2020 sure brought plenty of chances for a startup to fail. Before, top reasons why startups fail included:
- Misreading market demand
- Running out of personal money and funding
- Insurmountable competition
- Weak founding team
- Pricing and cost issues
- Poor marketing
- User-unfriendly products
- Bad product timing
Many startup owners who did due research were aware of these threats when heading into 2020. They thought they were prepared. Then, the coronavirus pandemic came. Join the KeepSolid Goals team in our journey to find out why startups failed in 2020, how many startups fail, and what you can do to protect your startup in 2021.
Reasons Why Startups Failed in 2020
COVID-19 had an overall devastating effect on the economy. Many systems and infrastructures failed to withstand its pressure. Such delicate and vulnerable entities as startups were bound to fall victim as well. What’s worse, the coronavirus pandemic is still far from over. Here are some of the leading reasons why startups failed in 2020 that can still affect your business in 2021.
Travel paralysis
Efforts to contain the disease have led to almost complete paralysis of travel and tourism, as well as many related businesses. Such stress test has proven too much for some organizations, especially those relying on the tourism, travel, and hospitality industry.
Startups like Hipmunk, Stay Alfred, and Service have had to shut their doors even despite heavy efforts to extend their capital lifelines. Seeing how the U.S. and much of the Western world is heading into recession, more startups are likely to follow and close down.
Disinvestment
The markets were getting somewhat oversaturated with startups. This was nothing to worry about that much - at normal times, this can be a sign of a healthy economy. However, this made investors more cautious and wary. So at first hints of the emerging coronavirus pandemic and the crisis that it was about to trigger, venture capital funding started to cool.
Soon after, the World Health Organization called the COVID-19 a global health emergency. This coincided with the underwhelming IPOs of Lyft and Uber followed by the slashed valuation of WeWork. Investors were losing their interest. So when the pandemic struck in full force, they were all too ready to drastically cut their investment volumes.
Overcrowding, heavy competition, and lack of experience
Many employees have been laid off, or the organization they used to work for has closed down, or they otherwise can’t work due to lockdown. This has forced a lot of them to put food on their tables by launching their own startups.
This resulted in a situation where numerous fledgling startup owners are oversaturating the market, creating heavy competition (and having to fight it), and struggling for investment. At the same time, as is seen from the previous section, investors hesitate with their money and can be picky with such a huge proposition. As a result, most of these new startups have failed in less than a year (or are on the brink of bankruptcy).
3 Biggest Startup Fails of 2020
1. Stay Alfred
This startup’s failure proves our point of the crushing effect of the economy’s paralysis. This decade-old business centered around short-term apartment rentals. With the unprecedented challenges for the tourism and travel industry caused by the global pandemic, Stay Alfred’s demise was all but inevitable.
Compared to other startups that we’ll cover below, this one was doing pretty well pre-coronavirus. It managed 2,500+ rental units across 33 U.S. cities, generating $100M in revenue in 2019. And yet, just a couple of months in 2020, Stay Alfred struggled to raise some $30M due to no investor interest, permanently shutting down in May.
2. Brandless
Established in 2016, this Californian startup aimed to offer private-label alternatives to branded personal care, baby, pet, and household products at a fixed price of $3. It attracted intense investment from big names such as Google Ventures, SoftBank, Sherpa Capital, etc.
In a cruel twist of fate, what would be a boon and luxury to most - good funding - spelled the end for Brandless. According to reports, it faced heavy pressure from SoftBank to achieve profitability ASAP. The startup also suffered from a faulty business model. Brandless tried to fix its problems via massive layoffs but failed, shutting down in February 2020.
3. Atrium
Atrium was established in 2017 as a legal tech startup. It intended to build software for organizations to navigate fundraising, acquisition deals, hiring, and collaboration with their legal team.
Ironically, the reason for Atrium’s shut down in March was legal in nature. The platform decided to turn into a clearer SaaS business and lay off in-house lawyers. Unfortunately, they failed to find an efficient way to replace the existing systems of law firms. This example shows that competing with traditional complicated systems might prove too difficult and unprofitable.
How to Prevent Your Startup from Failure in 2021
Now, full disclosure, nobody knows for sure how and when the COVID-19 pandemic ends. So there can be no single, surefire, silver-bullet method to secure your startup in 2021. However, a smart and precise application of a few time-tested procedures will help you reinforce your organization and cushion the blow, so to speak.
1. Make sure you focus on your niche
Focusing your business efforts on one niche is always a solid idea. However, in these trying times buckling up and doubling down on the well-known market and target audience is almost a must unless you want to face heavy competition. Identify your niche, be it a product, service, type of customers, location, finance sources, etc.
2. Align your startup with the set direction
As a small, new business it’s easy to get lost in all the potential opportunities and ideas. Trying to pursue them all at once will only result in you staying in place. To avoid this, we highly suggest you employ a goal-setting and management technique called OKR (Objectives and Key Results). How does it work?
First, you pick an Objective - the overarching goal of your startup (e.g. “increase revenue” or “survive through 2021”). Then, you derive from it a few Key Results - milestones or sub-goals that your business must meet to achieve the Objective. After that, you define Tasks - activities that are required to complete their respective Key Results.
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It may sound complicated at first, but this approach works wonders for smaller organizations and startups. It helps ensure that your whole startup’s efforts are focused on the same target, that every team and employee work in concert to achieve the main Objective. Also, it’s best to use a dedicated OKR software like KeepSolid Goals - this will streamline the process a whole lot.
3. Listen for your market and customers
Your partners’ and customers’ feedback should form the backbone of your business decisions. It is vital to establish a proper feedback process and listen closely to what people have to say. A startup can even use this to substitute more costly QA activities for a while!
Sure, you don’t have to switch your whole business concept after every comment like a weathercock. But ignoring repetitive bug reports or feature requests will only lead to your customers departing to your competitors.
