May 24th, 2019

Reasons Why 95% of All Startups Fail

A brief glance at all of the reasons lean startup can experience failure and a few advice on how to deal with the complications.
It's so good to analyze the past: everything looks so logical and every outcome can be explained. Much like for a detective after reading death records, it all becomes obvious what went wrong. Therefore, we needed to grind through dozens of venture postmortems to squeeze out the main reasons why so many startups fail.
Seemingly unimportant things can fall by the wayside, that's why we made a list to make you aware of all of the obstacles you may encounter during the bumpy road to a startup.

And what better way to provide you with meaningful insights other than referring to data, the best friend of logical and thoughtful decision-making.

All of them are important, but their importance will increase exponentially.

1. Lack of pivoting

Titanic is probably the best example of why it's necessary to turn the tides when there's a hurdle along the way. Ironically "staying afloat" is what is often associated with a successful startup. It takes a lot to recognize and admit the mistakes, but the faster you do it, the sooner you minimize the damage it causes. "Drop dead" is the recipe for actions, so don't worry about abandoning ideas or hires that tend to fail—startups can't afford the luxury to invest their time and money into low-value activities.

2. Being burnt out

Although the main condition for a startup's existence is funding, it's hard to predict where you end up being in a few months. Even if the planning was done right, factors such as market instability and other "surprises" can suck any venture dry. Like funding in general, the risk of burnout is an ever-present factor for all sorts of startups, so be sure that you tackle the spendings and cut the losses according to your general plan.

3. No knowledge of how to use the network

As soon as you receive initial funding, it's still crucial to stay in touch with your investors onwards. In fact, network usage plays a big role in further success—these people also care about the end result and can give valuable insights about how the venture should develop. Of course, every CEO wants to stay independent and has his/her own vision, but they should never hesitate to ask for help or advice from the very believers—mutual contact and soft monitoring are for the sake of both parties involved.

4. Unfamiliaruty with legal procedures

It greatly varies depending on each country—some simply work against small businesses, but those who are well prepared don't tend to fall. In reality, it's usually stellar startup ideas that looked great on paper but simply cannot be implemented in real life. If the venture came up with an idea of collecting users' data, it may get suspended from multiple countries since it's illegal under many countries' jurisdictions.

Or it could be a self-employed system for workers that helped greatly cut costs but became illegal all of a sudden. Copyright claims also pose a large threat, so make sure your idea doesn't break a dozen laws before you start spending money to make your dream come true.

5. No financing or investor interest

Well, these words speak for themselves and, unfortunately, there's no universal advice on how to fix that. Investors don't usually represent people who won their money via a lottery ticket; instead, it's usually those who spent a good amount of time to earn them. As a result, they can be hesitant towards putting their money at risk, which is an ever-present factor for all kinds of startups. Make sure your vocal, visual, and business plan components are on par—persuasion is never easy.

6. Failed geographical expansion

Choosing the right location is a hell of a task, seriously. Of course, a cowboy-style product isn't going to be a massive hit if it's launched somewhere in New York. But it goes much deeper than that—it's hard to define whether your, let's say, motorcycle rent startup succeeds in certain locations or not. You have to consider numerous factors such as CO₂ emission, tax burden, audience demand, and engagement levels. That's even more important if you work with a remote team - make sure that they're on the same page with the employer and know which audience they're making the product for.

7. Lack of passion

Not only singers and poets run out of steam—like people in the discipline art, entrepreneurs' ideas also tend to get sapped. Sometimes it seems that you used all the tricks, that's why a well-though schedule and taking a breath to think more clearly can bring a lot of value; luckily, there's a ton of ways for you to gain inspiration from (here is the link).

"You gotta believe in what you do" can practically be applied to any type of activity, but entrepreneurship is one of the leaders in doing so. And it's not limited by the CEO or other executive positions: the whole premise of a successful startup is about having every team member fired up.

8. Pivoting failed

Unfortunately, realizing the way to success doesn't guarantee you can properly utilize it. Getting rid of rudimentary components or adding cool new things should be a calculated affair, even if it's a beloved slogan, signature, or a company name. Few people know that Burbn used to be Instagram and The Point stood for what Groupon is now. Who knows, maybe a wildly popular image-sharing platform would never be as popular with the previous booze-related name.

9. Distrust/disharmony among investors

This is a tough on. Having more than one opinion is the best premise for a healthy discussion, but remember that two is a company, three is a crowd. Having many investors who are interested in your product is great, but there's also a dark side: giving their money makes them feel like owners, and they do not mind dictating their rules on how the company should develop. These opinions often contradict each other, so try to keep this aspect balanced and make sure that the investors are on the same page, at least to some degree. More is better than less, but everything should have its limits.

