Why do so many startups fail?
In a recent firechat, I was asking people why they thought so many startups fail.
There were quite a few comments, and while most people had some interesting points, no one really nailed it on the head.
I think it’s because there are so many factors involved in a startup failing or succeeding that each of those little factors needs to be considered as a whole.
So with that in mind, here are the top 5 reasons startups fail
1. The concept is bad/not relevant enough/over-hyped or something else went wrong with how they presented their product to their market
When you first start off your business plan and your first customer interaction after creating your product is negative (in terms of response) you know you have some problems to deal with immediately. However, if that negative feedback happens in year 2 after launching — then too bad for you.
A lot of things can go wrong with how you present your product at launch time and before getting any funding — not just tech related ones but the way you talk about what value it brings to customers; the way the product works out of box (ease of use); packaging; all kinds of things can kill a product at launch time without ever getting funded — all these can also kill it down the road when things aren’t going as well as planned… or when market conditions change from how they were when they got funded.
2. The founder(s) do not take advantage of all resources available to them from their friends, family, professional network, customers or other potential partners.
Some founders get in a bubble and fail because they are too involved with their project or spend too much time developing it which results in neglecting important relationships they should be building while developing the product.
Once you get funding this problem may also arise if the funding does not provide enough resources for them to complete their vision — so the founder(s) may try to work it out on their own which again neglects those valuable relationships.
3: A lack of willingness to change course when conditions change or it’s time to pivot.
When things are going well, most people will not change course even if their market changes; and when things are going badly — they want to keep changing course in order to turn things around but never find a fix because they refuse to look at the bigger picture often because they lack the expertise needed for that fix and end up finding themselves unable to turn things around.
This can be extremely frustrating for them — which leads them on a downward spiral with all kinds of self-destructive behavior, until it all falls apart and everyone loses (not just customers but also investors).
In this situation I would not blame investors if they do not want anything more to do with this kind of startup founder ever again.
The same goes for employees who were part of the team (e.g: getting fired or being laid off) because some startups had no idea how their business model worked in terms of burn rate/burn rate tolerance/revenue thresholds — when these three factors were important for different people within the company.
Always get as much help as possible (this does not mean outsourcing tasks before finishing them though) and always think about new ways that your product could work while constantly evaluating those ideas based on what value it brings your customers while considering other aspects like possible competition or possible costs involved.
This way you can avoid getting stuck in a rut where nothing seems like it works anymore.
4. Over-valuing your own idea/under-valuing the competitive landscape and how important it is to be in sync with that landscape.
Most founders know that they have to “create value” (whatever that means) for their customers but they don’t necessarily realize the importance of understanding what other companies are doing — because it could create a very challenging environment for them if they don’t.
They may even be successful by creating value based on “insight” or just guessing correctly but these are not sustainable paths long term — at least I have never seen any examples of this working well (the exception here being extraordinary talent).
The market conditions change all the time and you can get stuck thinking you have some great idea which would work now because it worked once before… when in reality nothing is more important than keeping an eye on what others are doing!
A big part of this problem comes from young entrepreneurs who do not understand how to develop something innovative (yes, innovation is often better when it can build upon previous developments) while also needing to follow trends; so here too; experience matters!
Getting help from experienced people who understand these things better will definitely improve your chances of success as a startup.
5. Lack of funding needed for the team size or lack of human resources needed for delivering a quality product in time to make money from customers.
In my opinion, having good team members is everything! This can include all kinds of different skills like those related to developing the actual product itself, those related to finance, sales and marketing etc.
Some products require only one person while others may need many — depends on where you want your startup eventually going and if there are existing market needs which could fulfill with your product.
I had one founder ask me why he couldn’t run his own company solo while building something great?! When I asked him about his background he told me he was studying computer science at university — as far as tech skills go he probably could do anything alone.
However, things change when there is no one around who understands business management or marketing or business development etc… then suddenly all that tech skill seems meaningless unless you plan on hiring someone else with specific knowledge relevant to those fields after launch? Yes it takes longer but if you truly care about making money later this will be an essential part there too (if you are serious about making money later).
No matter how good you are at writing code — if you can’t sell it to someone or market it in a way that resonates with customers, your tech skills will not be worth much!
In the same line of thinking: It doesn’t matter how good you are at building a product if you can’t build it in time.
You don’t have to have everything ready for launch time but what matters is being able to launch your product on time. For some businesses that may mean taking an investor on board (before having a business plan approved and some customers) while others may mean bringing someone else on board who can help with critical components of the development process.
As I mentioned before I believe experience matters too much when starting up something new.
The best way to gain experience is working for someone else in the field and gaining actual real world experience while building up relevant knowledge as well.
If people want more out of their startups than just money (which is probably true) then they should spend their resources wisely by getting professional advice, doing things right from day one and even spending more time making sure they get things right by avoiding bad decisions which waste everyone’s time and effort.
The only thing worse than making bad decisions which waste everyone’s resources is repeating those mistakes again & again until no one cares anymore… so choose wisely, avoid wasting resources or becoming part of startup statistics.
About the Author
I am the Founder of Cudy Technologies (www.cudy.co), a full-stack EdTech startup helping teachers and students teach and learn better. I am also a mentor and angel investor in other Startups of my other interests (Proptech, Fintech, HRtech, Ride-hailing, C2C marketplaces and SaaS). You can also find me on Cudy for early-stage Startup Founder mentorship and advice.
You can connect with me on Linkedin (https://www.linkedin.com/in/alexanderlhk) and let me know that you are a reader of my Medium posts in your invitation message.
