In this lesson, you will learn the most common reasons why startups typically fail and the factors that matter most for company success.
The correct figure is 5 out of 10 fail after 4 years. Big number, but not as big as many would think.
CB Insights conducted a study of over 101 startups. Here are the Top 20 reasons why startups fail.
Top 20 reasons startup fail
#20 Failure to Pivot When Necessary
#19 Burn Out
The work-life balance is something difficult to achieve when running a startup, and the risk of burning out is high.
#18 Not Utilizing Your Network Appropriately
It is actually a mistake to think that we can do everything ourselves. Investors are there to help, so entrepreneurs must involve them.
#17 Legal Challenges
A lot of startups spend half of their money on lawyers or royalties (example: music industry).
#16 No Financing
Many startups fail due to the inability to find interested investors at the early stage of their project.
Location can be an issue in different ways. The startup concept and the location may not match, making it hard to scale, or receive investment.
#14 Lack of Passion
Lack of passion and/or knowledge of a domain accounts for 9% of startup failure.
#13 Pivot Gone Bad
We explained what was a pivot previously. Sometimes changing the business model can also lead to failure if the change has not been calculated enough.
#12 Disharmony Between Investors/Co-founders
When things go bad among the core team or with investors, the whole business can go really bad as well! It accounts for 13% of startup failure according to CB insights.
#11 Loss of Focus
Entrepreneurs may lose focus for various reasons such as:
– distracting projects
– personal issues
– general loss of focus
#10 Launching product at the wrong time
Customers may not be ready for your product if you are too early, whereas you can miss your window of opportunity if you are too late.
#9 Ignoring Customers
Most startups that build a product for themselves, without paying attention to what the customers really want, fail.
#8 Poor Marketing
14% of startup failure is due to poor marketing. The founders like to build their product but don’t promote it or don’t have the skills to do so.
#7 Lack of a Business Model
Building the right product and finding customers is great, but the startup also needs a business model. 17% of startup failures are due to the lack of business model.
#6 Poor Product
The product may be too complicated or unfriendly, which causes customers to not want it even if the idea is great.
#5 Pricing Issues
Your pricing model is very important. Startups can fail because pricing is too high, too low, or just doesn’t match customers’ expectations (upfront vs subscription etc).
#4 Get Outcompeted
Even though startups should not pay too much attention to competitors, 19% of startup failures are due to competition.
#3 Not the Right Team
Startups need a diverse skill set among their team members from the beginning.
It is also significant to have partners to balance the business decisions.
#2 Ran Out of Cash
Running out of cash is one of the most common reasons for startups failures. Note that it is often linked to another reason.
#1 No Market Need
The most important reason why startups fail is by trying to solve interesting problems instead of targeting a real market need.
[Optional] Why Startups Fail, by Ash Maurya (13-minute video)
Ash Maurya is the author of the bestseller “Running Lean” and creator of the Lean Canvas, adapted from the Business Model Canvas.
What Factors Matter Most for Company Success? Watch the great Bill Gross’ TED Talk to find out. (6-minute video)
If you’d like to watch this later, you can find the link in the Additional Materials section of this lesson.
According to Bill Gross, what is the single biggest reason why startups succeed?*
Remember this and you will be successful!