Why 90% Of Startups Fail
Most startups fail within the first five years of launch, usually for similar reasons.
Companies like Instagram, Airbnb, and Dropbox began their journey as startups. Hence, it is a no-brainer that most startup founders aspire to build companies as successful. The first steps taken are exciting and the journey is full of possibilities, "I have a great idea, I will make it.", we say to ourselves every morning. With this mindset, the painstakingly challenging endeavor begins.
According to research made by Startup Genome, over 90% of startups fail in the long run. This means 9 out of 10 startups fail. But, what is failure? Failure in this particular context is the inability to deliver returns to early-stage investors. So, why this big of a number? And what can entrepreneurs do to be in the 10%? Tom Eisemann, a professor at Harvard business school, points out “ If you want a startup to succeed, you need to understand why startups fail.” Here are 4 reasons why.
1. The False start
One of the main reasons for startup failure is the passion of the founder. The eagerness of the founder to jump-start into selling and making profits leads to a disastrous start. The action bias of an entrepreneur leads to skipping essential upfront research and favors the impulse to sell. This affects the company by loosening its foundations. It is important to spend a good month or two researching and studying the business field we plan to join.
2. The Product nobody wants
What makes a startup a true startup is innovation and scalability. Creating problems and solving them is not the way to go. One must introduce a product that solves specific needs in a specific way. This will not only help you in customer acquisition, but also in validating the demand for your product.
3. The Mom test- a failed execution
In his book, “The Mom test” Rob Fitzpatrick introduces 3 simple rules that help startups create a connection with customers. Having a conversation with customers will help you adjust the route of your business. You should always keep the users at the forefront and engage them at all stages of your product development. Make sure to steer clear of biased feedback because it can invite a loop of delusion in which you only hear what you want to hear.
The mom test:
i. Talk about your customers’ life instead of your idea
ii. Ask about specifics in the past instead of generics or opinions about the future
iii. Talk less and listen more
4. The Team
The fact remains that you can’t do this alone. Starting a business requires a set of skills different people possess. In an ever-pragmatic market, a startup founder must assemble the right team members with different sets of expertise. Furthermore, your ambition must align with your team members. Failing to build such a team results in the eventual failure of your startup.
Now, looking at successful startups like Uber and Linkedin, one might think a “brilliant idea” is all one needs to “make it.” But it takes much more than a “brilliant idea” for a startup to succeed. Avoiding the above pitfalls and building the right product at the right time for the right customer is crucial. Furthermore, the value of extensive yet strategic research can not be overstated. Visiting the Startup Cemetery and carefully studying the demise of other startups is a great start.