What are Startups and why do they fail

A: Hey l have a business plan and let’s start the business

B: How much money to be invested

A: Bare minimum

B: What will be our place of business

A: We will do it online through Facebook and Instagram

B: Let’s start then

Most of the startups in Pakistan start in a similar fashion however, not all of them end up making a success story. Most of the so called startups or online businesses are started in haste and without proper planning.

As per a study conducted; 70% of Startup close within 3 years but remember not all closures are because of business failure. People often sell businesses or take up paid employment

What are startups?

Investopedia explains the startup as “a company that is in the first stage of its operations. These companies are often initially bankrolled by their entrepreneurial founders as they attempt to capitalize on developing a product or service for which they believe there is a demand. Due to limited revenue or high costs, most of these small-scale operations are not sustainable in the long term without additional funding from venture capitalists.”

This shows that by definition, the startups are business which are not necessarily started with a long term perspective in the mind. It generally starts, if clicks, sale it and exit and if it fails shut it down. The acquisition of Careem by Uber in $3.1 billion is an example where the business was started as a small startup, but it ended up being sold to its global competitor for a hefty amount.

However, operating your own business provides you with great learning experience in terms of:

Leadership and Team Working
Communication and Networking Skills
Commercial Awareness
Planning and Organisation
Adaptability, Flexibility and Resilience
Independence

Online Market Size

However, the number of businesses being launched through social media are increasing by every passing day. Why? There are two obvious reasons:

The set up cost and effort are very low. You can easily set up a Facebook page and Instagram profile and have limited inventory to start
The market of social media users in Pakistan is large. An active shop in the busiest street of Karachi can at max expect few hundreds of customers visiting each day. Whereas there are 35 Mn active social media users in Pakistan which can access your product online. Therefore, online businesses do have significant advantage over traditional business model.

The online market sales of our country was Rs. 40 bn (including both local and international sales) in 2018 which has almost doubled itself from Rs. 20.7 in 2017. This is really big. Though the big chunk of these sales goes to the giants, i.e. Daraz, Homeshopping, Yayvo, etc. but there is still a good hefty amount left for the small businesses to capture.

Causes of failure

So why do these so called startups fail? Some of the top most reasons for their failure are as follows:

Lack of planning

Most of the small startups are started abruptly without any proper planning on the part of the founders or owners. Before starting any kind of business or investing time or money one need to analyze the market and consumer needs.

Time management

Most of the startups are initiated by salaried class or by individuals which are already earning an active income from some other sources. Due to their active involvement in their main stream income they hardly get enough time to manage the new startup. Further, in some cases the people do start the business in excitement but with the passage of time they start to lose interest and end up in complete shutdown of the startup.

Weak co-founders

These startups are generally started in pairs or partnerships which are difficult to carry on in a long term relationship. Generally, one weak partner can derail the whole business.

Lack of marketing

Marketing is a specialized field and most of the newbies ignore its cost and complexity. Using the right channel to reach the right audience in the most cost effective manner is the key. In most cases individuals choose the wrong marketing channel that increases their cost without the desired impact.

Money

Funding is the key to all business activities. The availability of the adequate funds gives its founder the flexibility in operating and expanding the business. The founders generally fails to proper plan or budget the amount of funds required to operate and market the business. Even if they budget all the costs, they rarely achieve to raise the total budgeted amount. One of the other key factor that is missed in estimating the required amount of funds is the initial period of losses, in which the founder is required to bear the cost of the business until it reaches break even.

Unwilling to push beyond one’s comfort zone

These businesses are started by the founders because of there interest in any particular activity. However, they may not be willing to expand the business because of their limited interest or the lack of time they want to invest in the startup.

Finding the right people for the job

Startups are usually short of resources and can’t get the job done in bulk hence they often look for freelancers to get their work done. Freelancers though provide a cheaper option, but it is very difficult to ensure the quality of work with these freelancers.

Risk Mitigation

With so many risk factors and the rate of failures of startups, why is the number of startups increasing every passing day? The simple answer is the ease of commencement of business, lower funding requirement, and limitations of the job market. However, to make your business a success, the following success factors should be kept in mind:

Plan, Plan, Plan…: It is important to plan every small aspect of your business idea in different success scenarios. You need to know the best and worst that can happen to your business. The old saying of hope for the best and prepare for the worst applies here.
Market research: It is very important to research whether you have a market for the idea you want to launch. This requires careful segmentation of the customers who are more likely to use your product or service.
Marketing: Once you have identified your market, choose your marketing channels accordingly. In any new startup the marketing cost, is a hefty amount which needs to be spent smartly.
Love what you do: Your idea should aspire from your passion. You are likely to do well in segment which you love.
Exit at the right time: In most cases the founders of the business are not able to realize the full potential of their business idea due to money and time limitations. Most startups exit the market by selling their idea after successful launch. This exit needs to be timed well to earn maximum return of your idea.

The online market in Pakistan is huge and is still evolving and requires innovative products and services to be sold without investing large capital. However, a careful evaluation should be done to take a calculated risk.