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5 main reasons why 90% of startups fail

Shopify, Dropbox, Uber, AirBnb, LinkedIn, Instagram.

They are all well-known companies and we bet you are a frequent user of at least two of them.

They have millions of users worldwide and generate billion dollars in revenues and they all began their business journey as startups.

But while these startups succeeded, other 90% failed.

CB Insights identified 20 reasons for startup failure, but we wish to draw your attention to the top 5.

Here is Top 5 main reasons startups fail and what to do about it:

Reason #1

Failed to fill market gap or solve a problem

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A startup is a business structure created to solve a problem or fill a market gap by delivering a new product or service. As you can see, solving a problem is at the heart of any startup and the very reason for its existence.

Still there are numerous startups which create a solution that doesn’t have a problem.

So before launching your startup, ask yourself:

Does anybody want to buy my product/service?

Validating the demand for your product or service is the most important activity you must undertake to make sure your startup is not a bust.

Without market validation you will have a product that no one will pay for.

Here is the framework that Mitchell Harper used to validate the idea behind BigCommerce.com which he co-founded in 2009: 

  • write down the problem, not your solution
  • determine if it’s a tier 1 problem or not
  • find your prospects, reach out to them and ask them questions about their problem
  • properly determine specific solutions
  • look for pain in existing solutions
  • verify there’s a budget for your solution
  • use your prospects to define your roadmap

Be a pain-killer, not a vitamin!

Mahendra Vora, founder of Intelliseek

Reason #2

Ran out of cash

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You may have the greatest idea for a product that will solve your customer’s problem, but you need money to make it a reality.

To prevent your startup from running out of cash, you need to know what is your startup’s runway.

What is a startup runway?

A startup runway is the amount of time (expressed in months) until you run out of cash to operate.

Mitchell Harper recommends a 6-month runway which means cash in the bank that pays all your startup’s operating costs for 6 months.

How NOT to run out of money?

Gary Vaynerchuk says: have a strategy on what to do with the money your startup has and don’t waste it on fancy stuff like designer furniture, expensive coffee machine or deluxe office space. 

Here are a few tips on how to extend your startup’s runway and not run out of cash: 

  • cut all non-essential expenses
  • don’t spend money on fancy products or pampering for your employees
  • do your own PR and marketing: take the personal approach and find authentic and innovative ways to spread the word about your startup
  • hire part-timers and freelancers
  • find companies that give free credits for startups
  • find ways to bring in money: you don’t have to be profitable right away, but you need to bring in enough cash to extend your runway
  • track your startup’s runway!

Reason #3

Failed to put together the right team members

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You are the founder of your startup and the brilliant mind behind your startup’s product or service. You may think that being jack of all trades is the best for your startup, but you should know it is only a short term solution. One man can do so much.

The truth is you need a team.

It is imperative that you are selective and strategic about your team.

Neil Patel

Here are Neil Patel’s recommendations on how to put together the best team for your startup:

  • start with the man in the mirror:

What are your strong points and your weak points?

What are your abilities?

Where lies your expertise?

What do you lack?

If you feel you cannot be objective, hire a professional to evaluate your skills.

  • hire people who fit these 2 sets of criteria: hard skills and resourcefulness
  • build your team for the long term company, not just the startup phase
  • make sure the people you hire, irrespective of their skills set, always place your customer front and centre
  • know your team member’s ambitions: if your employees’ jobs help them fulfil their ambitions, then it may be a way to determine that they’re in for the long term

Reason #4

Get outcompeted

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Imagine the following scenario:

You worked hard on getting your startup off the ground and your product into the world only to discover that other company has beaten you to it and launched a similar product earlier. You have just been outcompeted!

This is the stuff of nightmares for any startup founder!

To keep this scenario off your startup, you need to do the following:

  • understand your market and the problems your target customers are having right now
  • develop products that your market needs at this time, don’t develop products that your market needed 3 years earlier
  • keep updated with your market’s needs
  • bear in mind that markets are changing very quickly these days
  • know your competitors like the back of your hand

Here are 3 tools you can use to conduct a competitor analysis:

1.SEMrush

Use SEMRush to pull your competitor’s back-links and monitor which keywords they rank for.

2. MozBar

MozBar is a browser extension from Moz which provides a surface-level view of how authoritative a site is in the eyes of Google.

3. BuzzSumo

BuzzSumo allows you to look at the top-performing content for relevant topics for your brand and specific competitors.

Gretta van Riel is a 5x startup founder.

Following the launch of her first startup, Gretta grappled with increased market competition. Instead of giving up, Gretta discovered a different perspective on this matter. Read her story here:

How increasing market competition saved my startup. 

Reason #5

Failed to find a balance between cost and pricing

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Finding the balance between costs and prices can be daunting.

Britt Crawford, experienced adviser to numerous startups found that many of them were making these pricing mistakes:

  • pricing too low
  • not knowing the customer acquisition costs
  • neglecting direct sales
  • keeping prices high as new low-cost entrants are coming into the market (the cash-cow disease)
  • getting into price wars

When establishing your pricing strategy, Britt Crawford recommends that you stick to the following rules:

Know your product

Know your market

Know your customer

Conclusion

All of the above failures can be prevented.

