9 Reasons Why Most Startups Fail
Join us in a city near you at Entrepreneur’s Accelerate Your Business event series kicking off Feb 23. View cities and dates »
I’ll never forget my first IPO. The story is as old as the hills of Silicon Valley: It was a great ride … until it flopped. Our primary business was crushed by an 800-pound gorilla and we didn’t have the wherewithal to pick up the pieces and make a go of it. C’est la vie.
I’ve always been a big fan of learning from failure, so while most of my high-tech brethren like to talk up their successes, I try to help startups avoid catastrophic failure and get to the next stage. I say “try” because, while some make it, most don’t. That’s the nature of the beast.
In any case, I have a pretty unique perspective on what tends to trip up founders. Here are nine ways I’ve seen startups fail time and again.
Their entrepreneurs live in a vacuum. It’s easy for entrepreneurs to become so focused, so wrapped up in their own vision, that they lose perspective. That’s actually one of the key benefits to seeking venture capital from firms that know your target market: they give you feedback and validate your strategy.
Their idea doesn’t uniquely solve a big problem. Contrary to the old line, “Everything that can be invented has been invented,” the more complex the world becomes, the more problems there are to solve. That said, it’s got to be a big problem and a way better solution than what’s already out there.
They run out of cash. For every founder that manages to bootstrap a startup, there are dozens, maybe hundreds that run out of cash for any number of reasons: they don’t want to give up a piece of the pie, they don’t budget properly, they don’t plan for how long it takes to raise rounds of funding, their burn rate is too high, or some combination thereof.
They invent concepts, not complete products. Ideas and inventions are fascinating, but consumers and businesses generally buy complete products they can actually use. There is a world of difference.
There are big gaps in the strategy. There’s an old cartoon of two scientists at a blackboard filled with equations. Right smack in the middle it says, “Then a miracle occurs …” Some gaps are to be expected, but oftentimes, what startups leave to be fleshed out later – little things like low-cost materials, availability of components and infrastructure – end up becoming showstoppers.
The team does not have what it takes. Some founders just can’t get along. Others fall apart when the initial strategy fails, as it often does. Still others are out to make a quick buck and aren’t committed to working day and night over the long haul. Any VC will tell you, a big part of what they invest in is the management team.
Competitors with existing solutions don’t give up so easily. From disk drives and CMOS chip technology to pencils and paper, there are barriers to topple the status quo and, sometimes, old-school solutions that are tried and true and the powerful companies that market them hang in there far longer than anyone would expect.
The market moves on them, or moves in an unexpected way. Markets are a complex phenomenon with lots of moving parts that are difficult to predict. Moreover, some entrepreneurs simply don’t think ahead. As the great Wayne Gretsky once opined, “I skate to where the puck is going to be, not where it has been.”
They listen to bad advice from the wrong people. With all the hype over entrepreneurship, the quantity of information has gone way up while the quality has gone way down. That means entrepreneurs are getting lots of bad advice from unqualified sources. The worst thing about it is, when they actually get good advice that conflicts with what they’ve been told, they don’t recognize it for what it is. Sad but true.
Perhaps the most important advice I can give you is this: If your startup fails, it’s worth spending time to understand what went wrong. That’s the only way you’re going to improve the odds of making it next time. And, yes, there will be a next time. Hopefully this list will help you avoid a different pitfall.
Related: What Makes Great Entrepreneurs Tick