When five-year-old Shyp shuttered operations in March this year, its CEO and co-founder, Kevin Gibbon had sighed: “This business should exist. It absolutely should.”

Needless to say, almost all startups feel the same way when they shut down. But the hard and bleak truth is that 90% of startups fail. CB Insights has crunched the numbers to find out why 9 out of 10 startups fail and they cited that the most common reason for this is the lack of market need for their product.

Reasons why startups fail


While 42% failed startups believe that this is the number one reason for their failure, other reasons exist too. Let’s have a detailed look into some of the most common mistakes startups make and the solutions to them.

Also read: Startup failure should not be a stigma, says Vijay Ratnaparkhe, President and MD of Robert Bosch Engineering and Business Solutions

1. Not Having a Business Strategy in Place

Having a great idea is not enough. You also need a strategic plan that covers all aspects of your business, right from costs, technology and marketing to funding.

Here are the three most important things you need for a solid business plan:

  • Building a Common Brand Vision: According to Gallup’s 2016 report, only 40% of millennial employees feel connected to their company’s mission, vision, and values. Employees who don’t know your brand goals cannot contribute to your growth.
  • Brand Engagement: How can you make your customers commit to you? Starbucks achieved this by launching the “mobile order and pay” feature to save customers’ queuing time. The company says that doing so not only improved customer engagement but also increased return visits.
  • Creating Brand Awareness: This is something we can learn from Trivago. The company saw a 37% rise in revenue last year and gave the credit of this growth to its brand awareness programs, particularly the focus on impressive TV commercials.

2. Not Listening to Customers

When people search for your brand online, they should see how much your customers love you.

85% consumers trust online reviews as much as personal recommendations. If you are not listening to the grievances of your existing customers and not taking their reviews seriously, you will never convince potential customers to buy from you.

How to use customer reviews to promote your brand:

  • Respond to Reviews: Show your customers that you care about them. If someone has had a bad experience with your product/service, contact them and tell them that you are ready to rectify it. Offer them your contact information so that they can discuss their problem in person.

Shutterstock does a brilliant job of handling negative feedback gracefully.

Shutterstock Twitter


Engage your customers in conversations. See how retail store Target does it:

Target Instagram


  • Use Reviews/Feedback to Get Ideas for Your Blog Posts: Read customer reviews and feedback from the industry to understand their common questions and problems. Write blog posts addressing these points and create content that solves their problem. This will show that you are actually listening to them.

3. Offering Frequent Discounts

You will definitely sell more products with that 50% off sign for a short while, but by doing so you will hamper your revenue goal. When offering discounts all the time, your buyers will expect the same from you the next time they want to shop from you. They will wait to make a purchase until you offer your next discount. This is a natural human tendency and soon you will realize that buyers are not ready to pay the full price for your product/service.

Rather than taking the discount shortcut, start rewarding the customers who pay the full price for your product/service. Here are a few alternatives to discounts:

  • Convince your customers that you are offering the best price in the industry
  • Offer freebies and extras like “Buy one get one” offers
  • Offer free shipping
  • Provide early bird access, i.e. those who buy early get the best price
  • Create VIP programs, i.e. invest in a VIP plan for loyal customers like Sephora The customers have to pay a certain annual fee to be eligible and they are rewarded every time they shop with the brand.



4. Hiring the Wrong People

Hiring the wrong team means recruiting people who are either under-motivated or whose skills do not match with the market demands.

How can startups ensure the perfect hire?

  • Employ candidates with domain expertise – people who have a deep understanding of a certain technology or a particular niche.
  • Look for candidates who have the minimum skill set required in several industries. For example, a graphic designer who is also familiar with video editing, or an SEO expert who can also handle your PPC campaigns.
  • Appoint a team with excellent communication skills. Your product/service is new in the market and not many people know about it. You want a team that can explain your products to the clients and customers in a language that they understand, and convinces them how it is of value to them.

Also read: 8 ways you can hire top talent on a small budget

A team with good communication skills will encourage meaningful conversations with clients and eventually help in conversions.

5. Choosing the Wrong Co-Founder

Not everyone is a Jeff Bezos who can start a $100 million company and become the richest man in the world all on his own. Most successful startups (Facebook, Google, and Microsoft) started with at least two co-founders.

If you have a killer idea, but not the adequate bandwidth and skills, find a partner for your startup. People who have already worked with you can be better co-founders than strangers because the former already know your working style and trust you.

Networking can help you find a great partner. Connect with people in the local startup world. LinkedIn, BEAM, Founders Network, Meetup, and FounderDating are excellent platforms where you can find potential co-founders, exchange ideas and connect with investors. Post on job boards and startup forums like StartupNation and BizWarriors, and attend industry events and hackathons.

Choosing a co-founder is ultimately going to be one of your biggest business decisions. Choose someone who helps you achieve your business goals and not just because they are your friends/family.

6. Targeting Wrong Customers

What happens when you target the wrong customers? It gives you a confused target market and you lose loyalty in your niche market, let alone experience a drop in sales and lose potential customers.

The number one reason why startups fail, according to CB Insights, is wrong market. But how to know you are targeting the right people:

  • Start with narrowing down your target market broadly into gender, age and location. Further, classify them into smaller groups like geographical (climate, population, density), demographic (occupation, income, education) and physiographic (lifestyle, social class).
  • Analyse your competitors to understand how consumers in your industry behave. You can use tools like BuzzSumo and Ahrefs for conducting competitive analysis.
  • Create customer personas to learn more about their buying behavior.
  • Use tools like Google Analytics to find out who is viewing your website and visitor activity (sessions, bounce rates, transactions).

Also read: Some things to consider when finding your cofounders

7. Giving Accounts the Backseat

As a startup, bookkeeping may come as an afterthought to you because you already have a million things going on. But think of it this way – because you’re a startup, you don’t have much financial activity going on currently, so you can organise your finances better now.

Start by tracking down your debits and credits. Maintain separate spreadsheets for both and update them regularly. When you are finally ready to invest in an accountant, hire someone who can not only handle bookkeeping but also help you in designing a financial strategy and identifying KPIs to enable future decision making.

If your startup lasts, congratulations! You have succeeded at something that 90% of people have failed at. This is a big achievement in itself. If you have taken a leap of faith or just entered the market, don’t make any of the above mistakes. Startups that make the right product for the right market, understand their audience, measure their performance, take risks and learn from their mistakes will undoubtedly make it to the big league.

Have more points to add to the list of startup mistakes? Share with us in the comments section.


e27 publishes relevant guest contributions from the community. Share your honest opinions and expert knowledge by submitting your content here.

Photo by Grant Ritchie on Unsplash