Top Reasons Why Startups are Failing?

More than 50% of startups fail. The article analyses the top 5 reasons for failure of startups and small businesses.

The recent failure of PepperTap is a wake-up call for the Startup community in India.

The question on everyone’s mind is “what went wrong with Pepper Tap?”.

They had the best of talent (IIM-Ahmedabad) as co-founders.

They were funded by some of the best-known Investors.

They were in a market touted as the next big thing in Indian Industry.

Source :
Source :

They had the money-brain-market at their disposal.

So what led to the failure of PepperTap?

Was it inability to raise more funds or bad management decision?’

Local Banya and now PepperTap.

Was the last one year, a year of Indian Startup Failures?

Most of the startup enthusiasts I spoke to unanimously agreed to “lack of future funding”as a reason for the failure of PepperTap.

I agree Money is important.

Running a startup without Money is like running a race on one leg.

You will never finish the race.

But is funding the most prominent reason for the failure of startups?

I have failed in many startups.

When I look back at all the failed startups, the reasons for failure varied.

Obviously, money was one of the prominent factors for failure but it was not the only reason which led to the closure of some of the startups.

As a matter of fact, You will be surprised to know only one of them failed “mainly” because of Money troubles.

Here were 5 major reasons our startups failed:

  • Lack of Ownership:

We started ArrangeMyParty with a lot of hope.

The plan was to connect party planners with party seekers on the internet.

The concept of internet marketplace was just catching up in the country.

It was a virgin market waiting to be tapped.

At least, that is what we thought.

We were the pioneers – the early starters.

We hired a new team.

Renovated an existing office of one of the founders.

And spent a good amount of money on the website.

We launched the startup with a lot of enthusiasm and energy.

Only to see the startup shut show within few months of launch.

Why did AMP (Arrange My Party) fail?

It took me years to figure out the reason for the failure of the venture.

It wasn’t money or bad idea which failed the venture.

The Lack of ownership led to the slow death of AMP (as we referred Arrange My Party).

All the founders of the company had their own established businesses.

At the end of the day, the new venture never had a full-time owner.

It was an orphaned kid, who went for adoption time to time to different owners.

Since no one knew who was the real owner, the staff had a gala time working on the project.

They partied in the office.

Played cricket.

And had the time of their life.

They also refused to make sales citing lack of market demand as a reason for no sales.

The venture died a slow death within few months of launch.

I recently faced the same issue with another startup Pinksis started by someone close to me

The original owners were to be the main stakeholders of this venture. I was to consult them.

Within 2 months of launch, the venture was a headless chicken.

We closed the firm last month.

  •       Market not ready for Innovation:

Most of the startups are trying to change the way businesses are done.

They are innovative and disruptive.

The aim is to change things for good.

But is market ready for the change?

I worked as a consultant for a Job portal for small cities.

My job was to build business plan and guide the marketing team.

The product “A web-based Job portal” worked on a unique business model.

They sold memberships of a job portal in tier 2 cities to job seekers.

Our employees were to intimate job seekers before anyone knew about the job posted on the website.

We mixed online with offline to create a product which was high maintenance with low returns.

So our online mode failed, as the market was too dependent on offline medium.

Our offline medium failed, as we charged peanuts for providing a time-consuming service.

The whole “Innovation” backfired.

The venture failed despite high investment from founders.

  • The Copycat Approach:

Few years back, Gaming portals with thousands of flash games were a rage in the market.

I thought of starting one myself.

Predictably, the venture failed.

I refer such ventures as “the copycat” Ventures.

You see a successful venture.

You build a clone hoping your venture will see the same success as the original venture.

99% of the times “the copycat” ventures fail.

We still get a lot of clients who want to build the next fiverr, Airbnb and uber of the world with a USP of their own.

Almost all the clones I have done for clients have bombed.

The clones with the “twist” barely survive the market.

The copycat approach is not just restricted to Business Ideas.

You see a lot of startups trying to ape the marketing strategy of other startups.

8 out of 10 times they fail miserably.

  • The Unplanned Approach:

Our initial ventures were without any plan.

We relied a lot on our hard work and instincts to take the business to the next level.

We had no idea on how to set targets for the business and teams.

We forgot the basic fundamental of life “Failing to Plan is Planning to Fail”.

One fine day, I would walk into office and declare “We plan to touch X amount of top line in next 6 months”.

Next day our HR started hiring the marketing team to help us meet X amount.

We did all the stupidity with no regard to the basic fundamental of business called as “Planning”

No wonder, we kept failing.

I was busy with marketing.

Partner did the techie stuff and business ran on auto-pilot destruction mode.

It took us a good year to figure out what was wrong.

Today, I make it a point to keep up a number of spread sheets with targets for everything in the company.

For Project Management, we are streamlined using teamwork to run our operations

I know you will find it foolish on how a business can run in such unplanned way.

Well. I have worked with founders who have no idea on how to make plans.

They are just one step away from imploding.

  • Money troubles:

Rule No.1: Never lose money. 

Rule No.2: Never forget rule No.1.” – Warren Buffet

You are bound to have money troubles if you:

  • Do not plan your business finances in a planned way.
  • Mix your personal finances with business money.

You pay your office expenses from personal money and vice versa.

  •       You Spend like a King on unnecessary stuff. You are lucky if you buy something tangible which you can at least sell when you have hit the bottom.

You will be penniless when you spend extravagantly on ads, marketing team for fast customer acquisition. (caution for funded startups).

Tomorrow, when the company goes bust. All you will have is the copy of invoices from ad agencies and salary slips of employees who worked to fulfill your dream.

And you won’t be able to sell any one of them to make something of your bad decisions.

  • Lose money to clients by not getting paid on time or bad project delivery.

Lack of Money will put your startup in an ICU.

You will not have money to pay your staff. You will not have money to pay the rent. And none of the two entities like to wait.

We worked in government for a good 3 years without realizing how much the government can choke fund flow.

The salaries were delayed.

Office rent was never paid on time. We, the so-called bosses never got paid for a good amount of time.

Why did we work for 3 years despite such a scenario?

Well. The thought of getting the “big payment” was too much of a temptation for young entrepreneurs like us to resist.

By the time “the big payment” came, we had paid a fortune from our pocket.

We lost some good employees who left us because of delay in salaries. Our office owner almost threw us out for reasons known to you by now.

And we had vendors who refused to supply drinking water, coffee to the office any further.

One fine day we decided to stop working with government directly.

A decision I do not regret till date.

There are so many articles out there talking about why startups fail. I just added one to the list with some real life experiences.

As they say “Failures contribute more than success to your learning curve”.


Author: startupbusinesslessons

I am an entrepreneur.

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