Why 90% of the newly founded Startups fail at the end of 5th year?
By: Sachin Sharma
Tags: Failure, Business, Writing, Startups In India, Year In Review

Why 90% of the newly founded Startups fail at the end of 5th year? Sachin Sharma May 26·4 min read

Every person in the business world knows that 90% of the newly founded startups fail at the end of 5th years of its working. Approximately 20% of the startups fail at the end of 1st year of active working. The above percentage is the result of the observations made by many analysts of the industry and regular updates are given on the same. The above fact concludes that your company will fail with a probability of 0.9, this fact can be demoralizing for many entrepreneurs. Increasing competition and also many people competing at the same level with the same facilities, it might be very difficult for the newbie to come up front and give head to head competition to others. Venture capitals also make sure that they invest in companies which are operating in an active and more engaging industry as the chances of that startup turning into a company is high compared to other companies.

There are many reasons why most of the companies fail in such a short time period. Though the rate of failing has decreased somewhat as compared to the late 90s because of the advance of technology and the birth of social media. Many startups are interdependent on each other financially and reputation wise. Some of the reason why company fail are as follows:

Market problems — Bad performance by the company in the niche market.

Poor management team — No productive work done by the team.

Scarcity of the cash — Poor financial management of the company.

Product problems — Not able to market the product and sell them properly.

Business model failure — Not having feasible business models.

Get outcompeted — Not able to compete with the niche competitors.

Poor marketing — Products or services are not showcased properly.

Lose focus — After an initial start company work is not done on a regularly.

No investors — This is the end result of the above listed problems.

These are some of the major reasons for the failure of a company. There are many more reasons like them which depend on the company and the market in which they are working. Now coming to why it is important to fail and how failing and then coming out of the failure process is inevitable for a company to become a successful player in the market. When we talk about an individual, we can talk about the success he/she has in their life, but there is a lot that goes into making that success. Some have to go through some major changes and struggles and also have to face disrespect from many. But at the end, if they stick to their goal and change plans accordingly, they end up getting success. The focus point is sticking to the goal and not letting the hustle off the ground. That is the most important motivating factor that one must have in order to continue with working on the path chosen.

Failing is like getting a disease and overcoming the failure is like getting back to normal and getting fit again. After going through the disease, our body’s immune to that particular cause of disease, just like startups can develop an immunity against the factors that were the major reason for their failure initially. Checking on the failure reasons is the most important part. Every company has to go through that phase in one way or another. What makes the major difference is how they treat that mistake and what plans they inculcate to overcome that.

WHY failing is important

Some of the major importance include:

It helps in making the company immune against the mistakes of the team.

It helps to grow as an organization and also provide the real picture of the industry.

It calls for major change on individual and organizational level.

It helps to make the product or the service more effective for the customers

If the company is able to come out as a successful company after failure then that makes their image shine in the market.

Failing in the initial phase makes the team realize the mistakes which they were committing in their work. Working on the different departments in which the company is failing and also making sure that these mistakes don’t repeat themselves in future is the important part of the failing process. Major departments which play an important role in the company like marketing team, financial team, software team, customer service should make sure that they are doing their work according to the new developments made after failing. Not getting obsessed with the idea is another great step one can take to avoid the failure. Changes are inevitable and that has to be brought to the company at some stage.