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How Many Startups Fail (And How Not to Be One of Them)

February 16, 2017 by Tim

The Startup Genome Report is an analysis coauthored by researches from UC Berkley and Standford, based on 3,200+ high growth technology startups. They found that within 3 years, over 90% of startups failed.

Other studies quote different figures. However, in most of them, the startups failure rate level is definitely not insignificant.

Therefore, an interesting, but also pragmatic question is what can you do to avoid the top reasons to fail and start a business successfully.

How to Be Among the Winners

You simply need to avoid the biggest reasons startups to fail. Here are some of the top mistakes that can kill a startup.

1. Make Sure You Deliver On a Real Consumer Need

Based on an analysis of 101 startup post-mortems, CB Insights found that the number one reason causing startups to fail was “no market need”.

Consumer is boss and once you have a great idea, you need to validate it. And even if you don’t have a market research budget, don’t skip this step.

Go out there and talk to your ideal prospects. Are they interested in what you have to offer?

2. Be Careful with Cash Flow

The second reason for failure CB Insights found was running out of cash.

It’s easy to get over-excited and start spending a lot, especially if you’re funded. However, starting too soon to spend on large offices, expensive furniture and MBA employees may get you into trouble very fast.

Nowadays is easier than ever to bootstrap. Try to focus fiercely strictly on the areas that make a big difference to your business growth.

You need to take your biz off the ground and validate a proven model to consistently grow.

Scaling too soon is a core reason for startups to run out of cash and ultimately fail. Fast growth is important, but you need to drive it strategically, building a strong base first.

3. Ensure Product – Market Fit

Look, if your idea passed the test at point 1 above, it doesn’t mean you’re done.

You validated the market need, which is great.

However, you also need to validate that the market actually wants your specific offer: the benefits of your specific product or service, at your specific price point.

Be prepared to pivot, if needed.

And if you do, make sure you do it well, as you might not have a second chance.

Lean company – TED talk link

4. Get the Right Team Onboard

People are key to any business. And this is even more important in the startup phase.

Surround yourself with people that are true believers in the potential of the company.

You can even under-staff in the beginning. But the people you bring on board should all be top notch. Take a data based approach and make sure your new team members have the right qualifications to do their job.

A key member of the team is YOU. There is a tendency for founders to absolutely ignore work life balance.

However, you’re only one human being, so in order to avoid burnout, prioritize strategically, keeping your efforts laser focused. This is the only way to make a noticeable impact and move the needle in your business, without sacrificing yourself.

5. Get Clear On Your Business Model

In order to be focused, you first need to be clear on your business model, on your strategy and plan.

Ideally, you’re not only chasing the money, but you are also passionate about building something meaningful. This will fuel the grit needed to overcome the many challenges ahead.

In the “Art of Start 2.0”, Guy Kawasaki recommends to start a business at the intersection of your passion, expertise and opportunity.

Guy advises to ask yourself “How do I create meaning?” Because this will also probably lead to money.

6. Avoid Legal Challenges

In the startup phase, when you have limited resources at your disposal, you really don’t want to face legal trouble.

This can be incredibly taxing in terms of both time and money and it can kill your business.

Take the steps to ensure you have the right legal setup, that you don’t infringe any rights of other companies and so on.

7. Good Marketing

Even the best product or service can fail if people don’t know about it and/or they are not aware of its key benefits.

The role of marketing is to generate demand. In mapping your company’s plan against the buyer’s journey, Marketing comes first and Sales second.

People need to become aware of their problem and then consider you among the viable solutions, before they finally make the choice to invest with you.

There are several ways to skin a cat. But you need to do it well. Don’t just try something and hope it works.

If for example you market to the wrong audience, you will most probably fail.

Have you figured out the right audience, but you market on the wrong channels? Or you’re using the right targeted channels, to the right audience, but you have the wrong message? Again you could fail.

If you do all the marketing yourself, learn to master one channel, instead of trying to be everywhere, without actually knowing what you are doing.

Filed Under: Entrepreneurship Tips, The Startup Blog

About Tim

Thanks for stopping by New-Startups.com and I hope your visit today has helped you on your entrepreneurial journey!

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