Why Do Startups Fail?

Most startups have been triggered by the hype of success stories of about the last two decades. The typical case study on startup failures is by Lance Surety Bonds, teaming up with marketers at Presitely, compiling up Top 20 reasons why startups fail. An info-gram has been drawn from CB Insight Analysis, studying reasons behind 156 failed startups. Founders were interviewed and reasons were sorted out into 20 distinct categories. Percentages here increase than matching to 100% because some of the startups failed due to multiple reasons.

No Market Need (42%)

Every new startup can be an adventure by the launchers but not a need for the market itself. The sponsors than must be vigilant if the venture meets a market vacuum? Just putting another player will just make congestion in the field to make the competition even tougher.

Run out of cash (29%)

An enthusiast is normally behind any startup expecting speedy cash flow to pour in, making them overnight millionaire. This is not a prudent approach. A startup must have financial resources at least to meet its 12 months’ needs without earning a penny.

Not the right team (23%)

If the right team is not there, the goals become difficult to achieve. A right team can ensure accurate, fast & flawless delivery of products and services keep the customers coming back.

Get out-competed (19%)

Certain reasons like motivations, expertise, and funding, alone or in combinations can cause a startup out-competed.

Pricing/Cost Issues (18%)

A poor budgeting results in poor costing, the estimation that ends up into losses. A financially strong feasibility is an only recommendation to avoid such a catastrophe.

Poor Product (17%)

Quality is a buzz word behind market-leading products. If the product is poor, losing your customers is not difficult thing to imagine.

No Business Model (17%)

Proper feasibility covering all aspects of initial investment, cash flow, recurring expenses, etc., is a must to give a clear view of how the startup will take up.

Poor Marketing (14%)

From where your customers will pour in? is a million-dollar question. Answering this question in a highly professional way will provide a sound foundation.

Ignore Customers

The customer is always king. How dare a business can ignore a customer. A startup needs more to listen and match customer demand.

Product Mistimed (13%)

What could be the success rate of the store offering winter wear in the start of summer or a restaurant waiting for the customer at breakfast with all the delicious bar B Q. A launch relevance is a half success if you agree.

Loose Focus (13%)

A startup is nothing less than a “First Love”. Taking it otherwise can fizzle out your focus. Putting at second priority will result into shaky results.

Disharmony on Team/Investors (13%)

Disharmony is an antonym of harmony. It means that team and investors are not on the same page. Having different goals in mind both can fight alone.

Pivot Gone Bad (10%)

Pivot is a central theme which gives a direction to a startup. If anything disturbs it, the direction is lost. Results than surely be distorted.

Lack of Passion (9%)

A startup is a venture by an enthusiast that is filled with a passion. If passion evaporates than better you get into something else.

Bad Location (9%)

The right thing at the right place is a key to success. Choosing a proper place matching to product and services is a half success.

No Finance or Investor Interest (8%)

A startup launch is not possible without a reasonable initial investment. Failure is around if finance is not reasonable or the investor’s interest in the venture is not in accordance with his expectations.

Legal Challenges (8%)

The opening of a bar is almost an assured success, but how is it in a country like ours, where drinking is legally banned? A venture attracting legal repercussions cannot survive for long.

Don’t Use Network/Advisers (8%)

An advice in starting up like professional feasibility and clarity of investor’s goals is must to form a winning plan. But networking with conflicting opinions can play havoc with a startup.

Burn Out (8%)

A poor work/life balance can disturb or divert concentration whereas a startup needs a full focus especially by the person at driving seat.

Failure to Pivot (7%)

One always learns by mistakes but not accepting mistakes mean sticking and repeating, that is then a blunder. It keeps you away from customer’s expectations.

Pros

  • The reasons pointed out are good to provide general understanding.
  • No way these are final but just possible.

Cons

  • Study is of 156 startups.
  • Broadening the study base can make little changes in percentage.
  • An industry wise study can provide altogether different results.

The fact is that 9 out of 10 startups fail. The study provides guidance on startup failure. This info-gram in no case is a bible on startup failure but just a source of study to compare if yours is not open to typical proven risk factors.

  • Umar Hayat
  • The author has rich management exposure in banking, textile, and teaching in business administration.