5 Reasons Why Startups Are Failing

Over the past couple of years, the most popular world to be occupying the business world, especially in tech is “Startup.” Even economics sections of daily newspapers and magazines have been filled with news of start up culture.

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In the Mecca of Startups, Begaluru, India, the buzzword has been quite casual and an every day phrase – a symbol of popular culture. From businesses like Uber, Dropbox and local Startups like MuSigma and Flipkart, it is about time that the entire world gears up for a turnaround in the type of businesses that we run.

Even though Indian Startup companies are likely to have received almost $5 billion in funding from investors by the end of the year, many Startup companies fail to make a mark – often dying after a brief period of popularity. I want to take a stab at why this is happening.

  1. Rushing to Fail – instead of creating a feasibly strategy and term based goals, many founders and mentors just want to create visibility in the market. That is all that matters since investors are lining up to provide considerable monetary assistance without taking much contemplation.
  2. Lacking Vision – Time tuned goals, well-knitted strategies and clear vision will always reign. The serious issue with Startups is that the focus is often on business operation and the creation of the product. This takes away the attention from holistic and proven aspects of running a business.
  3. Not Thinking Analytically – You have to realize that the world runs on statistics and numbers. Somehow, Startups fail to use even free resources to analyze market data. They can even use some of their investment money to pay for great resources to do it for them. In some ways, spreadsheets are more important than any programming language.
  4. Inefficient Cost Control – Startups have to preserve the investors’ money and use it optimally because ultimately, if you run out of money before you turn profits, you’re done and that is why most Startups fail. Throwing people big pay packages and acquiring office space in prominent business parks should be avoided especially if the budget doesn’t permit it.
  5. – Most Startup founders are pretty young (especially in India) with little to no experience. Thus, they hire domain experts to manage their business operations. However, business leaders have to constantly interact with their employees and allow them to contribute ideas based on their experience. I don’t think that Startups fully tap into the potential skills and knowledge banks of their employees.

What do you think of this list? Let me know what reasons you see being a huge factor in Startup failure.

Is the Tech Bubble Going to Burst?

For the past few months, there has been a debate about whether the tech bubble is about to burst. There are two men that are making strong claims on each side, but we are going to take a deeper look into the situation ourselves as well.

mark-cuban-reveals-what-happens-behind-the-scenes-of-shark-tankMark Cuban, the “Shark” investor on the show Shark Tank and owner of the Dallas Mavericks earned his money during the 2000 tech bubble. His prescience identified the bubble and he sold his company, Broadcast.com for $6 billion to Yahoo. Now, Cuban is claiming it is happening again.

“So why is this bubble far worse than the tech bubble of 2000?  Because the only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity.  If stock in a company is worth what somebody will pay for it, what is the stock of a company worth when there is no place to sell it?”

However, Mark Andreessen, co-founder of Netscape, which sold to AOL for more than $4 billion before the tech bubble popped, disagrees. Andreesen even has a 53-page PowerPoint presentation to tell you why the current situation is very different. So whom should we believe? Lets take a look at what is actually happening in Silicon Valley and what the data shows.

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Well, venture capitalists are pouring money into “top performing” startups like Uber (received $8.2 billion) and Snapchat (received $1.2 billion). Over the past year, total capital investments are up by 38%, but the total number of deals is down by 40% – interesting. It looks like venture capitalists are having their cake and eating it too. These venture capitalists are investing say, $100 million in a later stage startup that is valued at $1 billion and receive protections. So, unless the valuation of the company decreases by 80% or more, then they will still get their money back. They can most likely walk away with at least their original investment, but reap huge rewards before that happens.

This data would make it seem like venture capitalists believe that the tech bubble is stretched thin. Fear is starting to take over instead of greed. As we reflect back on our first investment lesson of, “Buy low, sell high” we need to apply it to the current situation and it seems that right now, it is hard to buy low – that is what is important.