I don’t want to scare you off, but if you’ve started a startup, there’s a big chance you won’t reach the final version of your product. More accurately, there’s a 90% risk you won’t.
I’m telling you this because the most effective way to stay out of trouble is to have as much information about it as possible. And that is the purpose of this article.
The research firm CBinsights has published Top twenty reasons why startups fail. Here we’ll cover the leading five causes and offer you ways to avoid them.
1. No market need – 42%
You’ll be surprised that when discussing startup failures, most people mention the lack of market need as the primary cause. One of the ex-founders surveyed put the matter this way:
“We had great technology, great data on shopping behavior, great reputation as a thought leader, great expertise, great advisors, etc, but what we didn’t have was technology or a business model that solved a pain point in a scalable way.”
It’s heartbreaking to hear that so much work, time, and effort went into creating a useless product. That is why validating the market need is the first step into the startup world but many neglects its importance.
Most first-time startuppers spurn potential customer research and MVP modification according to the responses. Meanwhile, the world’s leading accelerator YCombinator sees two tasks as the founders’ main missions: customer surveys and building the actual product. You’d probably guess how closely tied these two jobs have to be for successful growth.
To avoid the mistake of 42% of the startups, you need to start validating your idea from the day it is born. If your efforts turn out to be unsuccessful, then it’s never too late to modify or even completely change the product. Remember the story of Slack’s founder Stewart Butterfield. Finding the customer/product fit is probably the most efficient way to help you throughout your experiments. There’s an amazing guidebook by strategyzer you can check out for assistance.
2. Ran out of cash – 29%
There’s a big chance your startup is your first experience in managing finances. When you have a significant amount of cash at your disposal and the future is covered in mist, it’s pretty likely to fall short on money easily.
Intending to generate income as soon as possible, many early-stage startups spend too much on marketing. A lot is spent on getting ready for and meeting with future investors as well. But even if the founders are smart enough to refrain themselves from such impulsive decisions, finding product/market fit might take longer than expected. Because it’s impossible to set a timetable for this process, it’s crucial for startups to spend as little as possible in the early days.
There are many resources and platforms that assist small ventures through managing finances. QuickBooks and PlanGuru are only two of them that help non-finance expert founders plan and manage their funding. You don’t need to be an expert. Just keep in mind that money vanishes quickly and try to use it towards product development. That’s what investors are looking for.
3. Not the right team – 23%
Having the right team is just as crucial for startups as having a user-oriented working product. If the leading representatives of a startup don’t have the necessary skills, if their enthusiasm is not strong enough, and if they have significant communication issues, the company is doomed for failure.
The team’s importance is further outlined by the fact that most smart investors choose startups primarily because of the people involved in them.
To avoid mistakes while finding the right people for your team, make a list of what you’re looking for not only on the experience level but also personally. Remember, you should be able to work together as a team. If that’s not working, it doesn’t matter if your partner has 20 year’s experience in whatever you’re looking for professionally.
4. Get outcompeted – 19%
From everywhere, we hear that we should pay the slightest attention to competition while working on a startup. This is still true because only a handful of people will be working on a specific innovative idea at a time. Furthermore, it is much more important to focus on finding product/market fit than fretting over competitors (Remember the first reason).
Competition becomes a problem when your idea is under hype, and similar startups start to pop up like mushrooms after rain. This is where it becomes crucial to study your competitors and to identify their advantages and disadvantages to make more explicit decisions for the future.
One more practical piece of advice: Pol Graham, the co-founder of YCombinator, points out a small trick for identifying competitors. Whenever he stumbled upon a competitor for his earlier startup Viaweb, the first thing he would do was to check their job listings. This easy method helped him better assess if the competitor was worth worrying about. Were they looking for the right developers for the project? What did they pay more attention to, marketing or product development? The answers to such questions were hidden behind the team and their job listings. I can advise you to do the same.
5. Pricing/Cost issues – 18%
When it comes to pricing, any company on the market should stick to the golden middle: On one side, the product has to be expensive enough to cover the expenses; On the other hand, the product should be cheap enough so that the target audience can afford it (and find it fair). Problems with pricing start to arise when the company crosses the threshold on either side.
Neglecting company expenses will end in loss, and the startup will have to shut down. Setting prices too high will end in a lack of customers that will cause loss, and the startup will have to shut down.
As you can see, validating product need, building the product, and finding the suitable business model isn’t the end of the biggest threats for your startup’s success.
Having an 18% risk of mispricing isn’t that little to neglect the issue. You definitely deserve a pat on the back to have come this far, and it would be a real shame if such a small detail ends your hard work in failure. That’s why it’s important to study the existing offerings and your customer segment in detail and to consult with an expert in the field for making a more objective decision. Good luck!
