Here’s Why Startups Fail (According to the Entrepreneurs)

Thursday, October 9, 2014

No one ever said that starting a business is easy. According to a recent article in Forbes, eight out of 10 small businesses will fail within the first 18 months. The author of that article, Eric Wagner, lays out his opinion on why the failure rate is so high.

However, CB Insights, a data and analytics company, went straight to the source. Through post-mortem analysis of 101 failed start-ups, they were able to uncover the reasons to which the entrepreneurs themselves attributed their failure. The companies surveyed averaged 20 months in business and, over that time, had raised an amazing $1.3 million in capital.

The number one reason cited among the group was a lack of market need for their product or service (42% of failed companies cited this reason). We’ve talked before about the importance of assessing the viability and market need for your idea before you embark on a business venture, so this reason for failure makes sense.

A sample quote from the creators of Treehouse Logic drives the point home:

“Startups fail when they are not solving a market problem. We were not solving a large enough problem that we could universally serve with a scalable solution. We had great technology, great data on shopping behavior, great reputation as a though leader, great expertise, great advisors, etc., but what we didn’t have was technology or business model that solved a pain point in a scalable way.”

The other most often mentioned reasons for business failure (along with sample quotes from the entrepreneurs) are cited below:

Ran out of cash (29%)“Ultimately, I didn’t heed the lessons of so many failed music startups. It’s an incredibly expensive venture to pursue and a hard industry to work with. We spent more than a quarter of our cash on lawyers, royalties and services related to supporting music. It’s restrictive.” (turntable.fm)

Assembling the Wrong Team (23%)–”I re-learned the importance of a team, one that balances the weaknesses of some with the strengths of another. As fun as learning new things might be, trying to do too much yourself costs the startup too much time in silly errors born of inexperience.” (Findory)

Got Outcompeted (19%)“Unfortunately we were not able to adapt fast enough to changing market and product conditions which quickly began to show in usage metrics.” (Backchat)

Pricing/Cost Issues (18%)“Samba has had to take the difficult decision to close, primarily due to high and increasing–and therefore unsustainable–data costs. This makes the current model of offering a meaningful value exchange of mobile broadband unsustainable.” (Samba Mobile)

Poor Product (17%)“We were never able to reach the high bar we set for ourselves. Our product had many issues and even through the down-time and bugs, (our customers) stuck with us.” (PostRocket)

As George Santayana famously said, “Those who cannot remember the past are condemned to repeat it.” For those who are considering starting up a business, there’s no better place to start than reading about why others failed. The condensed survey results are available at Entrepreneur online. In addition, CB Insights has the commentary from all their post-mortem analyses on their web site. We highly recommend giving them a look if you’re considering starting (or have already started) you own business.

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photo credit: Heisenberg Media via photopin cc

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