Just read this great list at Early Shares entitled Top 20 Reasons Why Startups Fail…..
After a thorough analysis of those 32 startup post-mortems, it was determined the common reasons founders gave to compile this list of the top 20 ways to have your startup fail…
#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. They’re even harder when you’re pulled in a couple of different directions (i.e., a day job). This came through in several post-mortems. If you’re working another full-time job with nobody fully invested, you are running the risk of burning out, acting with less urgency and just not having enough hours in the day to get what you need done. Also, with another job, there is the risk that a team acts with less urgency given they have sources of income.
#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 your customers are and where you can network best. 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, or else lack of teamwork and planning could lead to failure. Location issues were given as a reason for failure 6% of the time.
#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. If there is no money out there for your idea, reassess whether there is a market for it, and reassess your approach.
#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 redirect 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. Burning out was given as a reason for failure in 12+% of the startup failures.
#14 – Lose Focus – Distraction
Getting sidetracked with all the “could-be’s” was cited numerous times as a contributor to failure. It is important to get one thing out on the market and focus on one product or else you risk ending up with too many almost finished products that are not valuable to customers to you or your customers.
#13 – Discord of Investors & Co-Founders
Discord with a co-founder was one of the most fatal issues for a company. Bricabox co-founder advises, “When a co-founder walks out of a company — as was the case for me — you’ve already been dealt a heavy blow. Don’t exacerbate the issue by needing to figure out how to deal with large equity deadweight on your hands (investors won’t like that the #2 stakeholder is absent, even estranged, from your company). So, the best way of dealing with this issue is to take a long, long vesting period for all major sweat equity founders.”
#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 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, ten parts art. A dark art according to a large number of startups which failed and who attributed product pricing that was too high or too low to make money. For example one entrepreneur said, “It took a lot of keychains bought at 50 cents and sold for $1.25 just to pay the phone bill.”
#10 – A “User Friendly” Product or Service
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 – Pivot Delay “Cut Losses and Restart”
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 often cited as a reason for failure. Dwelling or being married to a bad idea is not a good way to allocate resources. It’s not just ideas – if you make a bad hiring decision, take corrective action (euphemism for letting them go) sooner than later. As soon as you see that your product is not getting a response in the market, think about what product changes might be necessary. Letting inertia and stubbornness limit your growth and ability to change your business model was cited as cause for failure almost 1/5 of the time.
#8 – Lack of Passion and 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. The co-founder of Untitled Partners stated, “I underestimated the importance of a relationship between our corporate and personal identities.” About 18.8% of the time, the post-mortems cited lack of passion as a cause of failure.
#7 – Wrong Timing!
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. If you release your product too late, you may have missed your window of opportunity. “This requires balance. If it is a critical-user based website where users need to depend on it like Ebay or Mint.com, an outage could mean catastrophe. But if it’s a website like Twitter, an outage is a joke. Know your website and don’t take forever to get it to the market. But, if it’s critical, then make sure it is sound.”
#6 – Got a Product but No Business Model!
Sure Twitter gets away with not having a business model, but they’re not the norm. Perhaps we’re old school, but if there is not a plan to bring in more revenue than expenses, that’s a problem. Failed founders seem to agree that a business model is important. Unfortunately, in 1 of 4 startup post-mortems, the lack of a business model was cited as a reason for failure.
#5 – Out of CA$H
Money and time are finite and need to be allocated judiciously. The question of how you should spend your money was a frequent conundrum and reason for failure cited by failed startups. The decision on whether to spend significantly upfront to get the product off the ground or develop gradually over time is a tough act to balance.
#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. Oftentimes, the inability to market was a function of founders who liked to code or build product, but who didn’t relish the idea of promoting the product.
#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. Startup post-mortems often lamented that, “I wish we had a CTO from the start, or wished that the startup had a founder that loved the business aspect of things.” In some cases, the founding team wished they had more checks and balances. Team deficiencies were given as a reason for startup failure almost 1/3 of the time.
#2 – Building Solutions Looking for a Problem – Not Addressing the Market
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. “If you want to solve a technical problem, get a group together and do it as open source.”
#1 – Being UN-FLEXIBLE
Ignoring your users is a tried and true way to fail. Yes, that sounds obvious, but this was the #1 reason given for failure amongst the startup failure post-mortems analyzed. Tunnel vision and not gathering user feedback are fatal flaws for most startups. “I’d recommend not going more than two or three months from the initial start to getting in the hands of prospects that are truly objective.”