6 Serious Reasons Startups Fail

We’ve all heard the alarming statistics on the startup failure rate, some 80 to 90%. While it’s a realistic fact entrepreneurs must face, it doesn’t stop these driven individuals from putting the time and energy into hitting it big. What does stop them, however, are six very serious roadblocks: being underfunded, lack of ability to sell, not having the right team, a general lack of vision, lack of resources to scale and finally, sadly,  the laws of the universe (not the right timing).

Underfunded or…Overfunded?

As the saying goes, it takes money to make money and lots of startups don’t have the money they need to gather a great team, keep themselves in ripped Levi’s and Ramen and eventually build the incredible idea that exists in their head. Cash flow, or lack thereof, has choked many a startup. In fact, CB Insights has an incredible (constantly updated) blog post with 156 startup failure post-mortems and money?….well it’s in almost every one.

On the other side, of being underfunded, Yan Revzin shares

“On the other hand, there are also dangers of being overfunded. This can put extreme pressure on you to produce impressive results quickly. An example of this is SearchMe, a visual search engine that folded in 2009. This company raised more than $45 million in venture capital while attempting to introduce a new and largely untested idea to the market — most people were (and still are) accustomed to using text-based search engines. SearchMe was unable to produce results fast enough to satisfy its investors and failed.”

Lack of Marketing

Unless you’re bottling air, your product or service will appeal to a target audience, even the most niche. While some wrongly blame startup failure for the sheer fact that the product/service wasn’t sellable, it really falls on the way in which it was attempted to be sold. Enter: marketing.

A lack of or poor marketing strategy can be detrimental to a startup. Being a tiny speck in the big pond of business has a major downfall, and that’s the fact that nobody knows who you are or what you do until you get the word out there. Spending all of your capital on research and development or redoing your website for the sixteenth time is a waste of marketing spend that could be used to reach your audience. Inc. author, Geoffrey James actually chalks this up to “hubris”, saying:

“All too many entrepreneurs believe that “if you build a better mousetrap the world will beat a path to your door.” That’s classic engineering hubris that results in treating sales and marketing as if they were of secondary importance.”

The Wrong People on Your Team

Wow, can this one be a drag! If you’re constantly fighting your CTO or Creative Director, or you have a disengaged sales team… you’re in for a world of hurt. Did you know, of all the people you hire in the next 18 months, 46% of them will fail? In addition, 89% of those employees will fail due to lack of coachability, emotional intelligence, motivation and temperament.

Employees should be so passionate about introducing your startup to the world. You need self-starters, and ones that align with each other’s personalities and work values. In a startup, it’s crucial that everyone is pushing in the same direction. Simply put, there is no time to argue amongst the team.

Founder Lacks Vision

Not only do startups fail when their founder lacks the necessary vision to see it to success, but they fail because that vision is not clearly communicated. It’s been found that only 23% of  employees say their leader always communicates their vision clearly.

“[Startups that fail] miss the step of defining their value,” said John McGee, founder and president of marketing automation company OptifiNow. “You should succinctly be able to define what you do, why a customer should work with you, and the value of choosing your business over another.”

While this sounds like a no-brainer statement, it’s this underlying plan and ability to articulate it under the most stressful of circumstances that makes some entrepreneurs so successful. It’s not just communicating the vision to the outside world but to the people internally working to make it happen.

This is a major problem and it affects companies of all sizes, but it hurts startups the most because they don’t have the foundation larger companies have to fall back on. While vision seems like merely a statement, it’s actually what drives your entire workforce to be engaged.

Can’t Build the Tech

The Shark Tank is one of my all-time favorite shows, who’d have guessed (get Daymond John’s secret entrepreneurial advice)? But what the sharks always circle back to is whether or not a startup has the ability to efficiently and effectively output as much as is demanded. While startups can earn all of the funding in the world, lack of access to intellectual property or manufacturing resources can earn you a top spot in that 90% failure rate.

While there are plenty of blog posts out there championing the “non-technical founder” that doesn’t mean that tech should be an afterthought. In fact, most of them (like this article by Mike Wilner, founder of Hello Compass) mark the turning point of their company as the moment they found their technical co-founder and how their non-tech environment adapted to a tech presence. But the bottom line is, it’s very difficult to scale without technical expertise in your corner. If you can’t build it, they definitely will not come.

The Universe is Against You

There’s a great thread on Quora that discusses many companies that were simply before their time. Pets.com AskJeeves, WebTV, and Dodgeball…all exist today under different names. However, their timing was off. Sometimes the universe just says no. But this is rare. In fact, market research, careful planning can even “cheat the universe.”

Startups fail. It’s their default mode. But startup founders can make sure they have the right people on their time, plan for the right amount of funding (or bootstrapping), study the demise of other startups and plan for the future.

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