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5 Reasons Why Startups Fail and How to Avoid Them

Verily, it is said, that ventures either flourish or die. Every now and then the cycle renews itself with many apps gone defunct, making room for exciting newcomers. We have also seen how Sprouter joined the deadpool and managed to come back last year.

Next in line will be soon-to-be memorable Google Wave, come April 30th, joining the familiar headlines by Limewire, Notifo, Brandstack and Plancast. So what went wrong? (It) turns out that lacking a single, stable and well-defined users’ base may not be the only axe needed to put an end to everything. Let us examine.

Innovation

When Yap Voicemail chose to cease operations early last October, the app is already in direct competition with existing apps which converts voicemail into text for less fuss and more management. Evidently it’s safe to argue that developers of the app duplicated, rather than innovate from the likes of Google Voice, YouMail and VoiceCould, to name a few.  Accordingly, the lack of this pioneer status should be remedied by researching more on the existing problems existing players largely ignored, and come up with simple, intelligent solutions.

Exclusivity

Too often, charismatic founders found themselves too obsessed coming up with The Thing, serving a market niche too exclusive. To keep up, ever maturing startups will have to choke up with feasible deals able to minimally sustain an operation. Consider HiGear, having forced to shutdown due to an unforeseen loom; auto theft preying on their luxury car owners. Rather than high-rolling on a marginal few, there exist vast untapped potentials in a singular trend the good old-fashioned way of carpooling.

Adoption

Arguably the one critical factor affecting the survival of startups is the degree and pace of market adoption of products and services. There is no room for redundancy or fanciness. As in the case of Notifo in September 2011, a platform which allows any web site or service to easily create mobile notifications, attempt s by the Company to serve suffered an expected snag when, just about every potential client would indigenous apps to handle problems themselves.

Enduring a similar fate is Plancast, which was unable to move beyond the early adoption phase into more established users’ base.  Entrepreneurs often fail to adequately simulate the market. Conduct a SWOT analysis. Eliminating unnecessary ideas is one thing, knowing how best to support the best of ideas is another.

Service and Quality

When Brandstack launched, it seemed like haven for amateur and freelancing designers. The idea was to create a marketplace where creative types could sell off their logo concepts as they came to mind, rather than on “spec work” conjured up by a client. Then all of the sudden the Company’s transactions become mired in credit card fraud, forcing it to shut down.

It seems Brandstack was unprepared in developing a solid framework for transactions and other policies entailing intellectual property, instead focusing too much onto profit making. As in the case of BeeTV, there isn’t much effort in forming longer term strategies to support traction. It now becomes imperative that prior to launching, significant tests are required to ensure reliable and quality service of which users can relate meaningfully. There is really no point raising a significant users’ base and plenty of capital if there is no underlying strategy but a mere novelty.

Corporate Savvy

And at the end of the day, it all boils down to the people factor. Starting-up alone never provides any real advantage; it only leaves the founder overwhelmed.  Evidently, recruiting remains essential to enlist positions tailored to strengths.  Down the road, a startup may encounter new-found challenges and stakeholders, which require further re-alignment of tasks and objectives. And as the Company’s portfolios grow, it’s always a good idea to recruit more, but not unnecessary manpower with overlapping responsibilities. Adapt but never overstaff.

So it remains that founders should be the ones running the Company, while stakeholders come in to add to the democratic process. At the end of the day, they only hoped for a stable and meaningful startup. Half of the energy should be diverted to product development and market research; they know best how to notice a worthy startup.

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  • Alex Quilici

    Yap was actually selling automated voicemail transcriptions on a wholesale basis to carriers – the app was really just a sales tool to show off their technology.  However, your argument applies there as Nuance (and to a lesser extent Ditech Networks) were already doing that, making it a crowded space.  And the sales cycle for carriers is long and painful and with well-funded competition, so unless you have some huge tecnhology advantage (your “innovation point”), it’s going to be a tough wall to climb.

    • http://twitter.com/Kianglekable Kianglek Tan

      @4d10dddbe8a39f7fcc8b84539a42739e:disqus , There is really no purpose in showing off a technology if it doesn’t address a prevailing problem.  And yes, with mature and well-funded competition, being led by trend-setting leaders spirals Yap into imminent obscurity.  In this case, working in reverse may help.

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