Top 13 Reasons Why Startups Fail
Failure is an essential part of the startup ecosystem - but no one wants to fail. To help you avoid that fate, here are the top reasons why startups fail.
Fail fast. Fail forward. Those are just two of the mantras you’ll see hanging in startup offices and incubators across the globe. In the startup world, a failure is considered a learning opportunity, at the least; a feather in the cap of the Founder, at best. We fetishize failure. We normalize it.
But as much as we talk a good game about failure, the reality is that failing sucks. Just as no one goes into their wedding day planning for divorce, no one starts a company thinking, “Yeah, this one will just be my starter. I’ll get it right next time.” No wants to fail, and yet the majority of startups do fail.
According to an examination of startup businesses (by which they mean new companies in general) in the United States conducted by Statistic Brain, almost all new companies fail: 50 percent after five years and 70 percent after 10 years. Their data found that 46 percent of all companies in the US fail due to “incompetence.” That category includes everything from “emotional pricing” to “no experience in record-keeping” to “nonpayment of taxes.” The next 30 percent failed due to “unbalanced experience or lack of managerial experience”, followed by 11 percent failing due to “lack of experiences in line of goods or services.”
But while the failure rate for new companies in general is high, they’re nowhere near the failure rates of startups. A commonly cited number is “90 percent of all startups fail,” but one study by Harvard Business School senior lecturer Shikhar Ghosh found that the number might be closer to 75 percent. The “real” number is probably somewhere in between the two. Regardless, it’s very high. So why is that?
1. NO MARKET NEED (42%)
The biggest reasons why startups fail is they create a product that the market just doesn’t want. Product/market fit is essential. Maybe they’ve figured out a solution to their own problem and didn’t take into account that other people didn’t have the problem, too. Maybe there were already better products out there. Or maybe the market just wasn’t ready for it. Or, maybe, the world just didn’t need what they were putting out there.
2. RAN OUT OF CASH (29%)
TAnother big issue? Running out of money before you can get anywhere. Even the lucky companies that land funding can find themselves staring down a very short runway, debating whether or not they’ll be able to afford the rent on their coworking space next month.
3. NOT THE RIGHT TEAM (23%)
The cliché in startup land is that a startup is like baby — and your Co-Founder is your spouse. And, like a lot of clichés, there’s a lot of truth in it. Your team can make-or-break your startup, as 23 percent of failed startups know all too well.
4. GET OUTCOMPETED (19%)
Whether it’s one of the big companies doing exactly what you do or smaller companies killing you with a thousand little bites, getting outcompeted is the reason why 19 percent of startups fail. (And regardless of who’s doing the outcompeting, it sucks.)
5. PRICING/COST ISSUES (18%)
The best way to figure out how to price your product is to put a price on it and see what happens. Do you get a huge number of signups, suggesting that maybe you could raise the price? Does no one bite, suggesting you need to lower the price? Can you meet your company’s costs while simultaneously meeting that sweet spot of not too expensive and not too cheap? Unfortunately, one reason why startups fail is because they can’t. It’s a balancing act — and tipping to either side can mean failure for your company.
6. POOR PRODUCT (17%)
Sometimes, startup Founders just come up short when it comes to product. That could be because they don’t actually know what they’re doing. It could also be because they didn’t understand their field properly before jumping in.
7. NEED/LACK BUSINESS MODEL (17%)
Business models aren’t sexy. They aren’t fun. But they are very, very necessary for the success of a startup. Unfortunately, 17 percent of startups failed because they didn’t learn this lesson soon enough.
8. POOR MARKETING (14%)
No matter how great your product is, it’s going to fail if no one knows about it. Poor marketing is a major reason a lot of startups fail and one that I personally get a lot of questions about. While you don’t necessarily need a professional PR team at the beginning, learn from the failed startup pile and don’t ignore marketing. (Yes, even when you’re bootstrapping.).
9. IGNORE CUSTOMERS (14%)
I can’t emphasize enough how important user feedback is to the startup journey, from the first germ of an idea through product develop and testing.
10. PRODUCT MISTIMED (13%)
Some startups launch before their time and either the market or the technology just isn’t there yet. Others launch too late, although they might not know yet that it’s too late.
11. LOSE FOCUS (13%)
Building a company takes time, effort, money and — focus. If you’re the type to get easily distracted or you have trouble finishing what you started, your startup might end up with the 13 percent who fell under this category of why startups fail.
12. DISHARMONY ON TEAM/INVESTORS (13%)
You know how it can sometimes be a terrible idea to be roommates with your best friend? It seems like a great plan — you love each other! You like hanging out! They’re pretty clean! — but when you actually move in, you end up losing your best friend and having to find a new place to live.
That kind of strife can also happen on a startup founding team or between startup Founders and their investors. Either way, it’s a quick recipe for startup failure.
13. PIVOT GONE SOUTH (10%)
YPivoting is another natural part of the startup lifespan: You launch a product, do some user testing, find out it’s not the right product/market fit, and you pivot to something else. In some cases, that pivot is what saves the company. But for others, the pivot takes Founders in the direction of one of those other reasons why startups fail listed above.
