Table of Contents
A start-up is an entrepreneurial venture that was created to resolve real-life problems. It solves society’s needs. As many start-ups attract investors and funders because of the tremendous growth opportunities, every year, millions of start-ups are launched, but out of 10 start-ups only a few succeed, and many fail due to multiple reasons.
Factors like lack of funding, insufficient resources, improper management, products not fulfilling the needs of the audience, lack of cash flow, etc., contribute to the failure of start-ups.
Approximately nine out of 10 start-ups fail. 90% of the start-ups fail and shut down.
The following table breaks down the start-up failure rates after various years of establishment.
Until the End of the year, the Failure rate
There are many issues that contribute to the failure of start-ups. The primary reasons are lack of cash flow, products unsuitable for the market, and mismanagement of the team. 60.34% of the start-ups fail due to the poor fit of their product in the market.
The following table gives the reason for the failure of start-ups.
(sources: failory, forbes, Statista, CB Insights, Business News Daily.)
The failure rates of start-ups vary in different industries. Some industries have lower failure rates, while some have higher.
Fin-tech industry: It has been growing faster in recent periods. However, most start-ups fail in the industries due to immense competition and low success rates. Here, we will mention some points of failure reason related to the failure rates of start-ups in the fin-tech industry.
- 75% of the fin-tech start-ups fail if they are venture capital-backed businesses.
- 50$ billion is received by the fin-tech industry every year in the form of investment.
- $ 131 billion is the valuation of the largest fin-tech company in the world.
( sources: the fintech mag, failory, Mckinsery)
Real Estate start-ups: 42% of the start-ups fail in the real estate industry because it requires a large investment and determination. There are some other interesting facts related to the failure rates of start-ups in the real estate industry.
- 48% of real estate businesses fail within the first year of establishment.
- 31% of the prop-tech investors consider investing in the real estate industry.
- $ 1.9 billion was generated by real estate start-ups in 2019.
( sources: Embroker, Failory, forbes )
IT and tech industry: These are the leading industries in today’s age. They made the world more automated and reduced human labor. But they have more chances of failing. There are some interesting facts about the technology industry.
- 63% of the tech businesses fail within the first year of establishment.
- 39 years is the average age of tech start-up founders.
- $102,000 per year is the average pay of an employee in a tech company.
- There was a 78% increase in computer and electronics manufacturing startups from 2007 to 2016.
( sources: forbes, embroker, failory)
Construction industry: This industry has grown the fastest since the last decade. It requires a huge amount of cash flow to keep the start-ups in the construction industry.
- 20% of construction start-ups fail within the first year of establishment.
- Within the first ten years of establishment, 67% of construction startups are out of business.
- The fastest-growing sector in the construction industry is the residential housing sector.
- The construction start-ups only have a 36.6% chance of surviving longer than 5 years.
( sources: Crunchbase, Small business trends, Accenture, Embroker)
Besides these, some failed start-ups in 2023:
- Zume- The future of pizza delivery.
- IRL- Connecting through events.
- Fuzzy- Comprehensive pet care.
- Mandolin- Redefining live concerts.
- New AGE MEATS- The Meat Alternative.
- TASCENT- The Biometric future.
- Mind strong – Pioneering mental health tech.
- WYRE – Navigating the crypto labyrinth.
About 15 million new enterprises are born annually, and about 137,000 every day, yet 90% of them fall short. Calculations show that 123,000 companies fail in India each day. While no one knows the exact number of start-ups that fail, the consensus is that the failure rate is relatively high, Which isn’t good news for an aspiring founder.
Qualities that are most valuable in start-ups are:
- Adaptability and Agility are the most significant qualities as the market and technology constantly change.
- A strong and clear vision is very important. Start-ups that are strongly committed to their vision have a chance to succeed.
- Start-ups must prioritize tasks, set deadlines, and execute tasks effectively to achieve growth.
- Everyone must work toward the same goals together and collaborate to increase productivity.
All these facts about the success and failure of business give insight to be careful of businesses. You might have an idea about the mistakes that you must avoid and the precautions that are needed when starting a small business. Start-ups’ success can be achieved by understanding market needs, building a strong team, navigating competitive landscapes, learning from failed start-ups, and addressing legal considerations.
One of the biggest reasons is that just having an idea does not guarantee success, and many start-ups are proof of that. When you have an unproven idea, it’s hard to know where to start or whether your idea has any merit. Start-ups are undoubtedly very risky, but no gain without great risk. Great potential comes with great risk. It is for progress and innovation that could improve the quality of life of people all around the world. So, don’t let the risk of failure discourage you, be audacious.
- How many start-ups have failed in 2023?
Ans: Just over $ 27 billion in venture funding was raised by the 3,200 startups that failed in 2023.
- Why 99% of start-ups fail?
Ans: There are various reasons why people might fail in their first business project, and these can include a lack of planning. Many first-time entrepreneurs might not fully develop a comprehensive business plan before starting their venture, or they might not have experience in forecasting sales, cash flow, and expenses.
- What happens when start-ups fail?
Ans: The first step after a start-up fails is to wrap up the business professionally and respectfully. This means notifying your customers, partners, investors, and employees about the situation and fulfilling any contractual obligation. You should also close your accounts, pay your debts, and file your taxes.
- Why do start-ups succeed?
Ans: Timing is the number one, most influential factor for predicting startup success. A business must arrive at the right time for the market. The second most important factor is team and execution since a great business idea means nothing if it isn’t executed by the right people.
- Why do people start start-ups?
Ans: Start-ups are founded by one or more entrepreneurs who want to develop a product or service for which they believe there is demand. These companies generally start with high costs and limited revenue, which is why they look for capital from a variety of sources, such as venture capitalists.