Some 90% of tech startups fail. It is probably safe to assume the percentage of startups – and particularly cross-cultural ones – that fail is not much less.
Someone recently challenged me to analyze cross-cultural business failures I have witnessed and assess the reasons for their failures. There a many reasons why startups fail. Generally the answer to why startups fail is a complex interplay of multiple variables.
But as I considered several startup failures I have witnessed, I can isolate the primary reason in each instance that really was the demise of the company. In the next two posts I’ll be sharing with you a total of 8 reasons why startups fail –and prevention tactics to make sure yours doesn’t.
Startup Failure Reason #1: The Wrong Person for the Job
The first reason why startups fail is that the startup has the wrong person (or people) for the job. Some people are simply not wired for entrepreneurship and the demands of a business startup. Others may have some capacity, but underestimate the immense sacrifice of time and energy to make it happen.
Such was the case of a solar lighting and heating company we coached in the rural mountains of Nepal. The product they sought to deliver was greatly needed. The timing seemed right. But after several investing several thousand dollars in a national owner, it became evident that he was not the right person for the job. He viewed the startup as a part-time endeavor and was unable to meet the demands of startup life. Plus, he was more interested in NGO activities. The startup failed.
Startup Failure Prevention Tactic #1: Get the Right People
Make sure you and the other key players are the right people for the job. Make sure everyone understands the investment of time, energy, thought, and money that startups take. Make sure the personalities and life stages of each key player fit their role. Just because you—or someone else—have a vision doesn’t mean you’re the right person to accomplish it.
Startup Failure Reason #2: The Wrong Place for the Business
The second reason why startups fail is that it is located in the wrong place. Location is an often under-looked but key factor to a startup’s survival. The location factor can apply to the general region where the business is located, or it may be a specific as which direction a storefront faces. It may be as extreme as trying to start a ski supply store in a region that hardly gets any snow. Or it may incredibly subtle.
An adventure company in Africa discovered that its product would better serve the market if it was elsewhere in the country. Transportation time and costs in bringing the clients to the mountain adventure was prohibitive. Rather than move, they decided to sell the company. This failure was only partially due to location, but it does highlight the importance of comprehensive research. Remember the old business adage, “Location…location…location!”
Startup Failure Prevention Tactic #2: Find the Right Place
Comprehensively analyze all factors relevant to the location of the startup. Make a non-negotiable list of the location essentials that must be met. When surveying a specific location, anticipate what challenges the site might produce, and assess if those challenges will be outweighed by other benefits. Consider logistical factors and how easily accessible and visible the location is.
Startup Failure Reason #3: The Wrong Product for the Market
A viable business requires a paying customer or client. The product must suite the market. If there is no demand for the product or service, or if the market is overly saturated with competitors, the startup will not survive. The greatest ideas, products, and services will not make for a successful startup if it isn’t right for the market.
A startup wanted to help citizens of a large Asian country to immigrate to North America by providing services which would help them to study abroad. The services included English preparation, visa applications, housing etc. As visa requirements and the political climate began to change, what could have been a viable service turned out to be difficult to market because of a changing international climate. Also, the owner did not find appropriate advocates in the local culture to insure the product would be welcomed.
Startup Failure Prevention Tactic #3: Develop the Right Product
Before investing too much time and money in developing a product or service, conduct robust market research first. Is there a demand for the product or service? Is the market over or under saturated? Are the people in the market willing to pay for that product/service at a price that makes it profitable? What external factors could affect the product/service’s appeal? Don’t just conduct third-party research; find local advocates to give the insider perspective. Validate the value of your product or service; then channel your efforts to focus on your value proposition.
Startup Failure Reason #4: The Wrong Plan for the Business
The fourth reason why startups fail is due to having the wrong plan. A failure to have an effective and comprehensive business plan in place can be toxic for a startup, especially in a cross-cultural context.
An agricultural business in a former Soviet Republic failed for lack of planning. The markets were too far away, they experienced a blight on the plants, and contracts were broken. All of that was predictable, but the plan was not adaptable to the changing conditions. Adequate risk analysis and mitigation was not in place in the plan. It failed!
Startup Failure Prevention Tactic #4: Have a Comprehensive Plan
Take the time to develop a robust, comprehensive business plan that is highly adaptable. Don’t just plan for tomorrow; plan for the future of the company. Make a business plan that anticipates risks and obstacles and plans alternate courses of action. Bring in experienced consultants and coaches to look for holes and unconsidered factors in your business plan.
Don’t Let Your Startup Fail for these Preventable Reasons
All four of the above reasons why startups fail can be prevented with proper research, coaching, preparation, and careful thought. It’s not always easy to admit you have the wrong person for the job, that your product isn’t needed, that your place of business sets you up for failure, or that your plan is incomplete. But by being aware of these pitfalls and taking steps to prevent against them, your startup will be geared for success.
Stay tuned for the other 4 reasons why startups fail!