before investing time and money in developing it.
2. Pivot failure
No pivot (changing the trajectory of a startup for the sake of experimentation) or pivoting too quickly — it’s also one of the reasons why startups fail. A bad idea can drain resources and money and leave employees frustrated that the speed of progress is not being met.
The pivot should be approached wisely. It is best when the request of a new target audience is supported financially; that is, the company has sales in a new segment for itself. Then you need to move in iterations. Start with the minimum viable product.
3. Money crunch
Money is the blood of any business. And for startups, they are significant. It is a critical resource needed to sustain and grow a business.
If a startup does not have enough money, it will quickly run into problems. Lack of money is one of the most common reasons startups fail.
To protect your startup from failure due to lack of money, it is essential:
- be able to manage your finances
- be competitive
- monitor market preferences
4. Unsustainable business model
The viability of a business model is that it can generate enough revenue to cover costs. And create a profit that can sustain the business in the long run.
A startup will eventually fail if it doesn’t have a viable business model.
It’s a good idea to look at several types of business models. And stop at the one that suits your company, product, and target audience. It is also important to remember that this model must remain scalable to grow as the customer base expands.
5. Poor product quality
In the end, the failure of a startup can be associated with a tiny nuance — savings on software quality testing. A product or service can be necessary for the market, bypass all competitors, and cause actual demand. However, things can go awry if the functionality of a site or app isn’t adequately tested. Unfinished functionality will negate all the achievements of a startup, and improving a reputation that has not yet been earned is almost impossible…
To prevent a startup from failing at this stage, paying attention to testing the product before giving it to the end user is essential.
Startup Needs Software Testing
Every startup faces hundreds of challenges before fully earning the trust of both investors and customers. The lack of constant cash flow and resources often forces startups to skip the testing phase of product development. And often, this, unfortunately, turns out to be a fatal mistake. As practice shows, preventing defects is much more critical than detecting them. We at QATestLab know this firsthand. That is why we have made quality our goal. We offer flexible cooperation schemes for our clients. Because we are sure that only a high-quality product can genuinely conquer the market in the shortest possible time. And this is exactly what startups need in order not to burn out.