Failed startups are quickly buried and forgotten; it’s the ones who make it that grab media attention with every successive achievement. This is natural in an inspirational environment where success and positivity is motivating. And yet, it is from failure that we learn our best lessons. Although not many failed startups want to dwell on their experiences, more and more are coming forward to share them as the ecosystem matures.
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Venture capital research firm CB Insights has been compiling these post-mortems of failed startups, and it has just come out with an analysis based on 101 of them. It became clear to the analysts that there are almost as many reasons for failing as there are startups, but there are also recurring themes. Another thing to keep in mind is that there is rarely one reason for a startup’s doom – usually it is a combination of factors. Here then are the top 10 reasons most often cited by these startups for failing.
Not serving a market need
The single biggest reason for failure is that a startup will get caught up with what it wants to do instead of focusing on what the market needs: 42 percent of the failed startups quizzed by CB Insights gave that as a reason for failing. They built elegant solutions, and then looked for matching problems. One such startup, Patient Communicator, had this to say:
I realized, essentially, that we had no customers because no one was really interested in the model we were pitching. Doctors want more patients, not an efficient office.
So don’t put the cart before the horse. Identify a pain-point, and then find a solution.
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Running out of cash
“Despite multiple approaches and incarnations in pursuit of the ever elusive product-market fit (and monetization), Flud eventually ran out of money.” The essence of what killed Flud was shared by 26 percent of the startups in the survey. It points to the importance of planning ahead and allocating money and time judiciously. You don’t want the runway to end before the startup idea has time to reach its takeoff point.
Not the right team
A startup can fail if the team members are too alike. There needs to be enough diversity for a variety of skills to come into play. That’s also a reason why venture capitalists will usually look for startups with two or more co-founders. A post-mortem from Standout Jobs exemplifies this: “The founding team couldn’t build an MVP (minimum viable product) on its own. We could have brought on additional co-founders, but we didn’t.” Not wanting to let go of equity or a fear of personality clashes can sometimes prevent a well-rounded team being formed. A savvy partner can also act as a sounding board for half-baked ideas and provide checks and balances on excesses.
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Startups are often advised to focus on their own thing instead of getting distracted by the competition. But this can be taken too far, apparently. Ignoring the competition was a recipe for disaster in 19 percent of startup failures. One of these, Wesabe, recounted how they were convinced they could solve a pain-point in the financial lives of their users by providing more privacy and making them less reliant on a single provider. But it had a fatal flaw. “It was far easier to have a good experience on Mint (Wesabe’s competitor), and that good experience came far more quickly.”
The wrong price
Pricing a new product or service can be the trickiest part of going to market. An experience shared by visual analytics startup Delight IO illustrates this point. It had a monthly subscription plan which gave its users a certain number of recordings. This resulted in many subscribers opting out as they felt let down. The reason was that many of the recordings were short. Delight IO fixed this with subscription plans based on the the cumulative duration of recordings, and subscriptions began to climb. So it’s not just about the price, but meeting expectations.
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Not a user-friendly product
Sometimes developers can get so enamored with their creation that they stop thinking about what the user wants. For example, a gaming startup came up with an interface that required a user to “leave a trail of playful web annotations.” This was too abstruse for most users who lacked the patience to dig into the core of the game and see how it worked.
This is what GameLayers confessed after failing:
Looking back, I believe we needed to clear the decks, swallow our pride, and make something that was easier to have fun with, within the first few moments of interaction.”
What it takes is an empathy with the user, but that’s not easy.
A flaw in the business model
A startup can get going and do well before floundering when the time comes to scale up. That’s because its business model works only up to a certain size, and is not so good when it comes to making money on a larger scale. A case in point is Tutorspree, which gained traction, and even got selected for incubation by Y Combinator, but wasn’t able to capitalize on it. In the end, it became too focused on SEO.
“We were single channel dependent, and that channel shifted on us suddenly,” explains Tutorspree.
No attention to marketing
Out of the failed startups, 14 percent attributed it to not paying enough attention to marketing. Most of these were startups founded by techies who were adept at writing code and building a product or service, but not so good at promoting it or finding customers.
A typical case was Overto’s. “For the initial period, the numbers were growing systematically. Then we hit the ceiling of what we could achieve effortlessly. It was time to do some marketing. Unfortunately no one of us was skilled in that area. Even worse, no one had enough time to fill the gap.” Understanding the target audience, getting their attention and converting them into customers is vital for any business, but many startup founders are just not cut out for it, nor do they get seek expert help.
Starved of customer feedback
Tunnel vision is a failing of many startups. When to get a product or service out in the open for testing is a tricky decision to make, but spending too many months perfecting it can lead to a myopic view of it. “We were rolling out features that I thought were great, but we didn’t gather enough input from clients. We didn’t realize this until it was too late. It’s easy to get tricked into thinking your thing is cool,” cautions VoterTide.
Too early to market
The opposite of the previous point is also true – that sometimes a startup can be in such a hurry not to miss the window of opportunity that it can take a product too early into the market. Or sometimes the idea or the tech is ahead of its time, as in the case of Calxeda: “We moved faster than our customers could move. We moved when the operating-system environment was still being fleshed out – we were too early.”
There are many other reasons for startups failing, but the 10 that came up most often provide useful signposts for everyone involved with the startup ecosystem. What’s to be appreciated here is the willingness of those who failed to share their experiences, so that the ones who follow in their steps can do better.