How to Avoid The 90% Risk of Startup Failure
06 April 2021I don’t want to scare you off, but if you’ve started a startup, there’s a big chance you won’t reach the final version of your product. More accurately, there’s a 90% risk you won’t.
I’m telling you this because the most effective way to stay out of trouble is to have as much information about it as possible. And that is the purpose of this article.
The research firm CBinsights has published Top twenty reasons why startups fail. Here we’ll cover the leading five causes and offer you ways to avoid them.
1. No market need – 42%
You’ll be surprised that when discussing startup failures, most people mention the lack of market need as the primary cause. One of the ex-founders surveyed put the matter this way:
“We had great technology, great data on shopping behavior, great reputation as a thought leader, great expertise, great advisors, etc, but what we didn’t have was technology or a business model that solved a pain point in a scalable way.”
It’s heartbreaking to hear that so much work, time, and effort went into creating a useless product. That is why validating the market need is the first step into the startup world but many neglects its importance.
Most first-time startuppers spurn potential customer research and MVP modification according to the responses. Meanwhile, the world’s leading accelerator YCombinator sees two tasks as the founders’ main missions: customer surveys and building the actual product. You’d probably guess how closely tied these two jobs have to be for successful growth.
To avoid the mistake of 42% of the startups, you need to start validating your idea from the day it is born. If your efforts turn out to be unsuccessful, then it’s never too late to modify or even completely change the product. Remember the story of Slack’s founder Stewart Butterfield. Finding the customer/product fit is probably the most efficient way to help you throughout your experiments. There’s an amazing guidebook by strategyzer you can check out for assistance.
2. Ran out of cash – 29%
There’s a big chance your startup is your first experience in managing finances. When you have a significant amount of cash at your disposal and the future is covered in mist, it’s pretty likely to fall short on money easily.
Intending to generate income as soon as possible, many early-stage startups spend too much on marketing. A lot is spent on getting ready for and meeting with future investors as well. But even if the founders are smart enough to refrain themselves from such impulsive decisions, finding product/market fit might take longer than expected. Because it’s impossible to set a timetable for this process, it’s crucial for startups to spend as little as possible in the early days.
There are many resources and platforms that assist small ventures through managing finances. QuickBooks and PlanGuru are only two of them that help non-finance expert founders plan and manage their funding. You don’t need to be an expert. Just keep in mind that money vanishes quickly and try to use it towards product development. That’s what investors are looking for.
3. Not the right team – 23%
Having the right team is just as crucial for startups as having a user-oriented working product. If the leading representatives of a startup don’t have the necessary skills, if their enthusiasm is not strong enough, and if they have significant communication issues, the company is doomed for failure.
The team’s importance is further outlined by the fact that most smart investors choose startups primarily because of the people involved in them.
To avoid mistakes while finding the right people for your team, make a list of what you’re looking for not only on the experience level but also personally. Remember, you should be able to work together as a team. If that’s not working, it doesn’t matter if your partner has 20 year’s experience in whatever you’re looking for professionally.
4. Get outcompeted – 19%
From everywhere, we hear that we should pay the slightest attention to competition while working on a startup. This is still true because only a handful of people will be working on a specific innovative idea at a time. Furthermore, it is much more important to focus on finding product/market fit than fretting over competitors (Remember the first reason).
Competition becomes a problem when your idea is under hype, and similar startups start to pop up like mushrooms after rain. This is where it becomes crucial to study your competitors and to identify their advantages and disadvantages to make more explicit decisions for the future.
One more practical piece of advice: Pol Graham, the co-founder of YCombinator, points out a small trick for identifying competitors. Whenever he stumbled upon a competitor for his earlier startup Viaweb, the first thing he would do was to check their job listings. This easy method helped him better assess if the competitor was worth worrying about. Were they looking for the right developers for the project? What did they pay more attention to, marketing or product development? The answers to such questions were hidden behind the team and their job listings. I can advise you to do the same.
5. Pricing/Cost issues – 18%
When it comes to pricing, any company on the market should stick to the golden middle: On one side, the product has to be expensive enough to cover the expenses; On the other hand, the product should be cheap enough so that the target audience can afford it (and find it fair). Problems with pricing start to arise when the company crosses the threshold on either side.
Neglecting company expenses will end in loss, and the startup will have to shut down. Setting prices too high will end in a lack of customers that will cause loss, and the startup will have to shut down.
As you can see, validating product need, building the product, and finding the suitable business model isn’t the end of the biggest threats for your startup’s success.
Having an 18% risk of mispricing isn’t that little to neglect the issue. You definitely deserve a pat on the back to have come this far, and it would be a real shame if such a small detail ends your hard work in failure. That’s why it’s important to study the existing offerings and your customer segment in detail and to consult with an expert in the field for making a more objective decision. Good luck!