Why Startups Fail? And how some of them are able to make it real big? Just like you, I have spent countless sleepless nights and even more worrisome days figuring out the answer to this million dollar question. On my quest to write a comprehensive guide on Startup Ideas, I had the chance to lay out the same question before these 44 top business experts. In fact, this post is but a compilation of their experiences and opinions.
Sue Anne Dunlevie
Laurie S Hurley
John Lee Dumas
Startups fail for a variety of reasons. But one thing I see all too often is entrepreneurs giving up early. It takes more time than most people forecast, in order to gain enough momentum to get to a self-sustaining business.
Tip: If possible, try to have living expenses set aside for a year, so you give your startup enough time to get on its feet. That way you won't run out of money and have to go get a job before you give your startup a chance to prove itself.
Most startups that I have seen fail, are purely because they let their overhead of employees put them under water. They try to get everything perfect, but overhead catches up very quick and then you're out of money. I tell everyone, start buying traffic as soon as your site is functional. Don't worry if it looks perfect. Without traffic, you are dead in the water and have no real insights if you are even focusing on the right tasks.
I have seen companies with a fully functional websites scared to spend $500 on Facebook to see how consumers will respond, but blow 10K on 2 months of an in house designer, because they think that's what consumers want.
Most startups fail because they create a product that no one wants. The Lean Startup Philosophy of making a minimal viable product and launching it quickly helps new entrepreneurs and startups know just what the market needs and wants. Even if it fails, you'll know faster and can then move on to the next idea.
The problem with startups isn't usually the product/service; it's the marketing. The team spends so much time building the tools; they don't build the audience until it's too late. If your product is launching next week, when is the best time to start your marketing? Last year.
That's right. Start building your audience long before you need it. Start sharing ideas, giving away advice, interviewing influencers, growing your following and growing your list. Now when you launch your product, you'll have people to share it with.
Step one is documenting your content strategy. Here's a 3 minute video that covers all of the basics of that critical marketing strategy. Very few startups that I meet understand the concepts in this video. And most of them fail completely.
The most important lesson I learned about failure is that without it, you do not truly understand success. When success comes too easily or too early in the process, we come to believe it is the natural state of things, and when failure comes at a later date in some form or another, we are most often utterly unprepared.
My failures have opened my eyes to introspection and learning that has made me a better father, brother, friend, and mentor… a better person.
This is not to say you should seek out failure, more about how important it is to stretch yourself and not be afraid of making mistakes. We need to empower our employees, associates, friends and children to understand that failure is incredibly valuable when you make learning part of the process.
I know one reason why start-ups fail even before they get off the ground; lack of resources. The old saying "It takes money to make money" rings very true. If you want to get investors, you need to do a lot of work ahead of time, and that can take money – prototypes, wire-frames, testing, travel – depending on what you want your start-up to do and where you'll be seeking your investors. Unfortunately, I have had some experience in this, what did us in was the lack of start-up capital to properly present and prepare ourselves for raising capital.
I think the most common is simply that the product or service fails to address a common pain point for the customer. I think beta testing is one way you can ensure you have something where the value is clear and the customer is willing to pay for it. I also think solutions have to be relatively simple and easily grasped by the customer, complex solutions are hard to sell. Other common failings include not having the right balance in the team, failing to have good cash control and operating controls, and finally poor marketing. It is a very noisy world out there, people also ignore advertising even if you have the budget, so how will your customers get to know about your product or service? This is a key challenge and one for me that has to be addressed by content marketing and influencer marketing."
Startups fail typically because of execution rather than idea. I'm not saying their idea is not wrong. An idea you start with is generally not the idea you end up with, but what is extremely important is your execution and willingness to pivot when required. When you don't continuously push yourself and adapt, you start to lose momentum and then startups give up!
In my experience, most startups fail because they think "everyone" is their target market and they don't put a stake in the ground in relation to an ideal customer to focus their marketing and sales efforts. They do this because they need cash and they don't want to miss out on a deal. But, the lack of focus really hurts their positioning in the marketplace they're trying to engage. Aim for a niche market first, saturate it and then expand to another. It's much easier to go deep and narrow than it is to try and sell to everyone but never become relevant enough to do it well.
The number one on my list is making products no one wants to buy. If there is no market for your product, even the best team of advisers can't help you grow your startup.
The second one would be the lack of finances. While the capital raising is the best way forward, the improper managing of finances will destroy any startup in a very short time.
Focusing on the wrong things. In the early days, it's super easy to get sucked into the vortex of doing things (a lot of them being useless).
