Why Do Startups Fail?
Posted by . On October 22, 2021 in Uncategorized
Inspired entrepreneurs, especially the first-timers, launch a startup to find out that creating a company from scratch is a complex and challenging process, but a very exciting one.
The majority of business books focus on success stories. Otherwise, they wouldn’t have sold so well. But survivorship bias sometimes paints a picture too pretty to be true. What if instead of success stories we study the stories of failure? In the frenzy of excitement, it’s easy to forget that in reality, the majority of startups crash-land in the first 3 years of their existence. The dream wears off, the reality hits.
The smartest thing an entrepreneur can do is to study exactly why startups fail, identify a problem, and think about how to prevent it.
Most people fail because they make mistakes they could have prevented.
Once you’re aware of those mistakes, you can pursue success by averting them. Preventing them will allow you to work on things that create value.
Focus only on building and not on the customers
“Life’s too short to build something nobody wants. “- Ash Maurya
Your only goal should be to solve ameaningful problem FOR OTHER PEOPLE.
This is crucial because 42% of startups fail because they didn’t solve a market need.
They failed because they didn’t put others first.
Lack of focus
“Lack of direction, not lack of time, is the problem. We all have twenty-four hour days.”-Zig Ziglar
If you find yourself doing one of these things without knowing they’re going to move the needle, STOP!
- “Coffees,” whether that’s with potential partners, investors, or acquirers.
- Recruiting a board of advisors
- Doing partnerships without proof of extra revenue
- Spending time on PR and social media before knowing you’ve got the right product for the right customer
- Going to conferences
These are the silent killers of the potential of your startup.
Being a One-Person Team
“Individuals don’t build great companies, teams do.”-Mark Suster
There are three essentials things to create a good startup.
- Good people
- Make something customers want
- Spend as little money as possible
People think they could pursue number 2 first, and then find the people to help them build it. But making something customers want will fix itself if you have good people. Spending as little money as possible will fix itself if you have good people.
“Premature scaling is putting the cart before the proverbial horse. The more a company grows, the further away from profitability it becomes.” -Michael A. Jackson
They are out of order, and their impact is huge. According to the Startup Genome Project, up to 70% of startups scale up too early. They even go as far as saying it can explain up to 90% of failed startups.
Premature scaling means too much, too soon.
The main goal of a startup is to not be a startup anymore.
1) getting to a good product for a good market, and
2) knowing how you can consistently acquire new customers for less money than the revenue they bring in.
You’re not ready to scale when:
- You don’t know the lifetime value of your customers (price * repeated purchase) and your cost to acquire that user.
- Your business model isn’t repeating, meaning you’re not yet similarly acquiring customers.
- You’re spending more time working in the business than on the business.
90% of startups will fail.
The entrepreneurs behind them will continue fighting huge wars for average results.
You can reach way higher. The road there is free and open.
Choose success over failure.
Choose customers over products.
Choose focus over external validation.
Choose a balanced team over going at it alone.
Choose predictable growth over “too much, too soon”
If you’re able to prevent these mistakes, then you’re setting yourself up for major success.