5 Reasons Why Student-Led Startups Fail

On a global level, student-led startups that receive incubation opportunities at the university level via entrepreneurship programmes and college incubators have a higher chance to succeed and create jobs. They receive greater connectivity and legitimacy with key industry and community stakeholders. 

India too has seen a similar trend. Most of the leading Indian colleges offer incubation support to student entrepreneurs through entrepreneurship cells and Shark Tank-like pitch fests. India has seen a slew of dorm-room startups in the past two decades. In fact, it was found that students from the top 10 Indian colleges have gone on to found 4,900 startups. Therefore, it becomes quite vital to understand how nurturing entrepreneurship at the college level drives innovation in the startup economy.

We believe that with the rapid emergence of credible, highly skilled and audacious students and graduates in the country, the startup ecosystem has witnessed a new wave of the workforce. This workforce has become the backbone of development in many early-stage startups. 

However, when it comes to financial support, student startups remain one of the most under-funded categories in the startup ecosystem. A major reason contributing to this is the financial constraints that many colleges face, with a great deal of them not receiving the right incubation support system at the right time. 

According to Inc42’s Indian Tech Startup Funding Report 2021, 1,436 startups were launched in 2021. The count of new startups grew by 15% compared to 2020. This is the first time since 2015 that the number of new startups has increased for the year. Last year also witnessed seed-stage funding cross $1 Bn for the first time in India over 706 deals — an 80% year-on-year (YoY) growth.

Our own experiences at Huddle have shown us the rich talent and entrepreneurial spirit that is booming within universities across India. Backing early-stage founders has been our goal since day one. We’ve been able to witness the growth of successful companies that have been born inside institutions, dorm rooms and by students who have gone on to become leading entrepreneurs.

This only further emphasises the need for an early-stage support system for startups. According to IBM Institute for Business Value and Oxford Economics numbers, for every 1 startup that succeeds, 9 fail within the first 5 years. The right mentoring ecosystem can help by providing an array of opportunities to these young founders. Often though these new-age companies find themselves missing out on these opportunities due to the following reasons:

Lack Of Competitive Awareness

The majority of instances see young founders overestimating the novelty of their product while they are building it. It is extremely crucial for a founder to spend enough time to research existing solutions and acknowledge each potential (direct or indirect) competitor. 

Always remember — No idea is unique, and each one has a competitor that could take away a part of your market. Competitor analysis is a necessary step that the founders can capitalise on. They can use valuable time and capital to analyse the weakness and strengths of their competitors and study the industry trends and forecasts. All this research will help the founders ideate an MVP that will provide them with a competitive edge in the market. 

Financial Grounds

Founders must often find creative ways to be frugal and make do with less because resources are limited. Factors such as long development cycles, insufficient competitor analysis, a poor pricing model, inconsistent delivery of value proposition might lead to a failure of follow up financing. The venture might then lack the financial resources to successfully position itself in the market in the long term. A study by CB Insight showed that almost one-third of the companies failed due to liquidity issues.

Build Product For Market, And Not Market For Product 

Building ahead of the market requirement is important, but timing it to perfection is key. The CB Insight study also stated that of the 101 companies that shut down, more than 40% failed because they created a product or a service for which a market didn’t exist. In some cases, the market wasn’t as mature or the features developed weren’t relevant to the target audience.

This could often be a result of a ‘false start’. Neglecting vital research into customer needs before commencing building often leads to wasted time and capital. This often leads to MVPs that are likely to miss their mark. Some entrepreneurs follow the rhetoric of the lean start-up movement— “launch early and often” without completing the vital phase of “customer discovery”. These are a round of interviews with prospective customers that help discover unmet customer needs—problems that are worth pursuing. 

The Wrong Team

Another reliable killer for early-stage startups is unbalanced team composition. This could mean strained cooperation amongst the team or a lack of specific competencies among the stakeholders. Right at the helm are the founders. Investors often look for certain stuff when it comes to founders — resilience, passion, experience leading start-up teams, and so forth. 

Even if such rare talents are captaining the ship, the venture’s downfall/collapse might come through because of other parties involved. A seasoned team of senior management, investors and advisors can compensate for the founder’s shortcomings by providing guidance and connections. Though they might also end up playing a role in the venture’s demise because they might lack certain sector-specific skills and fail to provide the right guidance.

Business Model

In startup circles, there is this oft-stated maxim, “fail fast, fail often!”. Entrepreneurs have a bias for action. They are eager to get a product out there. This encourages them to rush the development process and oftentimes skip the critical up-front research.

An insufficient understanding of the appropriate business model could affect the startups’ success. Choosing the right product fit, innovation marketing, and revenue model on top of the above factors play an important role in developing a successful Go-To-Market strategy.

Failure will undoubtedly be a reality for many in the startup ecosystem. Doing something new with limited resources is inherently risky. Though with the recognition that many failures are avoidable, we can set a trajectory that will lead to fewer doomed ventures. We can work towards building an entrepreneurial ecosystem, one that is more productive and diverse.

Following in a similar vein, Huddle has announced its first-ever edition of the Young Founders Forum. Slated for the 11th March 2022, the forum provides students with an opportunity to network with industry mentors as well as an opportunity to raise funds at an early stage.