Why 99% of the start-ups fail?

1. Poor Implementation Plan

When you are the boss, the only place you should point fingers is at yourself. After all you are on the driver's seat.

Having a poor execution plan is a downfall of most startups that go bust. There are several ways how this can be avoided. First make sure you have thoroughly evaluated your skills and you only pursue those opportunities that fit your strengths. Most entrepreneurs who get blinded by greed or arrogance are more prone to getting in over their heads. It’s also wise to surround yourself with really talented people and someone who are not afraid to challenge your thoughts and decisions. Also, understand that you are not good at everything. You need to get a little disciplined as your business grows and don’t hesitate to hand over the reigns to a professional manager who can take your business to the next level.

2. No Practical Market

What if you launched a business and nobody showed up?

Each day, many entrepreneurs invest their money or their investor's money in a cool idea with the hopes that customers will magically appear once they open their shop. Look back, i am sure you will find loads of examples where you would see founders spending all of their time and money in developing their killer product without bothering to know whether their prospective customers would like it or not, or even whether they would need such a thing or not.

So do your research properly. Don’t hesitate to spend a little extra dollar to engage a market research firm. Or to get to know things first hand, roll up your sleeves and jump into this yourself.

3. Stretching Too Much

Give me a lever long enough and I will bankrupt my company.

Established companies are able to predict their future revenues over a period of time with some degree of certainty. Such businesses can make prudent use of leverage, both financial (debt) and operating (fixed overhead costs) to improve short and long term returns. Whereas revenues projections for early-stage companies can be all over the air. In this environment, it is dangerous to take on more amounts of debt or other fixed obligations (like rent, salaries, loan installments etc.). With no margin for error, if revenues take longer to ramp up than expected—as they nearly always do—you may find yourself handing the keys of your business over to your creditors.

It's best to keep most costs variable at first and use equity to finance your startup until your business has been around a while and you develop some confidence in your ability to forecast sales. Delay making investments or taking on fixed obligations as long as you can.

4. Under financing the Business

Maybe you should've waited to order that red Ferrari...

It's all too common to grossly underestimate the amount of time and capital necessary to reach cash flow breakeven, causing many promising ventures to shut down prematurely. Be conservative with your financial projections and plan on having adequate funds until you become cash flow positive.

If you don't have enough savings to cover the required investment, it may be tempting to launch the business anyway under the assumption that you will be able to obtain funding at a later date. While staging investment has its advantages (preserving the option to abandon, higher valuation and—therefore—less dilution, etc.), this strategy can backfire and leave you unable to get the money when you need it most or force you to negotiate with banks and investors from a position of weakness. It's often better to change the business model to bring required investment in line with available resources.

5. No Tangible Competitive Advantages

Never bring a knife to a gunfight!

Does your city really need another car dealer, burger shop, or a hotel? Entrepreneurs frequently start these me-too businesses because of their simplicity, modest capital requirements and looking at others making profits. Since most me-too businesses lack competitive barriers, it makes entrepreneurs extremely vulnerable to new entrants. Your competition would gladly cut prices to the bone to steal customers from you.

If you want your business to thrive, you need something that insulates it from competition. It could be a great location, a cool brand, proprietary technology, or a cost structure that cannot be easily replicated. None of these advantages is likely to be permanent, but they only need to shield you long enough for your company to take root. This will give you time to make investments that create additional barriers.

6. Competing Head-to-Head with Industry Leaders

Better sharpen your swords...

A sure sign of impending failure is an entrepreneur who plans to bootstrap his new business while competing directly against well-established market leaders. Large businesses have enormous resources to deter competitors from entering their markets. Big companies can undercut your prices, outspend you on advertising, and choke off access to suppliers and distributors. I strongly advise against making a frontal assault unless you have a world-class team and very deep pockets. Even then, your chances of success are likely to be disappointing.

7. Picking a Niche that is too small

Don't be a market of one!

Most small businesses compete successfully against larger rivals by specializing in a niche market. However, you still need to do your homework to be sure that the niche is large enough to support your business and that customers are not too expensive to find and serve. You may discover that niche markets can be just as fiercely competitive as the mass market. You need to figure out how fast your niche is growing and how much market share you will need to capture.

If your financial projections require you to hold more than a few percent of market share to remain profitable, be careful. Don't press ahead unless you can convincingly demonstrate to yourself how your competitive advantages will enable you to become the market leader.

8. Breakup of the Founding Team

Breaking up is hard on you -- and your company.

A startup can be a high-stress environment, especially when you are struggling to turn the corner before the lights go out. At moments like this, disagreements about the direction of the company or the division of profits among the owners can lead to a rift within the founding team. Because people wear lots of hats in startups, the sudden departure of a key executive can doom a fledgling organization. This makes it imperative to structure agreements so that the founders and key hires are treated fairly and that everyone's interests are closely aligned with the success of the business.

9. Poor Pricing Strategy

The price is right?

The most common method for setting prices is to start at the unit cost and then mark up the price to achieve a profit, so-called "cost-plus" pricing. Unfortunately, cost has little to do with how a product or service is valued by customers, which can lead to systematic under pricing. For example, if a widget costs $20 to manufacture, and you sell it to a customer for $25 when that customer would gladly have paid $35, you have left $10 worth of value on the table.

You should anticipate prices, based on the product's perceived value to customers, determine the cost structure, not the other way around. Consequently, pricing strategy and customer value should be considered early in the planning of a new business, before investments have been made that will determine the cost of a new offering.

10. Growing too fast

What goes up...?

Growth is generally regarded as an indication of business success, but uncontrolled growth can—and does—kill entrepreneurial companies for two primary reasons. The first is that businesses need systems and infrastructure to scale properly, but few invest the time and effort to lay the foundations for growth in those first hectic years. That's too bad, because things tend to spin out of control when you put the pedal down. This can be especially problematic for companies that receive a large infusion of outside capital. It's the equivalent of trying to break the land speed record by strapping a jet engine onto a ski boat. Don't be surprised when the when you have a head fall.

The second reason is that top-line growth requires additional investments in fixed assets (warehouses, machinery, trucks, etc.) and working capital (inventory, accounts receivable, etc.). At controlled rates of growth, companies are able to finance incremental sales through internal cash flow. Hyper growth, on the other hand, can suck up large amounts of cash, forcing businesses deep into debt or bringing the whole enterprise to a screeching halt. Many times, business owners are not even aware of the impending collapse, because they focus on profitability (as depicted on the income statement) rather than cash flow. Never forget that cash is the lifeblood of your business!

11. Poor Hiring Strategy

You throw peanuts, you will get monkeys...

Since we talked about cash being the life blood of your business, having right people are hearts here pumping out this life blood. Don’t be cheap on your people. Work hard to make smart practices to motivate and retain your key people and business drivers. Be extremely careful while doing the same. Don’t over do anything and don’t under do as well. Reward your people whenever and wherever possible. Pay the right price for skills that your people bring on the table. If they sound too cheap to you, probably they could be monkeys, just trying to jump on you to grab your fruits. At the same time, don’t under pay your people.

12. Doing the right thing

You can fool only a few times, not always….

Whatever you do, make sure you do it right. Don’t cut corners to save cost and there by compromise on your product quality. Focus more on building a the customer base and try hard to keep all your customers happy. Invest in building good sales and post sales support team. One happy customer will bring in 10 more prospects for you. And those 10 happy customers can bring you many more prospects. Don’t think of making some quick bucks initially. Mentally be prepared to lose your money initially. No matter what, never ever compromise on your product quality.