New tech startups face many challenges in their earliest phases, most of which need to be solved from the get-go for the business to succeed.
According to research, nearly 1 in 5 new startups fail in their first year. By the fifth year, only one in two startups is still left standing.
So you might be wondering – how can I beat the odds and make sure my startup succeeds?
This article will discuss the top 6 reasons why startups fail before showing how to prevent failure in each step. So stick around, and you’ll find six ways to make sure your tech startup will succeed.
How Tech Startups Are Different From Small Businesses
Before we get into the reasons why tech startups fail, let’s take a step back. First, it’s essential to appreciate how exactly tech startups are different from small businesses.
New small businesses typically don’t require a big market to grow. As long as a small business has an audience that it can serve and reach, it can start operating. Examples of small businesses can include your local barber, baker, or restaurant.
On the other hand, new startups are looking to disrupt a market by scaling to take it over eventually. That’s why most startups are based in the Tech industry, which can service customers online and help reach a larger audience.
Knowing the distinction between small businesses and startups can help us better understand the challenges new tech startups face right off the bat.
Why Most New Tech Startups Fail
Given their unique growth goals and business model, tech startups that fail to dominate the market within the first five years often fail.
Research indicates that the top 6 reasons that most tech startups fail are as follows:
- No market need for the product.
- The startup ran out of cash.
- The team was not right.
- The startup got outcompeted.
- Pricing/cost issues with the product.
- The product was not user-friendly.
Let’s see each reason for failure in detail before we move on to the solutions.
No Market Need For The Product
It doesn’t matter if you have the most original and uniquely designed tech on the market. The truth is, if there’s no need in the market for your product, you won’t make sales. A lack of sales means no revenue generated, which will drain most startups dry within the first few years.
The Startup Ran Out of Cash
Startups can secure early investments and funding, but they risk burning all their resources if they don’t make bank soon. While it’s normal for new tech startups not to make money initially, a lack of initial market success could put startups at risk of bankruptcy.
The Team Was Not Right
A team can make or break new tech startups. On the one hand, the right team can cooperate with a clear plan to lead your startup to market success. On the other hand, a team that is not the right fit might cause your startup to fail rather than survive.
Startup Got Outcompeted
If you have an excellent idea for an app or online service, chances are someone else is doing the same thing, only better. Cut-throat market competition is something that can crush even the strongest startups if they’re not prepared for it.
Pricing/Cost Issues With The Product
Ultimately, a product is only as good as its total sales. A poorly priced product, unfortunately, will struggle to make sales on the market. Startups that fail to account for cost-related factors will suffer, sometimes to the point of failure.
The Product Was Not User Friendly
Finally, a product that is not user-friendly won’t succeed in the market. Startups can get everything else right, but failing to consider UX and UI elements in their product design may ultimately cost them their business.
How to Make Your Tech Startup Succeed
Now that you know why most new tech startups fail, let’s show you to set your tech startup up for success.
Here are six ways to make sure your tech startup will succeed:
1. Find The Right Market For Your Product
Before you even think about product launch, make sure you’ve found the right market first. By finding the right market for your product, you’ll secure yourself against the number one reasons why tech startups fail.
Just make sure there’s a need for the product you’re selling in the market you’re entering – if you’ve found that, you’re all good!
2. Come Up With a Financial Plan
A detailed financial plan will help your startup not run out of cash within the first few years.
You’ll need to come up with a comprehensive financial plan for your startup. The program should include securing funding through early investors and sales projection, periodical reports, and market research to ensure your startup is on the right track.
3. Assemble The Right Team
To succeed as a startup, you need to get the right team for the job.
Look for employees who aren’t just great on their own but are solid team workers. Sometimes, people who are great individually won’t do well on teams. Getting team players is much more important than focusing solely on superstars.
4. Stay Ahead of The Competition
If you’re in this for the long haul, you need to know your competition to stay ahead of them. So stay up to date with the latest market trends and keep an eye out on how your competitors respond.
Who knows, they might just be running a promotion that you can easily top to outsell them!
5. Price Your Product Just Right
A product that is great but too expensive for your target audience won’t be profitable for you. Likewise, a product that is way under-priced could hurt your revenues in the long run.
Another helpful tip is to consider different payment options and plans. Diverse payment options will help you get customers that you otherwise would miss out on.
6. Don’t Compromise on UX/UI
Finally, good User Experience (UX) and User Interface (UI) are essential for any successful product.
When it comes to UX/UI, don’t try to cut corners. If you don’t already have dedicated UX and UI designers on your team, get some onboard now. If you don’t, you’ll risk bad reviews from unsatisfied customers.
As ecommerce grows, new tech startups will continue to pop up left and right. But unfortunately, only a few of these will survive past the first few years of their life.
If you’re looking to help your startup succeed, first understand why most startups fail. Once you do, you’ll be ready to set your startup for success in no time!