As a startup founder you may have the perfect product, the perfect team and all the money you need.

Your startup’s success relies entirely on your perseverance.

At the end of the day there is only one thing that kills a company.

And that’s when the founder gives up. 

Adeo Ressi, CEO of The Founder Institute

Failure is not the end

We are not used to talk about it, to consider it part of the process, to give it its big importance, to learn from it and understand that it might, or might not, take us to the success. What is sure ids that we mustn’t be afraid of it, try to hide it underneath the carpet and pretend like it never happened. The most successful people in the world lived through it, surpassed it and pushed through. Many entrepreneurs that we know and appreciate nowadays have failed with other previous business or fail daily in more or less important parts of their jobs or activities. Failure makes them stronger, teaches them the values and the importance of appreciating every step of the business track and, more than anything, the success, when and if it comes.

“We all have different definitions of failure, simply because we all have different benchmarks, values, and belief systems. A failure to one person might simply be a great learning experience for someone else. Many of us are afraid of failing, at least some of the time. But fear of failure (also called “atychiphobia”) is when we allow that fear to stop us doing the things that can move us forward to achieve our goals,” believes the team of www.mindtools.com.

The fear of failure may have various causes and goes back, most of the times, in our childhood, just like it happens with most of the things that define our lives and whom we are meant to be. Not having the right support, being undermined or humiliated in childhood, those are some causes that will most definitely carry negative feelings into adulthood.

As the editors of edutopia say, failure is an inevitable part of life, but it’s often accompanied by shame — most people do everything in their power to avoid it. As educational philosopher John Dewey said, a true thinker learns as much from failures as from successes. What if educators worked to take some of the sting (and the stigma) out of failing, and encouraged reflection and revision to build upon the lessons learned? “Perhaps there’s a goldmine of opportunities if we can re-frame failure as a valuable learning experience, an essential step along the path to discovery and innovation,” they added.

“Not talking about it is the worst thing you can do, as it means you’re not helping the rest of the organization learn from it,” said Jill Vialet, who runs the nonprofit  Playworks.  “It gives [the failure] a power and a weight that’s not only unnecessary, but damaging.”  Vialet added, referring to the fact that the people involved in the failure should speak about it openly and work to prevent history from repeating itself.

This idea is already ingrained in the cultures of  some for-profit industries. For example, in Silicon Valley, failure is a rite of passage. “If you’re not failing, you’re not considered to be innovating enough. Silicon Valley investors, in turn, regularly reward entrepreneurs’ risk-taking behavior, though they know the venture may fail and they will lose their capital,” it’s shown in an article on opinionator.com. In addition, Jill Vialet of Playworks emphasizes the importance of “failing fast and cheap” (as opposed to slow and expensive).  She sets aside a budget for new programs that intentionally have unpredictable outcomes.  They limit the scope of these programs, clearly define failure and success at the outset, and decide when to measure the new program’s merits.  “It’s about being disciplined and rigorous,” said Vialet, since human nature normally prevents us from recognizing our mistakes while they are occurring, quoted by opinionator.com. A great article on the subject one also can find on guardian.com.

It all depends on how the organization and the people that run it see failure and its importance in business. Just as some organizations encourage employees to talk about failure in office events that are closed to the public, others publish their failures for the world to see.  Engineers Without Borders Canada, which creates engineering solutions to international development problems, publishes a “ failure report” every year alongside its annual report.  “I only let the best failures into the report,” said Ashley Good, its editor. The examples that are published, she said, show people who are “taking risks to be innovative.”

Moreover, Good also started a Web site,  Admitting Failure, to encourage people working in international development to share their stories of failure.  The site includes stories about  arriving unprepared to an emergency medical situation in the Middle East, the  theft of an expensive and underused water filter, and more.

In addition to nurturing a culture of innovation and reflection, talking about failure helps build a canon of knowledge of what not to do in the future.

Still, change doesn’t come over night and building a culture of openness to failure takes time and consistent effort. In the majority of cases, however, failure in the social change world does not involve as many dollars or stakeholders, and admitting it can have a net positive impact on an organization.  Doing so can build institutional knowledge and create a culture where people are more open to taking risks.

Often, valuable insights come only after a failure. Accepting and learning from those insights is key to succeeding in life.

“The ability to grow and keep trying when you don’t succeed — resilience and grit — are key to cultivating a growth mindset, in academics and in life. I like how the business world has coined the term “failing forward” to mean using mistakes as stepping stones along the road towards achieving your goals”, says edutopia.org.

We can choose to see failure as “the end of the world,” or as proof of just how inadequate we are. Or, we can look at failure as the incredible learning experience that it often is. Every time we fail at something, we can choose to look for the lesson we’re meant to learn. These lessons are very important, they’re how we grow, and how we keep from making that same mistake again. Failures stop us only if we let them.

“Maybe failure doesn’t always lead to success but is simply the price of doing the right thing. Or sometimes tragedy strikes for no reason and without any apparent benefit. Maybe success in the broader sense comes in the form of failure itself when success’s definition is no longer limited to our individual lives,” says Anthony Sabarillo for medium.com

Instead of conclusion, we leave you with a very interesting article on lifehack.com, showing you six reasons it’s ok to fail.

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