The Real Reason Why Startups Fail (And It’S Not What You Think)

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Launch Day comes and goes, your user numbers are declining, and you don’t see immediate user growth. Here’s a look at the real reason why startups fail — and it’s not what most founders think.

Nine of the top 20 reasons for a start-up’s failure (and five of the top 10) are because the customer doesn’t meet, listen to, or ignore their needs. Founders create something that people don’t want, or they target the wrong people.

Another customer-related challenge startups faced was product design that did not meet customer needs. This was because founders failed with Treehouse Logic, a visual configuration platform that companies can discover.

Start-up founders should listen to the customers they want to serve. When team members talk to customers right from the start and test a real MVP, they can design their first product to meet the needs of the market. By not doing so, they are wasting time on feedback cycles, a most precious resource for early-stage entrepreneurs.

The reason companies fail is that they fail to develop a product that meets the needs of the market. Or they might have hired the wrong growth hacking agency for their business. This is a strategic problem, a failure to adapt to the product market. In the best case scenario, it only takes a few revisions to get the product / market in order.

Most start-up founders do not understand what their product can achieve at this early stage in the market. In most cases, the first product launched by a start-up does not meet the needs of the market. In the startup scene we have seen that a number of companies believe their invention will be so attractive that the market will be beg and the money will start flowing.

The success of the product design process requires a change in the start-up mentality. When most start-up founders validate their product through pilot projects, launch, and beta testing, they reduce the risk of failure and rejection. Another reason for many pivots is that the company changes course as soon as the product satisfies the market.

A popular piece of advice for founders and budding entrepreneurs is to learn from your mistakes. By studying the successes and failures of aspiring entrepreneurs, one can improve their chances of success and avoid missteps that lead to failure. Whatever your solution to the problem, break new ground and remember that other founders have made the same journey to start startups.

When we compiled our list of startup failure post-mortems, one of the most common requests we received was to use the 101 Startup Failure post-mortems to find out why startups fail. To investigate the causes of startup failures, our team analyzed the post-mortem list of CB Insights Startup Failure to determine the most common reasons why 368 startups stopped doing business, and divided the results into several overarching categories, such as lack of money. From lack of product to marketability to disharmony, we as a team have broken down the top 20 reasons why start-ups fail based on 101 autopsies.

101 startup failure post-mortems have given CB Insights data to see if we can answer that question. To find out why startups fail, we analyzed postmortem essays from founders, press releases and closures. One problem that did not turn out to be the primary cause of startups’ failure was that most startups pointed to a combination of reasons.

More than half a quarter of startups cited a weak business model as the reason for their failure. More than a quarter (26%) of non funded startups blamed a poor business model while 17% cited problems with customer development and a lack of funding and market needs as reasons for their failure. The three problems that the top 10% of funded startups could not crack were cited by the failed startups: customer development, disharmony, and team inexperience.

At other times, a lack of coordination between founders and their investors has been blamed. The same number of reasons for failure (seven of the top 20) were related to people and corporate culture. For both financed and unfinanced startups, competitiveness, price problems, or poor timing were not among the top ten reasons for failure.

In a detailed summary of what happened at the Web development company ArsDigita, co-founder Philip Greenspun explained several points of disagreement between him and other business leaders and the company’s VCs, including partnership agreements, product launches, timing and organizational structure. The reasons for the failure are manifold and range from a lack of product / market suitability to insufficient capital. A number of start-up founders cited a lack of investor interest in seeds, follow-up phases and Series A crunches as the most common reason for the shortage of funds.

After spending time with hundreds of startups, as described in the Introduction to Business Models section, I realized that one of the most common causes of failure in the startup world is that entrepreneurs are too optimistic about how easy it will be to win customers. They assume that if customers build an interesting website, product or service, they will find a way to get to their door. The key is to get your team to work together and to ensure you find effective communication methods because a lack of teamwork and planning can result in failure.

As can be seen, the vast majority of entrepreneurs do not pay adequate attention to determining the realistic cost of acquiring customers. The other problem that many start-ups face is the difficulty of calculating a price that is high enough to cover costs and low enough to attract customers. Pricing is a dark art when it comes to startups success “, and post-mortems of startups often highlight the difficulty of valuing products high enough and covering costs low enough to attract customers.

Only 18 percent of companies in the CB Insights study cited profitability problems as the main reason for failure. A poor core product, the lack of a successful business model, false innovations, and marketing that ignores customers’ needs were high on the list. Most problems with products were customer and user unfriendly products, poor timing, competition and price issues.

The biggest reason for the failure of many startup startups is the lack of market demand for their products or services. Including the most common problems for startups (affecting 42% of founders), there is no need for the market.

To avoid mistakes like these, the best you can do is hire the right growth hacking agency for your business.

 

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