Start-ups can fail in these four phases

Many start-ups fail. It is not always clear to founders that their company goes through several phases, all of which offer various approaches to failure. Therefore, in this article, I want to take a look at the phases and associate them with the beginnings of failure.

Start-ups can fail in these four phases

Phase 1: The development phase

The development phase begins with an idea. However, this is often where the basis for failure is laid. Because in this phase, founders often fail to validate their idea through specific market research or through “real” tests with potential customers.

This can lead to them developing a product that doesn’t really solve a problem and that no one wants as a result. Another problem in this phase is that a young company runs out of money before the product or service is ready for the market.

To avoid this, founders should at least have a simple timeline for developing their product or service and validate their idea early on by doing specific research into the market, potential customers, their needs, etc.

It is important to concentrate on the core functions for the product so that features are not added to the product that are not even required on the market. This is made particularly difficult by the fact that potential customers cannot exactly name their own wishes or needs and do not even know what they are missing or which product or service they could use.

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Therefore, founders should also talk to potential customers and get their opinions about the product or service. This is about opinions under “market conditions”, i.e. customers should, for example, have spent money on the product or service and not just received a free product for test purposes.

This is the only way for founders to receive real and honest feedback. In addition, it makes sense to get feedback when the product is still in development, so that development does not ignore the needs of the market.

However, most start-ups fail to approach this phase. They just go ahead and neglect the planning. It’s not about “inflating” plans and wanting to have “typically German” 120 percent before things get started. Rather, it is a matter of reconciling the planned product and market expectations in order not to launch an offer that “overwhelms the market”.

Phase 2: The execution phase

As soon as the product or service is ready with the essential functions or features, it is time to launch it. It’s about a lot more than just going out and selling.

In order to avoid failure, founders must work towards adapting their product to the market, i.e. they must create their product in such a way that it meets the requirements of the target market (which is facilitated by market research and discussions with potential customers) .

Achieving “Product-Market-Fit” is an ongoing process that is repeated again and again in order to adapt the product or service to changing market expectations. It is then important to intensify sales activities in order to exploit the identified potential with actual sales.

Stage 3: The scale up phase

In the scale-up phase, a company has outgrown the initial phase and is now attempting to scale up its business in order to generate growth. Unfortunately, many companies fail to navigate this transition properly and end up collapsing under the weight of their own growth.

It’s common for startups to try to scale before they’re ready. Because scaling not only requires the appropriate processes, but also the right mindset.

Many founders that I have mentored myself are extremely good at starting businesses but struggle to put a started business on the right entrepreneurial tracks with the necessary processes and management requirements needed for growth.

The start-up and the scale-up phase bring different requirements to founders, which are not always present in one person. This is not bad, but should be understood by founders in order to be able to cope with this phase.

To avoid failure at this stage, there are a few things to keep in mind. Among other things, it is important to have a clear and precise business plan that sets out the company’s goals in different time periods. This business plan should then be communicated throughout the company to get all employees on board so that everyone knows how to proceed with the company.

Second, it requires a team capable of designing and implementing processes to handle growth. Instead, skills are no longer needed as much in the areas required to start a business. Finally, the company must invest in appropriate resources and infrastructure to support growth.

Especially in connection with the processes to be established, founders often get the impression that the company is losing agility, while on the other hand it is gaining stability and resilience.

Stage 4: The maturity phase

When a company has established itself on the market, has good customer loyalty and is making profits, then it is in the so-called maturity phase. And this can be a very dangerous phase for a company, especially when everything seems to be going well.

Because on the one hand it does not have the financial resources of a large corporation or company, but on the other hand it is no longer an (agile) start-up that can react to new challenges as quickly as when it was founded. In fact, the company will have many more people, costs and other assets to manage than it did in the beginning.

In addition, growth may also slow down, not only due to the aging of the product or service, but also due to more extensive processes and internal and external regulations. There are many opportunities for failure at this stage. These are so diverse that they can only be touched upon here to show the range.

One of the most important points is neglecting communication with customers and potential customers in order to identify changing market requirements. Furthermore, sooner or later there will be competitors that have to be dealt with

. Internally, increased costs and slower decision-making pose new challenges for management, particularly as the area of ​​’corporate policy’ emerges. Companies should therefore always question their processes, their costs and their products in order not to fall behind.

Conclusion: Why start-ups fail

In summary, it can be said that every new company basically goes through four phases, which entail different entrepreneurial challenges and thus offer different opportunities for failure.

Founders should know these phases and the peculiarities associated with them and be aware of the challenges that can arise in these phases.

An understanding of the respective market and the needs of (potential) customers, a well thought-out growth concept and the early validation of ideas, the continuous adaptation of products to market needs, clever growth management and a consistent focus on efficiency can help young companies to succeed in the phases to go through.

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