Most startups have problems and I’ve seen many fail for so many reasons. Off the top of my head, here are the first 20 reasons I can think of:
- Never actually launched the product
- Founders fighting or working badly together
- Single founder was not able to do (or hire) key jobs
- Launched a “bad” product (didn’t solve customer problem, solved it badly, hard to use, didn’t work, worked slowly, got hacked)
- Messed up pricing model – charged too much or too little, or charged for the wrong stuff.
- Wrong business model – e.g. low margin, product/service not unique or defensible, high cost of customer acquisition.
- Lacked focus, tried to do too many things. Specifically, tried to do things other than build a great product, sell or market it, hire good people and keep them engaged, raise more money. (Spent too much time listening to investors, advisors and mentors rather than customers).
- Wasted all their money on expensive marketing channels, or with the wrong message, failed to learn quickly from cheap marketing mistakes, and cultivate organic sources of acquisition. Or worse, wasted money on non-core stuff like expensive office space.
- Wasted all their money building the product – making it too complicated before launch, often because you didn’t listen to what your customers actually wanted, and instead tried to build everything.
- Wasted all their money building the product because they hired expensive and inefficient engineering resources.
- Focused on a small/poor market, never found a larger adjacent market.
- Solved a problem that people would not pay to have solved, or didn’t solve it well enough to charge for the solution.
- Focused on building one-off features for niche/consulting clients rather than solutions with mass appeal.
- Failed to shift from product/fundraising and focus on growth when it was time to focus on growth.
- Founders lied to investors and/or customers (usually both).
- Sold too much equity to early investors, leaving nothing for subsequent rounds and not enough to keep founders engaged & incented to stay with the business.
- Unable to scale from “founder as salesperson” to building and scaling marketing and sales organizations.
- Never understood or leveraged product market fit (didn’t understand why the most loyal customers used the product)
- Founder & finance team mis-managed burn rate & cashflow.
- Trying to build and scale 3+ business lines while still in seed stage.
Notice, every one of these 20 answers were in the founders’ control.
I didn’t even mention “somebody stole my idea” or “investors stopped investing” or “competitor crushed us” or “big acquiring company/investor left us at the altar” or “government regulators shut us down.”
Those things happen, but it’s less frequent than you’d expect.
If your business fails, don’t miss the lesson! Collect feedback from your employees, customers and investors. Be honest with yourself!
When you talk to prospective employees and investors about your next business, explain honestly why your business failed, what you learned, and what you will do differently next time. That’s a *huge* selling point!
Learn from the Successful Ones
It’s easy to make a list of common points of failure, but another to gain perspective on the factors that lead otherwise brilliant founders susceptible to them. Here are a few good resources:
This is an amazing document that holds 112 (and counting) blog posts written by founders whose startups didn’t live up to expectations.
It’s nicely structured and each post is accompanied with a TL;DR line describing the mode of failure, e.g. “Not something people wanted” or “We were naive idiots” with the occasional curveball “consequences of Russia-Ukraine conflict.”
A little dated, but this blog post is a great read because the author, Marc Hedlund who most recently served as the VP of engineering at Etsy and Stripe, breaks down why a direct competitor beat them.
There are a lot of posts where founders use macro factors, or personal failings to explain why they lost, but few that offer a point-by-point analysis of how a competitor did better.
YCombinator founder Paul Graham has had a front-row seat to some of the biggest tech wins and recent history, as well as some of the most spectacular failures.
He offers a list of 18 mistakes that kill startups, listed below for convenience, but I urge you to read through the entire essay which is filled with nuance and wisdom.
- Single Founder
- Bad Location
- Marginal Niche
- Derivative Idea
- Hiring Bad Programmers
- Choosing the Wrong Platform
- Slowness in Launching
- Launching Too Early
- Having No Specific User in Mind
- Raising Too Little Money
- Spending Too Much
- Raising Too Much Money
- Poor Investor Management
- Sacrificing Users to (Supposed) Profit
- Not Wanting to Get Your Hands Dirty
- Fights Between Founders
- A Half-Hearted Effort
Lessons from a Startup Founder
I will like to specify top 3 reasons why my last startup failed. Hope this helps others:
- Not defining the responsibilities among co-founders: We didn’t had clear responsibilities assigned to each one of us. This led to lot of finger pointing without actual work been done when things were not going as expected
- Giving up too early: Majority of the startups needs lots of trials & errors to succeed. We initially underestimated the time & efforts required & therefore got frustrated too soon
- Looking for one magic pill: We were constantly thinking about 1 perfect solution to problems. For e.g. the best way of marketing, the best way of hiring, the best way of launching the product etc. Actually there is no magic pill which will suddenly work. You need to constantly learn & re-iterate
I would like to end off with this quote:
“Like having a child, running a startup is the sort of experience that’s hard to imagine unless you’ve done it yourself.”