It’s a widely held belief that 80% of funded startups fail within the first 18 months of inception. Over years, this view has been supported by venture capitalists and the business media as well, lending credibility and turning it into a fact.
But what is it that causes most of the dreamy eyed entrepreneur to crash and burn so badly that the damage is almost irreversible? Surely if they can envision an innovative product or service that is credible enough to be funded by venture capitalists, they should be able to ensure the survival of their venture?
The results speak otherwise, and the general consensus among first generation entrepreneurs seems to be that the following aspects rank among the most prominent reasons that 80 % of startups fail within the first two years.
Regulatory – India ranks among the lowest in the world in terms of a startup favorable environment and legislation. At number 142 out of 189 countries in the ease of doing business index study conducted according to the World Bank, the environment in India cannot exactly be called conducive to business inception and growth, although that has recently changed with the introduction of new policies to foster entrepreneurship and growth.
Financial –For any business, and especially for technology oriented startup businesses, Cash is King. Cash flow problems rank among the biggest causes for most startupsfailing. Cash flow is the difference between the receivables and payables for a particular period of time, and survival of any startup is heavily dependent on the ability of the entrepreneur to survive the period it takes to break even or until the positive cash in-flow from sales exceeds the outflow into various operation overheads.
GTM and Market Acceptance – This is one of the main areas where over-optimism generally causes the maximum damage. Without adequately testing the actual market acceptance of a potential product. This has recently changed with the increasing acceptance of user acceptance testing and soft launches. However, premature GTM (Go-To-Market) strategies and incomplete customer analysis, while maintaining optimistic sales projections largely account for many startups failing to survive in the market beyond the initial lunch hype.
Human Resources – One of the most underrated but significant challenges that entrepreneurs face for their startups is the dearth of a capable and motivated talent pool. More often than not, startups are pitted against the might of large corporations and global multinationals in the war for adequate talent and skills. In fact, the race for suitable talent is the third of the top challenges that startups face. And it is not just talent acquisition, talent retention and engagement are also some of the major issues that startups have to deal with, even when they are paying their employees top of the line compensation.
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