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Why do startups fail? The most common reasons ⬇️
Why startups fail:
1. Founders and early employees' problems:
- Lack of experience. Business experience and niche expertise
- Network
- Lack of energy and stamina
- Bad first hires
2. Slow feedback loops
3. Selling vitamins vs pain killers
4. Bad positioning and no differentiation
5. Random acts of marketing
6. Treat it like a sprint, not a marathon
7. Fake product-market fit
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Hi Olena, Marlee (where I work) has 25+ years of research on this.
Our Founder, @michelle_duval, studied the motivations of entrepreneurs and what we call 'business builders' to prove her hypothesis that there were 'XFactor' work style motivations that led to venture success.
The study found statistically significant differences in the attitudes and motivations of the highest performing entrepreneurs and business builders, contrasted with a sample of those who experienced business failure and bankruptcy.
The research was published, and that's what led to the development of Marlee's AI technology (which we just launched on Monday this week!)
To summarise the research findings for entrepreneurs:
- successful entrepreneurs are more motivated by what we call 'Big Picture Thinking'
- they're higher in personal or organizational 'Power'
- they trust their 'Gut Feel' more than the working population
- they're higher in 'Initiation', so they start things fast - they don't pause and reflect
- they're more motivated by 'Money', ie P&Ls, margins, forecasts, budgets etc
So, from your original list:
- you mention lack of energy and stamina and you're right - successful entrepreneurs are high in initiation. They start fast, fail fast and start again. They're resilient.
The good news is (shameless plug!) that Marlee holds the "secret sauce" to venture success.
Answer some questions on what motivates you (for free) and Marlee's insights help you develop to achieve your goals.
@michelle_duval @emily_willis1 Just wondering how does their research account for the entrepreneurs who fail the first or second time before they succeed? Are they counted as successful only or left out in the name of data integrity?
Thanks @emily_willis1 @ashtrac - in our research we included discrete data set of all businesses started failed (one or more), Succeeded (no failed businesses) and those who did multiple startups with some failed and successful. Our study was exploring the relationship between venture failure and success and the cognitive biases that correlate.
@olenabomko Lets check the data. I was a bit off actually. it was 29% Startup failure can stem from various factors, and while percentages can vary based on different studies and analyses, some common causes include:
Lack of Market Need: Around 42% of startups fail because there's no market need for their product or service. This means they haven't accurately assessed or addressed a real problem or demand in the market.
Running Out of Cash: Approximately 29% of startups fail due to running out of money. This could result from overspending, miscalculating costs, or failing to secure additional funding.
Not the Right Team: Roughly 23% of startups fail because they don't have the right team in place. A strong and complementary team is crucial for navigating challenges and driving growth.
Being Outcompeted: About 19% of startups fail because they face stiff competition and can't differentiate themselves effectively.
Poor Marketing: Close to 14% of startups fail due to ineffective marketing strategies or failing to reach their target audience.
Ignoring Customers: Around 14% of startups fail because they ignore feedback from customers or fail to pivot based on market response.
Product Mis-timed: Approximately 13% of startups fail because they've launched their product or service at the wrong time, either too early or too late for the market.
Pricing/Cost Issues: Roughly 18% of startups fail due to issues related to pricing or cost.
These percentages are based on research and data from various sources and may vary slightly depending on the study and the specific industry or market. It's also worth noting that many startups fail due to a combination of factors rather than a single cause.
@olenabomko Personally I think the most common reason for failure. Is The doom of complexity. Insufficient resources to deal with complexity. Especially post PMF. When you have customers. Things become extremely complex. So the sweet spot IMO. Is High utility, low complexity, delightful experience
@lisa_steingold1 Rookie question here! What exactly does this point mean? I'm being able to extrapolate the general idea around selling "bandaid solutions" instead of a product that really solves a problem for the user, but what's the true definition of this? Do you folks have any examples of what a vitamin vs. a pain killer looks like for certain customer segments?
This set off an alarm in my head remembering all the different moments from this list in our start ups. thank you for the list!
@olenabomko I see. It may not be so important in this case, but I'd always give a source or justification for all assertions, in this age of misinformation and fake news.
BTW, could you elaborate on Selling vitamins vs pain killers and give example?
Main one would be "founders choosing to close the company" everything else can be recovered, can pivot, can change almost anything if you don't choose to close the company!
It's concise and gets all the points right! Thanks Olena, so it's easy to ask yourself the right questions.
I would love to get your take on Wingtap. I'm launching it today and I believe I would score negatively pretty high on those 7 points.
Asking the rest of the community as well!
Great Points Olena,
and I really like this one Selling vitamins vs pain killer
"Selling vitamins vs pain killers" - I'd say this is one of the most important reasons for failure, especially for SaaS
I believe "people buy from people they like" and that hits me hard. emotional quotient in sales is also important!
These are all reasons, but the major one is "developing a product in search of a demand, rather than addressing a specific consumer pain point."
Consumers need holes, not drills. To succeed in the market, a business should always address the consumer's pain points.
Great insights, Olena! As someone in the tech industry, I’ve seen firsthand how critical it is to have the right team and a solid network. Also, slow feedback loops and random marketing efforts can really derail progress. It’s definitely a marathon, not a sprint. Thanks for sharing these key points!
This is a great question ---- in our longitudinal research findings we specifically looked at correlations in attitude, motivations and cognitive bias with venture success and failure. We looked at two cohorts of founders, those who were in the starting up phase and those scaling. We also compared the entire group founders to corporate executive workforce.
We found a high focus on detail and structure correlated with early stage venture failure
we found high initiation (a proactive bias to take immediate action on ideas) and figure things out no the go is correlated with more rounds of venture capital and greater scale in revenue, number employees and size of exi
We found high bias for abstract big picture thinking is correlated with greater ambition (global markets vs local markets), more rounds of venture capital, larger exits, revenue and number of employees
This is naming just a few. You can check out more at getmarlee.com
Launching soon!
I have few more important things that tend to fail or break a startup.
Lack of Market Need
Poor Management Team
Product Issues (Key Component ~ Difference between Ideation and Visualization)
Brokenatom