10. The lost of focus

In a financial stability pursuit, even startups tend to have side-projects for generating stable cash flow. This, however, means that some workforce and time are borrowed from the main project, making its life harder. A loss of interest is another part of the issue—basically, some head executives may lose interest in doing their job, given how stressful and sometimes unrewarding an entrepreneur's life may be. Having to take a hit from a board of investors that treat you like a jury treats defendants is a stressful affair, especially if done regularly.
Photo by Austin Distel on Unsplash

11. Product mistimed

Every product has its window of opportunity, that's why timing is crucial for their success. Releasing too fast may result in an unfinished product; being late is also a negative factor as the demand won't be the same. More so, being too much ahead on a technological forefront isn't always a good thing–users' hardware might not keep up with the advancements of a startup. The software part may also be lagging behind with different architecture types being a tough match, so keep in mind that much like seasons, every product should have its time gap.

12. You ignore the needs of your customers

In pursuit of making a good product, many companies forget about the initial premise—making their customers happy. Regardless of how well you know market demands, no research can emulate what a real user experiences when trying a product out. There should always be a feedback channel that could provide you with actual issues and how a product could be improved. Don't hesitate to share it before the release—an outside perspective is more unbiased; therefore, it is a valuable factor to help your product grow. No creator thinks his/her creation isn't cool.

13. Poor marketing

Can you imagine a major company releasing their product with no marketing? In fact, even companies such as Apple or Samsung spend a good portion of their budget for ad-related purposes. Smaller ventures only have it harder to attract customers, so that proper marketing becomes even more important—very few products have the qualities to promote themselves. Having ads as such may not help promotion either—the obnoxious "in your face" commercials have an opposite effect; more so, not every company can afford having marketing staff in the first place. In that case, having outside pros can help you promote a product. It's much better than doing it by the means of coders or not bothering whatsoever.

14. The product doesn't actually have a working business model

It's hard to blame people who create their product based on enthusiasm, but it often has an ensuing flaw—they don't have a solid plan of monetizing its final version. Yes, even this can slip off the development plan, especially when the product starts scaling: what used to bring enough revenue for a smaller team then becomes a costly affair that demands more facilities, staff, and support costs. A good business model should evolve based on the project needs, and a good adaptation often implies finding new ways of earning revenue.

15. The product is user-unfriendly

It's hard for a developer to imagine what the end-user experiences as they live in parallel universes. When a coder wants to access certain features by just opening a console and typing a command, the average user wants a big, noticeable button that is found intuitively. Rightfully so, UI and UX aren't just fancy acronyms: instead, they serve a clear purpose of making products easy and fun to use by making a convoluted bulk of features become a simple-to-use experience.

16. Pricing/cost issues

Having a business model isn't a remedy, but the proper pricing surely is. Tuning it up and down should be done after conducting solid research—customers are very suspicious of high prices and must be ensured that they have received enough value for the cost. In fact, even somewhat costly products don't experience churns if they provide a top-notch experience; rather, it should ensure customers that it costs every penny invested. Nonetheless, pricing requires a fiddler's precision and should be adjusted based on production costs—sort of a dark art of balancing between a rock and a hard place.

17. Getting outcompeted

One of the most successful startup strategies is copying the predecessor's success and making the end-product cheaper. And although it works fine, any venture can fall short because someone else does it to them, and this is the lesser of two evils, which also include a competitor just being better. A more common story is just having too many players on a market—all the entrants can't fit in the narrow gap. And dumping the prices doesn't make sense due to the uncertainty of whether it pays off or not, and that's without mentioning dirty competition practices when a rival erodes your product or public image with malware attacks or hoaxes.

18. The team is not right

Much like in family life, small startups rely heavily on communication and dealing with each other. The right hires make up for the third most important factor for running a venture—smaller teams suffer more from certain positions missing. It can be a lack of a CTO or a founder's missing business skills that impede a holistic product vision; in fact, there's a good criterion: before even assembling a team, the founders should have an MVP concept. It's important that the CEO and head executives have a clear vision of what the product should be.

This is the step where X1 Group often step in, offering custom-tailored dedicated dev team services. Together with the client, we develop an individual recruitment strategy to bring only the best engineers to the client's team who fit the technology profile, as well as the mindset.

19. Ran out of cash

The ever-present money factor couldn't escape this list. But this one isn't about getting the initial funding, it's more about how ventures manage costs during their lifetime. As the first 5 years are the primary turmoil for all sorts of startups, be prepared that the initial funding doesn't cover this whole period—attracting the money becomes even more vital. Having an MVP is arguably the most crucial factor for that matter, which allows for displaying the real value it brings to the market and shows how it can function under combat conditions.

20. No market need

The last but not the least. This is surely the bane of the existence for every business and is even more relevant for newer companies. Whether it's an overcrowded market or the inability to see the real use of a product, no real demand is responsible for the failures of 42% of startups. Solving a market problem should be a credo for every single one of them, as this will be the deciding factor whether they succeed or not. You can have cutting-edge technologies, the best advisors, a great reputation, and stellar expertise, but in the end, it won't matter if you don't provide a solution for the issues that the market currently has.

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