Why Start-Ups Fail

The Economic Times had an interesting list of reasons for failure that start-ups and entrepreneurs need to be aware of, and to avoid. Here’s the “deadly” list by Tim Draper, Founder and managing director of global venture capital firm Draper Fisher Jurvetson.

1. They run out of money. Usually, they are too optimistic about when their product is going to be accepted by the market.
2. Founders don’t have complete faith in each other. They fight instead of delegating, trusting and verifying with each other.
3. CEO hires weak team members. Strong CEOs sometimes try to carry everyone with them rather than hiring people who stand up on their own.
4. They want to do too much. Usually, a successful start up figures out a narrow niche that they can dominate and then expands from there.
5. They go after too small a market.
6. They don’t charge enough from their customers to survive. These often think their mentors/investors are their customers, and think that a nice sale is all they need to make to get more money.
7. They hire too many people up front. Too many mouths to feed too early can sink a company. Keep a low burn until you have your business model in place.
8. They get unlucky. Broad-sided by competitors, new technologies, big companies changing direction, etc.
9. They don’t work hard enough or fast enough or smart enough. All those little decisions add up to an outcome. Awareness of the subtleties of their market dynamics is needed.
10. They don’t take enough risks. Some start-up entrepreneurs think that they should operate as though they are big companies. This is wrong. They will never beat Microsoft or Google at their own game. They must get creative and do things differently, even at the risk of embarrassment.

Good stuff to think about. And if you can relate even 3 out of 10 factors with your start-up, it is time for a serious re-think on the business.

(Add on comment: The original list seems to have been removed from the ET website. Here’s his colleague Mohanjit Jolly’s take on the list from March: http://in.reuters.com/article/idINIndia-38552920090317)