Why Start-ups Fail?
Mergers & Acquisitions,
1. The Idea: The foremost thing is the idea behind starting the venture. The foundation of this idea is of primary importance. If it not given a comprehensive thought and planning then it only sees the DOOM's DAY.
2. Execution of this plan: Execution is critical. If done well then one can sail through with little less money as well. However, this is where most start-ups have blown off.
3. Run-out of Money: It depends where the funding is coming from. Venture capitalists today are known to take more than a year to go through the analysis of profitability of an idea. At the same time they are looking at an investment period of a max. 4-5 years and expect aggressive profits. This is a situation that puts pressures on the very vision and forces the core team to look for short term gains. Consequence is, they lose long term vision and slip into drains. If the money is coming from conventional HNI investors, then they start looking for early results since there is no understanding of life cycle and the business both. The situation boils down to "You said, this would happen. So why has this not happened?" It generally comes within 3-4 months. Lack of patience and fading trust, stops the committed funds that were needed to survive.
4. Run-out of Commitment: Usually, markets don't perceive new players as genuine long term players because there is so much generalization. Thanks to a couple of bad experiences they have had, which paints everyone alike. It is thoroughly demotivating. Pressures mount up and investor mount up more pressures. This makes the Executives lose focus completely. So it looks like they have lost commitment. However, it is not the case many times. It is just that conducive environment for SUCCESS is snatched away.
5. Bad Management: Amateurs with lack of experience on planning both, actions and money, lose out in the race. They are most of the times at the losing end simply because they are too early in the business because of ROSY pictures painted in their minds. This is still better. Sometimes, certain managements of start-up companies have double standards. The idea shown is different from what they actually want to gain. It could be a short term loss making venture that is planned only for quick personal gains. This is worst.
6. Investors are those people who invest money for medium/long term gains. These gains have to be spread over time. Better the support system for any business, better it performs. But, it is strange for me to know that no one understands this when it comes to investing in new ventures. WHY do people not look at long term investment, when it comes to start-ups? All fortune companies were also start-ups when they began. It is only over a long period of time that they have become so BIG. People will easily play safe by investing money for 25 years in a Govt. company / Fortune company but not start-ups. There is lack of belief system. This is one of big reasons for dooming start-ups. A full fledged support system should be created to ensure success and over a longer time, not just 3-4 years. If the idea is right, SUCCESS is certain. Usually most ideas are good, if implemented properly and are need based. No doubt the risk is high, but gains are even higher.
7. Due to all the factors listed above and a few others, start-up companies have a huge problem in attracting talent. So a big compromise needs to be made on this account. Also technology may be a cause of concern since it costs a lot of money and returns are not as quick as one would demand. So they are constrained by these and several other factors, to ensure FAILURE.
However, if a start-up company is provided with a long term support based on a clear thought, they will SUCCEED. One can stop an invasion of armies, not an idea whose time has come.
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