Top 20 Reasons Startups Fail
Based on an Analysis of 32 Startup Failure Post-Mortems
Chubbybrain.com previously highlighted the top startup failure post-mortems of all-time here (32 in total) written by a group of startup entrepreneurs gracious enough to share their lessons learned from their startup’s failure. Many of you read those post-mortems and asked, what are the most common reasons for failure cited across those posts?
Well, Cubbygrain.com has done the work, and below start up companies have offered their answers. After a thorough analysis of those 32 start-up post-mortems, SEEgrowth.org will review and shorten the reasons founders have determined the common reasons they gave to compile this list of the top 20 ways to have your startup fail. Below, you will see a handy chart to highlight the top 20 reasons for failure followed by an explanation of each reason and relevant examples from the post-mortems.
#20 – Start the company at the wrong time
Many companies that failed started during the recent financial crisis (and continues to suffer through), and some startups highlighted the larger market negativity as a reason for their ultimate demise.
#19 – Not working on it full time
Startups are hard. There even harder when you’re pulled in a couple of different directions aka a day job.
#18 – Location, Location, Location
Location was an issue in two different ways. The first being that there has to be congruence between your startup’s concept and location. By way of crude example, if you’re building innovative trading software for Wall Street, be where you customers are and where you can best network. Location also played a role in failure for remote teams. The key being that if your team is working remotely, make sure you find effective communication methods; else lack of teamwork and planning could lead to failure.
#17 – Be unable to Attract Investors
While this may be a cousin of reason #20 (starting the company at the wrong time), there was a group of founders who candidly expressed that their inability to attract investors was the reason for their ultimate demise.
#16 – Get outcompeted
Despite the platitudes that startups shouldn’t pay attention to the competition, the reality is that once an idea gets hot or gets market validation, there may be many entrants in a space. And while obsessing over the competition is not healthy, ignoring them was also a recipe for failure in 10% of the startup failures.
#15 – Burn Out
Work life balance is not something that startup founders often get and so the risk of burning out is high. The ability to cut your losses where necessary and re-direct your efforts when you see a dead end was deemed important to succeeding and avoiding burnout as was having a solid, diverse and driven team so that responsibilities can be shared.
#14 – Lose Focus – Distracted by Shiny Objects
Most entrepreneurs have lots of ideas. Often times, many of them may be really good. I don’t know about you, but my favorite part about startups is talking about new products and new business ideas.
#13 – Disharmony with Investors/Co-founders
Discord with a cofounder was one of the most fatal issues for a company.
#12 – Do not use your connections
We often hear about startup entrepreneurs lamenting their lack of connections so we were surprised to see that one of the top reasons for failure was entrepreneurs who said they did not properly utilize their own network. Whether it was for advice or introductions, almost 16% of the startup post-mortems stated that the team did not use their connections well enough, which led to failure. So what does this teach us? If you have a network (and everyone does), be judicious in using it, but be sure to use it.
#11 – Pricing Issues
Pricing is one part science, 10 parts art.
#10 – A “User Un-Friendly” Product
Not sure there is any revelation here, but bad things happen when you ignore a user’s wants and needs whether done consciously or accidentally.
#9 – Do not cut your losses a la Pivot at the right time
One of the most overused startup words of 2010 was Pivot, but pivoting away from a bad product, a bad hire, a bad decision, etc. quickly enough was cited as a reason for failure often.
#8 – Lack Passion and Domain Expertise
There are many good ideas out there in the world, but our startup post-mortem founders found that a lack of passion for a domain and a lack of knowledge of a domain were key reasons for failure no matter how good an idea is.
#7 – Release product at the wrong time
If you release your product too early, users may write it off as not good enough and getting them back may be difficult if their first impression of you was negative. And if you release your product too late, you may have missed your window of opportunity.
#6 – I got this product. Now I just need a business model.
Sure Twitter gets away with not having a business model, but they’re not the norm.
#5 – Ran out of cash
Money and time are finite and need to be allocated judiciously. The question of how should you spend your money was a frequent conundrum and reason for failure cited by failed startups.
#4 – Poor Marketing
Knowing your target audience and knowing how to get their attention and convert them to leads and ultimately customers is one of the most important skills of a successful business. Yet, in almost 30% of failures, ineffective marketing was a primary cause of failure.
#3 – Not the right team
A diverse team with different skill sets was often cited as being critical to the success of a startup company
#2 – Building a solution looking for a problem, i.e., not targeting a “market need”
Choosing to tackle problems that are interesting to solve rather than those that serve a market need was often cited as a reason for failure. Sure, you can build an app and see if it will stick, but knowing there is a market need upfront is a good thing.
#1 – Being inflexible and not actively seeking or using customer feedback
Ignoring your users is a tried and true way to fail.
Special thanks to Chandni Shah, a Carnegie Mellon graduate, for her fantastic work poring through these post-mortems to compile this analysis and assist with this write-up.