The Main Reasons Why Startups Fail – And How to Succeed Instead
No one sets out intending to fail, but the sad truth is that startups fail all the time. Founders face many frustrations on their journey to success, from financial constraints to unavoidable economic downturns. Obstacles will always pop up, but savvy founders can plan and prepare for failure by understanding what drives other startups to fold.
Stats show that 11 out of 12 startups fail, and in the world of software startups, that changes slightly to around 9 out of 10. Why do so many startups fail, and what can you do to avoid it happening to your company?
Failing to Build a Team
Tom Eisenmann is a Professor of Entrepreneurship at Harvard Business School. At Princeton Engage 2022, he spoke about how he interviewed scores of failed founders in the hope of finding recurring patterns and understanding startup failure better. He summed up entrepreneurship as “pursuing [a] novel opportunity while initially lacking resources” and pointed out that this, by its nature, creates the risk of failure.
“It’s doubly risky if you try to do that and you don’t have the team, the money, the connections, the support you need from partners and so forth. This is a prescription for failure.”
Founders who believe they can do it all themselves are almost bound to fail. Startup founders must be able to delegate, to recognize and onboard the talent they need and to engage freelancers or other third parties where required. Doing it all by yourself is a one-way ticket to burnout and business failure.
Failing to Define Pain Points
Your tech offering has to fix a problem, or it’s simply a novelty that will get kicked into the long grass very swiftly. To determine if your product or service has market value, you must engage in research to discover your target audience and their pain points. Make sure your research is rigorous and focuses on listening to your potential clients rather than immediately offering solutions. Find out what your target industry is and figure out who might be early adopters of your app or platform, and why. When you can define the problem, you can market the solution – and you can make that solution better.
Failing to Create a Marketing Plan
The tech startup market is crowded: there are over 71,000 startups in the United States right now, so standing out is a real challenge. Marketing should be an integral part of your business strategy rather than an afterthought. You need to generate leads constantly, build your brand, and position yourself as an industry leader and subject matter expert. Companies that fail to invest in marketing will likely find growth extremely slow or nonexistent.
So, What’s the Key to Success?
Unsurprisingly, the truth is that no single thing your business should focus all its attention on to be successful. Definitely make sure you’re well informed, and avoid the pitfalls of the many startup myths out there! Work with experts who have done this before. That could mean gaining mentoring through startup communities, partnering with a more experienced company, or onboarding fractional executives to guide you through the rocky terrain of the first 12 months of operating as a business.
Final Word
As well as looking at why startups fail, Tom Eisenmann also had some points about how to fail well; in other words, if you do make mistakes, it’s not necessarily the end of the world. You can own those mistakes, learn from them, and come out stronger. Even if a particular product or service fails completely, with the right planning and management, you can preserve important relationships, your reputation, and the integrity of your company, helping you bounce right back and start on your next venture.
Get the right support in the early days of your business: Book a 15-minute introductory call with a member of the Arch Collective team and discover branding and marketing propositions that guide your business toward long-term success.
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