I've read several materials on startup failures including posts by Paul Graham and Steve Blank on the topic. I'm curious what other reasons aside from lack of customer development, product market fit and co-founder problems. Anything to add? Thanks!
Biggest is probably the product-market fit. Is your product or service helping (enough) people solve a problem or fulfill a need?
This is the biggest question a startup is trying to answer. You have to answer this question within a "finite time" and with "limited resources".
So it really comes down to how focused a startup is in answering this question. If you lose focus with other stuff (co-founder issues, business cards, spending too much time making the product beautiful or whatever else) you are going to run out of time and resources and you have lost the game.
I interview some of the very successful digital entrepreneurs on the web that respond to questions like this. Check out the interviews here: http://treptalks.com
Many of the answers already provided are valid. Many startups fail because not enough people want, or will pay for, the product. Others fail because they are unable to generate enough revenue to sustain before they run out of money. In my experience I've also seen startups with great ideas and some traction (evidence of a product-market-message-fit) fail because the entrepreneur couldn't get out of his or her own way. Mindset is key. A willingness to iterate and pivot where necessary is key. A realization that you don't know what you don't know that you don't know as an entrepreneur - and the commitment to fill in the missing bits and pieces is essential.
Good question (because if you know why startups fail, you could minimize - not prevent - the risks of failing for the same reasons).
The best answer (to most questions) is the one based on data (not opinions) as the famous/funny quote goes: "I believe in GOD, all others must bring data". Therefore 'My' answer is based on research done by CBInsights in which they reviewed 101 postmortems of startups that failed and then deduced the top 20 reasons. Here's the link:
Here's the top 10 reasons:
1. No market need.
2. Ran out of cash.
3. Not the right team (I would put this as #2 - opinion based on working with over 100 startups).
4. Get outcompeted.
5. Pricing / cost issues.
6. User unfriendly product (I would move more down the list)
7. Product without a business model (I would move this to #3)
8. Poor Marketing.
9. Ignore Customers (I think this is very similar to #1)
10. Product Mistimed.
Happy to help on any other issue you might have
Best of luck
There several reasons but more often it's because you built a solution for a problem that didn't existed. You should focus on building something quick and dirty and get feedback from your real users. Try to have them pay for it. Here's a detailed article I recently published. https://listingprowp.com/tips/why-99-percent-of-startup-ideas-fail/
A Startup may fail because of multiple reasons, however, for me the main reason is Founder(s). In case the founders don't want to startup to fail, then it will never fail.
No Business Model
No market need.
Ran out of cash.
Product without a business model
No money no trust
if founders don't understand market always fail
No entrepreneur wants to hear this, but one of the biggest reasons companies fail is because of the entrepreneur. There is a term, "founder's disease" that investors like to use, and it refers to an entrepreneur who already knows everything, thinks he's got it all figured out, and has a business plan that he thinks will work. However, there are real problems -- and he won't listen to anyone because he already knows everything and has it all figured out.
These types are uncoachable and won't take advice from anyone. They have a plan and they are going to stick to it no matter what. Also, they tend not to want to share in success because they are so sure their idea is going to make them millions, perhaps even billions.
How can you spot one of these people? They don't like hard questions about their company, they get defensive when you ask them such questions, they dismiss competition and don't treat it seriously, and they can't understand why you won't put money into their company right now.
When I deal with entrepreneurs, I like to push them a bit or be a little rude because I want to see if they give me attitude. If so, that's pretty much a clear indication that they have founders disease. Investors will never put money into such a company because they almost always fail.
Startups could also fail as result of certain external factors that are beyond the control of the entrepreneur. It is quite comfortable to put the blame on the entrepreneur but it will be unfair if a failure analysis indicates that external factors were responsible for the failure.
A major factor why a lot of start up businesses fail, is because most entrepreneurs find it hard to make the transition from having a hobby to running a business. Most often do not pay enough attention to properly setting up the business, which leads to problems in the long term. A properly structured business and a well executed plan will almost always ensure a successful outcome.
Couple of reasons:
1) Too much dependency on investor capital. As an investor, anyone would want returns in say 3 years, that too minimum 60% upwards on a realistic scale. This puts unnecessary pressure on the system.
2) Response in adapting to changing market demands. Slower the response, faster the start up will die.
3) Problems which are sometimes out of scope of founders i.e. government policy changes which impacts the business directly.
4) Lack of strong ethics. This is one aspect many startups are currently lacking. Most of the old companies have a strong ethical foundation.
More than 50% of startup failed each year globally.
1. Absence of clear vision of future company
2. Founder is not able to find the proper team
3. Not enough resources to finance the activity till the product/service will be launched
4. Poor project management skills
5. Lack of priorities, absent of clear strategy
6. Vague market assessment
7. Underestimate of competitors reaction
8. Wrong pricing strategy
9. Wrong communication strategy
Start-up fail due to number of reasons, but if you ask me, these are the reasons why they fail 90% of the time:
1. No market demand for your product: What we see too often in the start-up scene is that a number of companies believe their invention is so appealing that the market will beg for it and money will begin to flow in. Most start-up founders do not fully understand what their product might be able to achieve in the market – especially in the early stages. That is the reason for many pivots – when a company changes its course and product to satisfy another market. If they could validate their product in pilot projects before launching, or even beta-testing instead, those entrepreneurs might significantly reduce their failure and market rejection risk.
