6 things emerging and established leaders can learn from the failure of startups

Vikram Ahuja

2 years ago

Learning from the success of unicorns is wise, but there’s equal, if not more, insight to glean from startups that crash and burn. A forerunner to success, failure is part and parcel of any undertaking and those that succeed usually learn from what went wrong. For leaders, whether it comes to policy reform, employee management, revenue generation models, or any number of business practices, startups are a goldmine of tested theories. This is mainly because a vast number of startups are launched every year, with nearly 90% failing. Quite a few don’t make it past the first year, and knowing why can give leaders an edge.

In many cases, the answer to the why of it all comes down to insufficient capital and dwindling market demand. If not these, company culture comes into question, which without the right ideals, is merely a buzzword. A lack of policies that reinforce company culture or poor employee management at senior levels can put viable startups on the path to failure. Further, as the millennial workforce grows and finds its footing in startups, newer enterprises can find it hard to adapt to the modern employee.

All of these factors pose a challenge for modern leaders, and to get the formula to success right, learning from those that have come up short definitely helps.

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Here are a few learnings for leaders looking to thrive in the competitive landscape of modern business of startups.

Get the team right – From partners to employees

Building a team with identical values and goals as the company goes a long way to ensure success. A partner or a co-founder who is simply a ‘yes person’ does little. It is crucial to see that their skills and talent complement that of the other members of leadership. In fact, not having the right core team members is one of the top reasons why startups fail.

Besides management, having the team members on the same page is essential to ensure that problems do not escalate and lead to the company’s downfall. This is where diversity comes into play, as such teams are known to broaden the company’s horizon. Be it through professional opinions, innovative mindsets or simply fresh perspectives on a number of problems, leaders stand to gain a lot from team building appropriately.

Balance the finances, business model, and product/service

The business model, finances, and product/service of the startup are vital aspects that build the foundation for success. As a result, balance and harmony between these aspects are non-negotiable, yet many companies fail to establish them. Research reveals that 38% of the startups fail because of insufficient or improper management of the capital gathered. Similarly, if the business model is not functional, it will hinder internal processes too. Further compounding the issue, the product or service may also fail to hit its mark. All of these combined inhibit startups and it all stems from imbalance. Modern leaders ought to assess their frameworks to see if there’s balance, and fix where there isn’t.

Encourage innovation to stay competitive

Innovative enterprises will often find success more easily than their counterparts, but achieving it is easier said than done. Most startups are built on innovative advances and there’s no doubting the fact that it is key to getting ahead and staying there. However, failure on this front can lead to massive losses, especially if the competition innovates at a faster pace. As a matter of fact, nearly 20% of the startups are defeated by their competitors, and innovation, in one aspect or another, has a huge role to play.

An effective way to organically ensure innovation is to focus on diversity and inclusion (D&I). A diverse and inclusive workforce creates an environment where people can freely think out of the box. Moreover, their different backgrounds provide new outlooks on various problems. Research shows that organizations who practice and excel at establishing D&I can deliver almost twice the economic profit.

Ensure that there is a demand for the service/product offered

As mentioned above, dwindling demand is among the top reasons why most startups fail. In fact, many start out with the determination to “stick through the rough patch”, even when there’s no sense in doing so as the market demand isn’t there. Data suggests that nearly 35% of the startups fail because there is no need for the product or service offered. Innovation for innovation’s sake shouldn’t be the end goal.

Create a company culture that promotes longevity and stability

The company culture is a critical aspect of any enterprise, and especially so for fast-paced startups. Unfortunately, startups can struggle with this, and failing here has dire consequences. For one, it comes across as a failure on the part of leadership, as a large part of the responsibility to influence company cultures rests on their shoulders. Secondly, in the nascent stages, unfavorable practices of bullying, misconduct, or disregard for policy can be disastrous.

This oversight should be an eye-opener for leaders as should noting the importance of establishing a company culture. One that looks out for its workforce is key. It can help avoid other pitfalls common that come naturally with time, and help with more serious issues like burnout. In fact, a strong culture can help avoid the failure caused by burnout, which nearly 5% of the startups experience.

Focus on employee satisfaction along with customer satisfaction

Employees are just as crucial to the mission as customers, especially in the pursuit of success. This is because engaged employees increase productivity as well as customer and employee retention. For startups, this means lower costs and better margins. In addition, satisfied employees can help improve employee engagement. Increased and improved employee engagement can lead to a 10% increase in customer loyalty, an 18% increase in productivity, and a 23% increase in profitability.

Considering what we’ve learnt, leaders ought to take a few plays from the startup playbook when looking to increase employee satisfaction. These smaller enterprises are often more willing to experiment with policies and come up with winning formulas to attract and retain the best talent.

Failure is a part of achieving success, but leaders don’t have to fail all the time to get there. Learning from those that have been there and done it helps, while being cost-effective too! Remember, enterprises that succeed do so because they bounce back and learn from their mistakes. According to research, the timing of execution plays a pivotal role in ensuring the success of a startup. What’s more, the team that executes is just as important, and building an agile team capable of rising to the task is easy with Talent500.

Equipped with AI-powered solutions, we can help you build global teams quicker and more efficiently, all the while ensuring employee engagement. Besides this, we offer talent management services to establish diverse remote teams and in adherence to country-specific regulations. Request a consultation to know more about the solutions on offer.