Reasons startups fail after millions fund – Why do startups get millions in funding in the first place? You might often question this one. So, let me explain it to you through this article.
If you’re not a part of the startup world, the numbers would probably shock you. Doordash, WeWork, and Uber have received billions in funding since their birth, and are yet to make a profit!
Usually, startups use each round of funding for a maximum of 24 months. After which, they either become self-sufficient, get another round of funding, or go out of business directly. But how do startups receive such large sums of money in the first place?
There are a few simple reasons, and here are two:
- The company has patented a new technology that is capable of revolutionizing an industry.
- The company has a groundbreaking idea that can only be implemented on a large scale.
4 Reasons Startups Fail After Millions Fund
Worthless Equity Buyouts
Government-run entities turn in a dime a dozen while downpouring millions into singular projects. This is only carried out to provide services (and additional ones sometimes out of budget) at a fraction of the market price.
But the problem is that most startups that attract millions of funding per month are doing the same thing excluding the fact that most of the money is lost along the way. And although their margins may make sense, their burn rate doesn’t!
Millions are wasted on gambles, skyscrapers, and depreciating assets! If you wish to know more about the downsides of buildings, head over to Adam something’s channel.
Yes, as mentioned, some startups need a tremendous amount of capital to be profitable. Amazon, Facebook, Reddit are such examples, but not every startup has the exact requirements!
Many skilled freelancers and programmers achieve significant growth without funding. Yes, businesses that grow without funding do exist, and investors find them at later stages.
Some companies’ first investors are private equity funds, which take them to their IPO or delist them according to interests.
Rapid Growth Challenges the Capabilities of The Team
Of course, not every startup has an extensive burn rate. Some of them effectively use their capital and grow.
Forever 21 is a great example of this subtopic, as they used their capital to bring a tremendous amount of revenue and 4.4 billion dollars in valuation!
But why is Forever 21 the perfect example? Why not Microsoft or Apple? Unlike the two exceptions, some startups grow extensively, and they grow so fast that the founders’ and the teams’ capability is put to the test. And this is one of the reasons why Forever 21 met its demise.
“When we grew so quickly, there was a lot of complexity that we did not foresee. We weren’t set up with the supply chains to support that kind of globalization. Having to tailor our assortment for different countries created a lot of nuances that added up to a big puzzle problem for us.” Said Mrs chang, the co-founder of the company.
In a nutshell, the fashion trends changed but the founder’s prompt decision-making was absent.
You may have noticed that downfalls of such type are usually prominent in fashion and tech industries, whose products are just mere trends that vanish over the years.
Death by Competition
Startups in the tech industry constantly need to innovate to stay ahead of the competition. We have seen this with Nokia, and how their market fit was perfect 15 years ago!
Their products had everything to crush Motorola and blackberry, which were dominating the market earlier.
Their innovative design (compact, portable and convenient) and user-friendly interface was easy selling point!
However, even one competitor is enough to change a whole industry. And the iPhone did just that! You may argue that this is just like the Forever 21 example, where prompt decision-making was key.
But realistically, they stood no chance to take the throne back, as shifting to touch would destroy their Unique Selling Proposition (USP).
Additionally, competition also affects the work environment, especially on such a large scale.
“Competitions can result in lower self-esteem because 90% of your workforce doesn’t get recognized. And if they’re not getting recognized (a positive motivator), they could be experiencing fear and anxiety: fear that they’ll disappoint their boss, coworkers, etc. And anxiety about their work or standing with the company because they feel they can’t measure up.” Says ideas.baudville.com.
One Man Army
Believe it or not, most startups fail and most of those failures are one-man armies who think they can handle everything.
After all, according to the AT&T Bell System, “the system is the solution”! Operations, networking, management, marketing; no one can do it all. As mentioned in our customer righteousness blog, your duty as an entrepreneur is to find a problem in the market, find a solution to that problem and sell it in whichever way possible!
Otherwise, you would end up wasting your valuable time on tasks that don’t require your full potential. The point is to automate as much as possible! Furthermore, you should shift your focus to management as much as possible. This should be your focus from the get-go.
If you wish to know more about startups, I recommend reading Zero to One Blake Masters and Peter Theil.
Writer: Neeraj Sawant
Editor: Evelyn Tobing