🧐 Why Startups Fail? A Look Into How Some Startups Function Without A Purpose
A lot of startups fail because they lack a strong "why". However, many get initial success through a few gimmicks and tactics. Here's a look at some of these tactics.
Dear readers,
Last week, we explored the billion-dollar question: "Why do some startups fail despite the best of odds?"
One of the major reasons is that they lack a strong "why" (catch up with our analysis here).
Today, we’ll see how exactly this lack of "why" leads to failure. ReadOn!
😃 Context First
At the heart of any startup (or any company), lies a problem. A burning problem that needs to be solved.
A problem that the company breathes day in and day out. A problem that is much bigger than the individuals of the company.
It is this problem, this "why, " that helps startups work with laser-sharp focus. It is this "why" that helps them create consumer-centric solutions.
A strong "why" will lead to a great product. And a great product is worth a thousand marketing campaigns. It sells.
Now, when companies don’t have a strong “why”, they often lose focus and turn to gimmicks or manipulations to sell.
The easy way to sell: Promise your customers better price, better quality, better features, better everything.
Now, some of these tactics may work well in the short term (maybe also in the long term for very few companies).
However, they’re not a formula for long-term success.
Let's look at some tactics that companies use to sell their products and why they are flawed.
😯Tactics that Companies Use
💸Price Play: Let's assume two companies are selling the same product, with the same features and the same pitch. Which product would you choose? The cheaper one, right?
This consumer psychology is what a lot of startups target to get revenue and traction fast.
Result? Low margins and high costs. No wonder a lot of startups are loss-making!
Since most startups have raised VC money, they can afford to burn this cash to show fast growth.
Yes, growth. Not profits. To get profits, they might have to raise prices.
"Raise prices". That’s where things go wrong.
Customers who were only buying the product/service because it was cheap, no longer remain customers. Driving profitability becomes difficult.
This is exactly what happened with a lot of bike-rental platforms like OFO and Vogo.
Vogo offered bikes for super cheap: Rs. 3/km.
They thought they could get people into the habit of renting Vogos.
But the model was unsustainable. It was later acquired by another startup Chalo.
The same story is now playing out with Bounce. It offered bike rentals at Rs. 5/km. But, it soon identified the pitfalls of its model and has now pivoted towards EV manufacturing.
So, is this pricing strategy always wrong?
Nope. A startup that followed the same pricing strategy and managed to be successful: Uber.
Uber was super cheap when it started out. It eventually raised prices and continues to do so. But we still use Uber. Why?
Because Uber has a strong "why".
Uber was motivated to make mobility accessible.
It came up with a strong infrastructure to make this possible. It made its app super easy to use. It offered convenience: something that users would pay more for. And that's why it is still around.
🧠 Novelty instead of Innovation: Many companies confuse innovation with novelty.
Novelty is simply "being new": an incremental change to an existing product/service is a novelty.
True innovation, on the other hand, can bring change to an entire industry.
Let's consider the two companies’ paths…
boAt: took the novelty path
Apple: took the innovation path
boAt adopted cool marketing strategies to promote its super new (and relatively different) products.
This made it the leader in India's wearables market.
But it is now losing market share. Why?
You see, new players can copy boAt's features. With just one extra feature, one "new" feature (novelty), they can get early traction!
Apple, on the other hand, created a true innovation. With iPod and iTunes, Apple completely changed the face of the music industry for the world.
It could truly innovate because it had a strong "why": it wanted to challenge the status quo, it wanted to think different.
Users relate to this "why", and stick to the brand.
Result?
Apple’s repeat rate: 90%
boAt’s repeat rate: 30%
🔑 Key Takeaway
There are several other strategies that brands use to sell when their "why" isn't clear. Offering cashback/discounts, celebrity promotions, betting on FOMO, and whatnot.
The key takeaway is that the first thing a startup needs to do is figure out its “why”.
Hacks can only take you so far, it is this “why” that creates brand loyalty.
It is this “why” that will bring your users back to you even when your competitor launches a better product.
And it is such loyal customers that create the biggest companies in the world.
Which startups do you think have a very strong “why”?
Let us know if you found this informative. You can reply to this email with your responses or ping us directly on WhatsApp!