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Ten reasons why start-ups fail

No patent recipe for success - instead keep an eye on reasons for failure

Hamburg has a vibrant start-up scene where clever minds come up with many good ideas that garner attention far beyond the city’s borders. Stephan Uhrenbacher, who hails from Hamburg, founded the Qype rating platform, which was later bought by U.S. rival Yelp for USD 50 million. And the Otto Group has created a veritable e-commerce ecosystem with its Collins start-up and the About You online fashion store.

Start-ups innovative products strengthen Hamburg

Around 700 start-ups with 6,000 employees are headquartered in the Hanseatic city. “Talents from all over the world come to Hamburg to develop innovative business models from their ideas,” said Peter Tschentscher, Mayor of Hamburg, in July 2018 at the official presentation of a funding decision by the Hamburgische Investitions- und Förderbank (IFB Hamburg) to the 100th start-up funded in Hamburg. Commenting on the huge importance of start-ups for Hamburg’s economic development, Tschentscher stressed: “They develop innovative products and services, thereby supporting technological progress, opening up new markets and strengthening the competitiveness of commerce in Hamburg.”

End looms after only 2.7 years

But not every start-up ultimately proves competitive. And sadly, the average lifetime of a start-up is only 2.7 years. The U.S. data service CB Insights has analysed the causes. Here are the ten main reasons why start-ups fail:

1) Not enough demand: The best solution will not sell without a real problem. Even an initial, positive market and target group analysis does not guarantee that an interested respondent will ultimately become a real consumer. 42 per cent failed due to a lack of customers.

2) Funding problems: Many start-ups operate online, but making money on the internet is not easy. Even the best idea must be profitable. 29 per cent of start-ups simply ran out of money in the end.

3) The wrong team: Bringing together the right people with the right skills, character traits and values needed at the time. 23 per cent failed when faced with this challenge.

4) Competition was stronger: When a new idea is really good, it attracts attention and is often imitated. 19 per cent ignored competitors, missed the time to react – and failed.

5) Pricing: “Nice-to-have” products; too high a price can quickly turn a product into a slow seller. Too low a price in the cool lifestyle scene can have exactly the same effect. 18 per cent did not manage to set the price for a product high enough to cover costs and remain competitive.

6) Unfriendly product: Keep it simple and stupid (KISS) was the formula allegedly coined by Lockheed engineer Clarence Leonard. 17 per cent launched a too complex product onto the market – and were punished by the customer.

7) Lack of business model: Many hopeful founders confuse a product idea with a business model. But without a concrete plan on how to sell the idea first, and secondly how to secure a profit in the end, no start-up will survive long. 17 per cent suffered this fate.

8) Bad marketing: If you don’t know your customers, you’ve already lost. If you don’t know who is buying when and why, you can’t advertise in a targeted manner and can’t send out supporting marketing impulses. 14 per cent failed because of marketing.

9) Market orientation: Knowing one’s customers’ wishes is essential. And the internet in particular offers enough possibilities for interactive customer contact. 14 per cent did not take time to research thoroughly what the customer really needs and the desired product.

10) The wrong time: The time must be ripe for any groundbreaking idea. Launching your product on the market at the right time can make the difference between success and failure. For 13 per cent it was the wrong time.

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