The startup culture is steadily picking up momentum in Zimbabwe. In the past two or so years, I have profiled several Zimbabwean startups; I continue to. Bear in mind that startups, most of them, do fail big time. Some statistics place the startup’s failure rate at well over 85 per cent globally. This means over 85 per cent of startups fail annually. Mind you this is so in most well-up nations so that debunks one huge misconception. Most people think startup success is all tied to having or having access to capital. Well, most startups still fail even with capital abundantly available. With that said it makes sense to explore reasons or causes of startup failures.
Cash Flow Complications
This is of course the top cause but not the sole one. This is broadly due to either of two things namely, depletion of capital and or failure to raise more. There must be a smart balance between the two. You must be able to raise enough capital to start but it does not end there. You must also be able to keep cash flowing in and when needs be raise additional capital. Most startups fail to streamline that loop and end up tumbling.
Product Or Service Is Not Needed
Most entrepreneurs are hung up on their products or service. They think it is so good that people will love it and buy it. However, just because you can develop a product or service does not mean it will sell. You can develop a great one but if there is no widespread need for it there is no market. At the end of the day, you must sell and if you cannot you are doomed. Most startups fail because the entrepreneurs negated market research by assuming their product or service is bound to sell.
Succumbing To Competition
It really is survival of the fittest in the jungle. It is either you go big or go home; ironically, many startups do end up going home. That is why competitive analysis is vital from the onset. You must know who your competitors are and closely study them. Emulate their strong points and correct their weak points. Go a step further and thwart them or else you will be overshadowed. These days competition is cutthroat and if you are slack you will be outdone.
Porous Business Model
The business model is all about how your startup makes money. If you get this wrong you will live to regret it. I once profiled a budding Zimbabwean startup in 2019. Their product or service was great and quite relevant but I was concerned about the business model. They were using a freemium model and in my experience that is a tricky business model in Zimbabwe. Freemium means the basic features are freely accessible and then you pay to access more premium features. Fast forward to 2021, the startup is no longer on the map.
Challenges Emanating From Regulatory Or Legal Issues
This is highly contextual but affects some startups. That is why I always emphasise the importance of registration and adhering to regulatory frameworks. Most entrepreneurs overlook these aspects either due to ignorance or deliberate disregard. If you are found on the wrong side you can end up paying hefty fines or forced to discontinue operations.
Pricing And Cost-Related Issues
The balance between price and cost is a delicate one. If you fail to streamline your economies of scale you will be forced to charge high prices. If a competitor comes in with cheaper prices you will no doubt lose customers. Most startups are oblivious of the dynamics of economies of scale – that is where the secret is. If you can critically analyse and streamline your economies of scale then costs will significantly go down. To stay afloat you have to consistently figure out ways to drive down costs but maintaining, even improving product or service quality. Many startups fail to do this.
A Weak Team
Any startup is as good as its team – no question about that! Putting together a formidable team is no mean task. You literally have to gel people with different skillsets and personalities as well. If you fail to effectively do this, as many startups do, your productivity will be seriously compromised. A team is like a living organism, if one part is out of synch the whole organism suffers.
You can tick all the other boxes i.e. you can raise the capital, you can develop a great product or service, put together a great team, and so on. However, if you get the timing wrong it will feel as if you got something or somethings wrong. Quite many startups release or unveil their products or services too early or too late.
Poor Product Or Service
Just like you can get the timing wrong you can also come up with a poor product or service. Customers want a product or service that makes their life easy. They want a solution to their pressing problems. If your product or service cannot do that then it is clearly poor.
Lack Of Cohesion Between Team And Investors
Most startups look for financing in their early or later stages. Financing options differ but are broadly either debt financing or equity financing. I have an article I did where I compared the two in detail. Anyways, either of the two entails you will be interacting with investors. Their involvement if not handled well can cause problems. Most failures are borne out of fallouts or friction between startups and their investors.
Complications Arising From Pivoting
Given the mercurial nature of the times, we are living in pivoting is mostly inevitable. Actually, startups that have failed to pivot have either discontinued operations or suffered huge losses. As much as pivoting is necessary at times if you fail to do it properly you will suffer. For instance, pivoting can lead to cash flow challenges either due to loss of customers or rising costs.
Some startup founders are unhealthily tied to their startups. It is like you cannot separate the two such that when the founder suffers, the startup suffers. Sadly this is the case for most startups where the founders are juggling too many balls. They end up experiencing burnout which dents productivity and subsequently drives the startup into the ground.
I deliberately listed them from the top to the bottommost. This is not a random list but was borne out of studies assessing many startups across the world. These 12 causes or reasons aptly apply to the Zimbabwean context. Now that you know you can best prepare and avoid these pitfalls. There are still huge and mostly untapped prospects for startups in Zimbabwe.