4 Biggest Reasons Why Tech Startups Fail
The modern-day tech industry boasts an exceptionally fast-growing, competitive, and risky market. Unfortunately, 70% of businesses end up shutting shop within the first three years.
So if you’re trying your luck here, better play your cards right. Let’s try tackling one of the most asked questions. Why do most tech startups fail?
Our answer: it’s a typical “Close, but no cigar” scenario.
Honestly, establishing a successful, profitable business isn’t an overnight job. It takes a lot of strategic planning, administration, and marketing efforts to survive in such a dog-eat-dog market, let alone flourish. Although most companies put everything at stake to thrive, some way or the other, they fail to keep a few areas into consideration.
What are those areas, you ask? Let’s dive in.
1. Inadequate Market Research
Imagine how it feels when you’ve finally arranged a romantic candlelight dinner to propose to the person you’ve had your eyes on for years, just to find out that they weren’t interested in you, like, ever?
That’s exactly how it feels while targeting a specific market, investing in your idea, building and marketing the product, and realizing that your targeted customers don’t need the services at all in the end. Except, maybe it stings even worse.
A study has revealed that 42% of all startups fail due to a lack of a compelling market need.
Where did things go wrong? Here are a few possible causes:
Maybe you’ve entered the market at the worst possible time; you were either too early for your customers to recognize the need, or too late to solve the problem
Maybe your customers didn’t have their hair on fire; today’s market demands you to develop products that customers “must-have”, as the common alternatives are endless
Maybe you’ve fallen short of investment; you didn’t have enough funds to develop the best version of your product that could attract customers
2. Running Out Of Gas Mid-Journey
Cha-ching! Don’t get confused — by gas, we’re referring to money.
Research claims that one of the most common scenarios leading to 37% of tech startups shutting down is when the money stops coming in.
Once new tech companies start to run into losses, sustainability becomes tougher. The burn rates go over the roof, while the sales margin stays at an all-time low. In these cases, the last resort left is to pack your bags and quit early.
What stopped the cash flow? Here are a few possible causes:
The day-to-day running costs have exceeded the profits by a huge margin
Your marketing team is struggling to increase the monthly sales figures
You hadn’t analyzed how many investments you’d need to achieve the targeted milestones correctly
3. Developing A Bad Team
As per stats, 23% of startups fail due to below-average team performance and management. Give the wrong people a big responsibility, and they’ll take a highly profitable idea and run it into the ground.
Where does a team fail? Here are a few possible causes:
Their strategy wasn’t up to the mark; it led to developing products that have almost zero market potential.
Their overall execution strategy was below average; the ideal product you’ve had envisioned would solve the underlying problem isn’t remotely close to the rubbish your team handed you over ultimately.
Maybe it wasn’t the CEO’s fault in team-building; in many cases, your team recruits the wrong subordinates to execute certain tasks that create the recipe for a disaster.
Pro tip: You can submit your ideas at Pitch10K to transform your tech startup plan into a reality with a team of best-in-the-world engineering, business, and marketing professionals AT COST.
4. Heavy Competition
Now we’re aware of how competitive the technology industry is, and it doesn’t plan on ending anytime soon. Although competition is necessary for companies to recognize and fix their product errors, it also has a major bad reputation for causing business failure.
How does competition force businesses to fail? Here are a few possible causes:
You’ve chosen the wrong niche; it’s riskier to establish startups in highly competitive niche markets dominated by major players.
The product you’ve developed is already available, and your competitors have done a better job of execution and marketing.
It’s human nature to not succeed in something, but letting it get to your head and restrict you from re-trying is the real failure. It’s hard, but not impossible to run a successful tech startup. Make sure to choose the right team, study your competitors, and you’ll be good to set up shop.
Our suggestion is to find a suitable tech partner which can help you with the resources, team and expertise. One such partner is Project10K. Once you pitch your tech idea, be it something small as a tissue paper idea or a minimum viable product, you can be sure to get the right guidance you need. All they’re asking for is your values to be aligned to theirs. Leverage the Project 10K network, ChangeMaker funding, Project 10K tech team and so much more. Pitch your idea today and become a Co-Founder of your tech company with the right tech partner.
Subscribe to our newsletter and stay updated with all the recent news, tips, and insights about technology, business, and entrepreneurship. Remember to enjoy your favorite Cup Of Saas to stay tuned to the tea!