2. Lack of skills needed for the business – in founders and in the team: Many founders cannot do what is needed for a business to take off. They should concentrate in industries that value their skills and educational background, besides their professional expertise. This will boost their odds of success and the practice and dedication they will inject in the business will not be a burden for them. Your skills must be complemented with the ones of your team. Always have someone good at sales, someone good at management and bookkeeping, someone good at marketing and someone good at product development. Customer service, business development and legal in-house employees can land on the company in a second phase. If you or your co-founders lack the skills or abilities needed to get your company going, be sure to identify those needs early on and read, study, learn and experience theoretical and practical knowledge that can give you the upper hand against your competitors and prevent your company from crashing.
3. Ignoring and not avoiding cash burn: Many start-up founders are technicians and engineers at heart – meaning that they want to build the perfect product or solution to one problem and only launch after that. That can become a major problem when you must be cashing in the earliest possible for your company to keep the doors open. Important signals to identify to prevent cashflow problems are usually low profit margin, high payroll costs, small recurrence purchases, clients delaying payments and high churn rates. The more your start-up’s cashflow see those situations, the closer you are to stretching the treasury and having the need of more cash, because of big distances between paying suppliers and getting paid by customers. Always try to negotiate terms with your suppliers that are longer than the payment terms you give to your customers. Spend only on essentials and do not be extravagant on your company spending in that phase. Ask yourself if that exhibition or that fancy office is really a mandatory piece for your puzzle and if that will bring the ROI you and your colleagues expect.
4. Reluctance to get feedback and criticism on prototypes: Many founders have a hard time letting others see their prototype until it is reasonably ready. Failing to get feedback from potential customers is usually fatal to a start-up. Do not be afraid of someone stealing your idea or that your prototype will not be perfect to be shown to the first people. With technologies democratizing prototypes production for hardware and software, there is a good chance that getting a few prototypes made and having them tested with feedback from those who tested it – like in focus groups – will put you in a product improvement and learning loop that shall be repeated until people begin to demand your product.
5. The market might not be ready for your product: Some companies launch products before their time and either the market (demand/need) or the technology is not there yet. Others launch too late, although they might not notice that it would be too late already. The key factor here is to always question yourself with competitors benchmark and with common sense when sales are not taking off. This would be the best time to call a “stop loss” and pivot or invest time, capital, and efforts in another market.
6. Weak team, poor leadership: At any stage, a good leader has the charisma and track record to inspire a compelling vision for the company and its future, recruiting committed employees instead of top talent who will fly to the next offer very soon. Employees committed with the company mission and vision will help the founders realize their vision, not the so much “top talent” cherished by the media.
7. No real interest in the market you are operating in: To be a successful founder you will need to spend about 60 to 90 hours a week with very little or no pay to make your start-up take off. It is not possible to work that hard and be effective unless you believe in what you are doing and trying to build. It is not possible to do that if you are not 100% committed to making potential customers improve their lives by providing them your company’s product or service. Shift your start-up in the direction of solving a problem you care about honestly and profoundly. Many times, it is an underserved problem or a problem nobody has solved yet that makes people want to start their own companies offering a solution for that problem – and in case several other people have that same problem or concern, your company is off to a good road.
8. Inability to raise capital: People may always be surprised by the time and number of rejections required before they succeed in raising capital for their start-up. Too often this process is started too late and the entrepreneur goes to the rescue with the wrong group of investors – the first ones. Fundraising in a start-up environment is something that needs at least 6 months of active prospection, meetings, calls and visits. The more you are in the routine of fundraising, the more precise you are about what you need as a company and what investors who are looking for your profile want. Make a committee responsible for this and name at least two people who will be responsible for raising funds and report to the team every 2 weeks.
9. Poor marketing (and/or sales): Noise matters and no matter how great your product may be, it’s going down if no one knows about it. Poorly managed marketing (or sales) is a major reason for the failure of many start-ups. You do not necessarily need a professional PR team at the beginning, but you need to create buzz in social media and in the press about your company and products. Also, be sure that when you get published in the magazines and websites – that they are authoritative and popular for your audience. If your company cannot manage marketing properly, no one will know about your product, therefore no one will buy it. Spreading the word may seem a waste of time for some founders and more technical teams, but it is fundamental for a business to survive.
10. Ignorance of what your customers want: There is not enough stress I can put on how important it is to launch a minimum viable product and get feedback from customers again and again, for product development and testing over and over. This allows you to build a bridge with your audience and incorporate changes in the product that will hook your customers to the next versions of your products and services.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath