10 Reasons Why Startups Fail
This top-10 is derived from my personal experience, directly by coaching more than 100 startups and indirectly through my involvement in 300 other startups over the last decade. These are 10 reasons why startups fail.
10 Reasons Why Startups Fail
- Underestimate timelines before the company is making a profit (underestimating the marketing & roll-out costs)
- Overestimating the market size
- Funding problems and cash flow problems
- Problems with customer acquisition (“everyone likes it, but nobody buys it”)
- No clear pricing and/or revenue model
- Not enough experienced sales power in the team
- Competition of other products or services
- Product/Service is not as good as expected
- Problems with scaling up and growth
- Internal troubles within the management team
1. Underestimate Timelines
Before the company is making a profit (underestimating the marketing & roll-out costs)
Lots of startups really think they make a profit within 12 months. In all the business plans, I see huge revenues in the first year. In practice, unfortunately, most startups still have a negative cash flow after 3 years.
2. Overestimating the Market Size
Lots of startups start to calculate with 1% or 2% of the market size and think they can reach that in a few years. In practice, they even don’t reach a market share of 0,001%. They forgot to calculate the huge sales & marketing costs to reach a certain level of market size.
3. Funding Problems and Cash Flow Problems
It is always difficult to get funded. Or at least the difficulty is to get funded at the right time. Lots of startups think they can get funding within a few months; in practice, you need more often 1 year. Startups that receive funding within a few months from the startup date are exceptional. Focus on your market and focus on the next funding round. Without cash, it feels like running a machine without oil. Without cash, your business will be jammed. Do not underestimate the period time to get funded. It is sometimes a very frustrating process; only real entrepreneurs survive.
4. Problems with customer acquisition
(“everyone likes it, but nobody buys it”)
There is a big difference between product liking and product buying.
“I like the product.
Yes, I definitely like it.
I would like to have it.
Yes, I’m sure I would like to have it.
I think I will buy it.
I will buy it.
I’m sure I will buy it.
But when: next week or after 3 years?
Is it a substitute? Do you need to wait until customers are ready for a replacement?
Why should people order it today?
Why should people pay money for it? (it is really a big problem?)
I want to have it this week. I will ask my husband to buy it.
I will step on my bike / into my car and will ride to the shop? (even when it’s raining)
Yes, I got it.”
5. No Clear Pricing and/or Revenue Model
Lots of startups have no clue about pricing. They forgot the process of Customer Validation: talk with potential customers and ask/discuss the potential value, the savings, and the price they want to pay. Don’t rush to communicate prices to your target market; sometimes is it better to discuss it first with some launching customers. And do not forget to choose a “value-based” price for your product/service, not a “cost-price plus.” Have a look at substitutes, competitors, and their value for money.
6. Not Enough Experienced Sales Power
Most startup teams are young and smart, but more than 90% of teams do not have experienced sales power onboard (men or women with at least 20 years of sales experience).
It is very important to have a balanced management team and a mix of people.
7. Competition of other products or services
There is always competition. Even if you think you found everything on Google, you will be surprised what happens in another region in the world.
8. Product or Service is not as Good as Expected
Lots of entrepreneurs think they have a unique product or service. But unique products will not always be automatically bought by customers. It’s all about perception.
9. Problems with Scaling Up and Growth
A business model with potential scaling-up possibilities is very important. Lots of startups forget to prepare for international growth and sometimes their pricing models are not suited for worldwide distribution. Language and cultural problems can also be a threshold.
10. Internal Management Troubles
One person will go left, another right. One person wants to have a huge salary, another will not push up the burn rate. Some people have no respect for others, some are not listening to others; some people have a short-term focus, some have mid-term focus, some people are very smart, some people are less smart and cannot discuss on the same high level. Some people are professionals, some are not more than well-intentioned amateurs. Some team members work 16 hours per day, 7 days per week. Some of them start at 10.00 and leave at 17.00. There are always lots of possible internal troubles. Do not forget: “you are on the same boat and have the same goal”.
The challenge of course is to these reasons for failure and that is the fine art of start-up Entrepreneurship. Want to avoid these pitfalls? Come and talk to us!
This post was written bij Iwein Fuld, co-founder of Squads.