Startups are a combination of behavior, resilience, perspective and environment. But majority of the equation lies in behavior. Most startup founders do not manage their cash flow well at the first taste of relative success. They think that it's "goanna go on" but it doesn't. And when it doesn't that's when the money they squandered on their wants will stand out to have had critical importance.
Focusing startup to the line of business I am in (building profitable websites while having a day job), the reason I see most people/startups fail is because of a lack of process. The initial energy of a new project/business/startup only lasts soo long, and unless there are processes/procedures and a team in place to execute, the business will fail. The key is to identify a profitable process and then set it up, so it can be successfully executed by a team you build.
Startups fail because they run out of money before they achieve product market-fit. This is often due to spending precious money, and even more precious time on the wrong things, people and ideas.
While I don't have data on why start ups fail—and I'm guessing it exists—I believe start ups fail for the reason many organizations fail: loss of focus. Assuming the idea is sound, a founder must prioritize and stay laser-focused on those activities that raise capital and create revenue. Distractions can be deadly. "What must get done" is replaced by "things that can be done" and the start-ups' two greatest resources—time and expertise—get wasted. Determine what's essential for success and stick to it to avoid this pitfall.
There can be many reasons that attribute to a startup failing. One of the most notable is not having a product/service that either vastly improves upon an existing problem or not having a product or service that takes a new approach to solve a problem. Simply recreating a product or service that is already out there makes it very difficult to make your startup stand out from established businesses.
I think the top 3 reasons startups fail are:
A majority of startups fail because their founders are caught up in their own bubbles. They don't know who they are targeting, talk about features instead of benefits, expect you to support them, and take customer acquisition for granted. In a nutshell, the business model and strategy aren't always very solid."
One of the main reasons startups fail is that they do not do a good enough job of listening to their audience. Startup founders and developers can too easily obsess over releasing the perfect product, or releasing a product that perfectly fits their original vision, when instead they should be doing everything they can to get something out as fast as possible, and then listen to what the audience thinks.
Startups that allow their product and vision to be molded and directed by the needs and demands of the audience stand a far greater chance of succeeding.
Most startups fail because they are playing by the same rules as heavily-funded enterprises. If David would have fought Goliath in hand-to-hand combat, as history dictated, he would have lost. But David changed the rules to his advantage. That's exactly what startups need to do. How? By creating an audience first, and then launching a product or service. If you focus on serving an audience with compelling and helpful content, and build an opt-in subscribership over time, readers will begin to know, like and trust you. You'll understand that audience's pain points more than anyone, and your audience will tell you, ultimately, what they want to buy. This type of approach is sweeping the world (we call this the Content Inc. model).
The main reason startups fail in my opinion is lack of actionable planning. People love talking about high level concepts and share their ideas, but rarely get down to the bottom of how they are going to achieve that with numbers supporting their hypothesis. If you want to avoid failing, I would recommend the following:
The ability to pivot well is critical to the success of your startup. You might have started your business focusing on a particular product or service offering. But what if the market isn't what you thought it was or a competitor simply outplays you?
Very often I think we can be so much in love with our original offering that we're blind to other possibilities. Yet being able to embrace those other possibilities, even if they weren't what we originally set out to do, could be the difference between "failure" and "success."
Startups fail because they try to serve too broad an audience too fast. Niche till it HURTS, dominate ONE market, build a raving fan base, THEN you can start to broaden your scope of products and services.
There are several reasons that might lead a startup to failure, but in my opinion there are two main ones:
Other than lack of capital, I say one of the biggest reasons is the failure of the founders to get the right team together. Talent is the more important part of a startup. It's the only thing, other than your idea, that investors have to go on. The proper staff makes all the difference.
Most startups fail because they don't have a clear and proven business model. The consistent creation of profit (not revenue) requires that you understand who will pay you, what it costs to find and attract them, and the cost of doing business. Miss any one of those and you're in trouble.
Many do not hone in on researching and completely understanding their market's biggest problem. Startups should learn to speak the language of their audience.
Communicating well enough to ease the most nagging pain will form a bond not forgotten. This lays the foundation of relationship building that is essential for success.
I have found that the lack of talent, resources and focus are the killers, especially if it is a tech or internet startup. The lack of focus put toward developing a product that is a real solution fit in the marketplace for a big enough real problem, breads lack of funding and the resources necessary to compete and do it very rapidly. The lack of resources tends to result in an inability to attract the needed marketing, operational and other human resources early enough to steer the ship where it needs to go. These things working together tend to spring huge leaks in already sinking ships.
