Startups are interesting business setups, not only because of how quickly people can become successful riding on the startup vehicle, but also how easily entrepreneurs overlook the potholes on the business road. Avoid falling for common startup pitfalls; know the most common reasons because of which startups fail-
The inertia in the market – Many entrepreneurs jump into the business game with the assumption of the market converting its intentions into actions. Just because a 500 member survey tells you that working people would like a car wash and car repair service when the vehicle is parked in their office, doesn’t mean that you will raise capital and convert it into a service model. Being successful in the market involves finding a market segment that has the need, willingness, authority, and money to buy.
Unstable business models – Business success is not about having an interesting new idea or a product, it is about having a strong, stable, and sustainable business model built around the idea. Startups can easily ignore to foresee the future, and can work with the naïve assumption that consumers will rush to them to avail of their exciting new service. However, acquiring customers becomes a stunningly expensive task as the hype dies down, and several startups fail because for then, the cost of acquiring the customer (CAC) is more than the life time value (LTV) of the customer.
Cash deficit – Assuming the seed capital funding for a start-up is over, it’s for the CEO to carefully guard the cash flow statements per month. Taking the startup beyond certain milestones is important to ensure that subsequent funding rounds increase the company’s valuation. However, the crossing of these milestones most often involves hefty use of existing cash resources. Most startups run out of cash before they are sufficiently progresses to invite another round of funding, causing them to fail!