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Paras Mehra

CA Paras Mehra is a thinker, writer, reader and speaker. He is also professionally associated with hubco.in, a brand for trademark registration and other related services.

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5 Reasons of Your Startup Failure!

How much do you own the company will be the equivalent to how much you own the equity. Always remember, more the equity more the ownership.

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Around 15 years ago, a student from India, started his own company in Silicon Valley. He started off in the winter season when the beautiful snow pops up from the sky and covers the whole barren land. He was a collage dropout. Not a good academician, he along with his two friends worked pretty hard on the business idea that we was looking from big time now. They trust each other a lot and hence they didn’t get any legal papers done. They always thought that this idea would be a revolution in the startup community.

They were so influenced by their hard work, love for their idea and a never die attitude that they always thought that it will make them a true entrepreneur. After a year, the idea was not upto the mark and due to this patience level of the founders were about to take the hit. The boy was focused but he wasn’t sure about the other partners. As the times passes, difference becomes big and fights came out on pretty issue and this is actually reflecting that there is nothing much left between them. So they prefer to move out of the startup. Since they had nothing written in the beginning, those partners just went off the company with the equity and they declined to return the pie as they say that it is theirs.

This is where the hell comes out. The boy felt cheated as he was the only who was dedicated but he could not run his company alone with only the 1/3rd share. So he had no option but to discontinue his own company for what he was really passionate about.

Learn from the story

Take the above story very seriously as these incidents do happen and you never know what the future might brings to you. Getting your legal part is as much important as you’re any other strategy. Get it right, otherwise you will lose your entire company in a flash. Your every effort may go in vain if you are not serious about the legal part of your startup. We have many examples to learn from the history. Remember how Steve Jobs was removed from his own company or how the share of the founder of the facebook was diluted to nothing? Hence, make sure your efforts don’t go in vain and you never end up getting surprised.

Let us not forget the past rather learn from it so that atleast we could minimize the impact if not avoid it. We have analyzed those 5 reasons why most of the startup fails and learn it before registering your company in India:

#Reason No.1 – The Equity fight:
The equity fight between the cofounder is the foremost reason of failure of lot of startups. We have seen many startups that got a very good response from the market initially but failed within 1 months due to the rifts between the founders.

Why equity is important?


How much do you own the company will be the equivalent to how much you own the equity. Always remember, more the equity more the ownership. Further, all your hard work, effort, commitment and everything else is on one side and equity is on another. So chose your equity share wisely.

#Reason No.2 – No written terms: If it is not documented then it does not exist. In this cruel world, there is no space left for oral agreement or the mutual trust. We have seen various founders stabbing their own team members. The founders who were used to sit in a coffee shop were now sitting in a district court is something which should not happen.

Legal battle is no solution for anything. Hence, it is advised to write each and every term agreed between the founders.

How to do that?

Shareholder Agreement is a modern tool of day to day era. It is a must have agreement now, or else it will put your startup under a big risk. Just consider a situation where you are working with your other founders for a year and you just had a fight with your founders on some issue and they just backs off and went off from the company with the equity? You will be surprised? Moreover it is one of the worse situations that may happen if you are not prepared. But you can stop these situations from occurring, with the help of shareholding agreement.

#Reason No.3 – Lack of Commitment: Startup is not a one man show rather it is a team effort. Just like cricket no one players can win you matches, same no one person can run the startup. It is the team that runs and makes a startup successful.

However, it is not necessary that every founder is putting the same amount of hard work. But it is imminent that all founders should be equally committed to the startup.

But with results not achieved or the startup is not running as it should be, then founders sometimes, get frustrated and willing to quit the startup or sometimes, they got a better opportunity so they don’t remain committed as they were before.

This creates rifts between the founders and ultimately results into fights and startups falls apart.

#Reason No.4 – Greed: As said by the Mahatma Gandhi, that there is enough in this world for everyone need but not for greed. We have seen good startups failed because the initial success runs into the head of the founders and they believe that they individually responsible for running and maintaining this startup.

This is nothing but a myth but this greed is very dangerous for the business. The founders tries to increase their stake at the cost of other founders and ultimately results onto another unexpected closure.

#Reason No.5 – Not raising funding on time: Don’t need to tell the importance of this term, everybody is aware of the term funding or investment. In most of the cases, the startups raise funding very early even when they don’t need it. This leads to high expenditure and low output and due to this, startup no longer get the second round and ultimately fails.

Conclusion

So we have discussed a very brief part of these mistakes, however, they are very practical and we really recommend you to read each and every mistake so that you don’t fall into these traps and build a good startup.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


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