I think the number one reason why startup fails is the lack of preparation. In other words, no business plans. There are many variables to consider; costs, mission statement, market analysis, expectations and future development. The latter is the most important point, in my opinion. It's important to have a long-term plan if you want your startup turning into a business that makes money over time.
I think the #1 reason why startups fail is because they don't have a real business model. They don't have any plans or ways to generate income. Not everyone can expect to get bought out by a larger company. From the beginning, you need to figure out how your start is going to make money.
Startups might fail for a variety of reasons.
"Because the purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business." - Peter Drucker
I believe a top reason startups fail is people don't take the time to identify a real need/problem in the market. And if they do complete this step, they either don't effectively illustrate how they can solve the problem, or they aren't offering services/info/products that stand out from the competition. Many people launch sites based on a need/want THEY have, but they don't take the time to research the market and verify it's actually something that enough people also need/want. In other words, they fail to do proper market research.
What I have learned as both a coach to start-up leaders, and as an entrepreneur myself, a big reason is that the leaders are not the leaders necessary for success of the endeavor. What I mean by that is that they do not have the conversations necessary for the success. They are many times blind to how to create, through conversation, a shared commitment of a team. They, as leaders, are blind to their moods and emotions and how to create powerful moods/emotions, which will lead their team to go above and beyond, and bring all of their energies and skills full bore towards success. Culture is critical to any organization, and the leaders in startup bring all of their strengths and weaknesses to the organization, and that becomes the culture.
What most startups seem to miss is that they need to provide something that no one else is offering or offer it in a way that is unique to them.
Anyone can setup a Facebook Page or a Twitter account and anyone can take photos and shove them on Instagram. It's also now very cheap to set up a website. You can be online for less than £100.
The people behind the business, the essence of the idea that drives it, the blood sweat and tears, and the sheer determination added to the unique selling point of the business are what determines a startups success.
When you take away the digital media, what are you left with? Have a look, because that's the heart of your startup. Make sure your 'Why?' is very clear to your target audience.
There a host of reasons why startups fail, with the most common being running out of capital. There are numerous reasons why startups may run out of money. From personal experience, not having good systems in place creates "busyness" that inhibits productivity (which costs you time and money). Initially, when a new business opens, there is some excitement that attracts clients, but if there is not a good system in place to keep client/customers coming back, it then becomes a mad scramble to generate new clients/customers. This is where a lot of money is used up--spending too much on unprofitable marketing campaigns.
As I think, working capital is the #1 reason that startups fail. I also believe that receiving funding from the wrong Venture Capital Firm, Angel Investor or even worse, family member, can be a big mistake. It is important to remember that once somebody invests in your new startup, there will be a new set of rules, people and timelines to satisfy. With that being said, everything is negotiable, but I advise you to have an attorney review all your contracts and always talk about the worst case scenario. And remember that not all money is good money.
So many startups spend so much time trying to get massive investments from VCs that they treat UX as secondary. It doesn't matter how cool or cutting edge your product or offering is, if you don't make the needs of your consumer/target audience your main focus, you won't be able to keep, let alone grow, your startup.
"I'm a huge believer in running a startup based on its numbers. Here at HealthJoy.com, we track a wide variety of KPI's (key performance indicators) on a daily basis. This helps up identify issues quickly and try new tactics to improve all aspects of our product and business. Every business has a different set of KPI's that they can use and track. I wrote a blog post of 123 different KPI's that you can possibly track as a good starting point. You really need to think what's most important to your business and start tracking it immediately."
Startups fail because they're not able to define and articulate the value that they deliver to customers, and then execute in delivering that value. Successful companies operate from the outside in - they look at the needs of an audience and then consistently design relevant experiences that support those industries.
Most startups fail because they were never built to go the distance in the first place. A culture of hacks, quick wins, and acqui-hires has otherwise smart people building companies with an exit in mind long before they've even built a semi-sustainable business.
Startups can fail for a number of different reasons, however, I think the lack of an attainable plan is a leading cause. Keeping a company afloat is one thing, but, growing it to the next level (and beyond) is a whole new ball game.
One of the most important parts of running a startup is keeping your customers happy. I recently read about a company called Coca-Cola, which owns a brand of sports drinks called Powerade. The flavor Jagged Ice was introduced in 1993 but it was eventually discontinued. They still sell the Jagged Ice flavor in parts of Africa, which is traumatizing, because if you search Twitter for "Jagged Ice Powerade," you'll find posts and pictures of people enjoying a sports drink you cannot have. That is why I now drink Gatorade.
What's Your Take?
After getting the expert opinion, what's your take on this? Feel free to enlighten us in the comment section below. I mean, you don't get new ideas without sharing, right?
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