Kimberly Speaks: Worried About Your Startup?
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“This is an article you should read if you are planning to start a business that will not fail. The wisdom here is quite profoundly awesome!”
– Okechukwu Ofili
Worried about your startup? You are not alone.
That’s the subtext to a new study from CB Insights, which goes into the 20 reasons startups are likely to fail. The study has everything, from weak founding teams to failed pivots to overbearing investors.
This is not exactly the first study about startup failure, of course, but it’s a bit different from many others. First, it’s compiled from 101 startup failure post-mortems, rather than from a survey asking CEOs what went wrong. That gives it a level of detail you don’t often see. Second, it’s focused on venture-backed, fast-growth (well, they intended to be fast-growth) companies, which is a unique universe. Last, it contains many extended quotes and anecdotes from founders, who, at least in the samplings made available through CB Insights, seem to be remarkably candid.
What went wrong? In most cases, quite a few things, which is why the numbers in the study add up to more than 100. But here are the five most common problems.
No market need: 42 percent
That’s right. Almost half of startups that fail do so because in the end, not enough people want the thing or service they were producing. Here’s how Jeff Novich, who had been part of the first class at Techstars-affiliated accelerator Blueprint Health, described the failure of his startup, Patient Communicator: “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 a more efficient office.”
Ran out of cash: 29 percent
Almost a third of businesses failed because they ran out of money. This bears a bit more digging, though, as a quote from startup Flud, which was trying to build a mobile news ecosystem, makes clear. There’s generally an underlying reason that a company goes broke. Some companies do grow like gangbusters and still run out of money–it’s totally possible, and totally scary, to outgrow your cash flow–but those aren’t generally early-stage startups. As the Flud entry reads: “Despite multiple approaches and incarnations in pursuit of the ever elusive product-market fit (and monetization), Flud eventually ran out of money–and a runway.” It had raised $2.3 million.
Not the right team: 23 percent
If starting a company really is like packing a handful of people into a bus, giving them $20 and telling them to drive cross-country, it’s got to be super-painful to find out, somewhere in Ohio, that you’ve got the wrong people in the bus. That’s what happened to Standout Jobs, a recruiting portal for mid-sized companies: “The founding team couldn’t build a [minimum viable product] on its own. That was a mistake. If the founding team can’t put out product on its own (or with a small amount of external help from freelancers) they shouldn’t be founding a startup.”
Sometimes, the problem is more subtle, as was the case with Eran Hammer-Lahav, the founder of enterprise microblogging platform Nouncer: “I didn’t have a partner to balance me out and provide sanity checks for business and technology decisions.”
Got outcompeted: 19 percent
We hear all too often that startups aren’t supposed to worry about the competition. They’re supposed to keep their heads down and build something so innovative that no one can copy it.
Too bad that can turn out to be bad advice. Especially for Mark Hedlund of Wesabe, a personal financial management tool that raised $4.7 million but got clobbered by Mint. “It was far easier to have a good experience on Mint,” Hedlund wrote. “Everything I’ve mentioned–not being dependent on a single source provider, preserving users’ privacy, helping users actually make positive change in their financial lives– all of those things are great, rational reasons to pursue what we pursued. But none of them matter if the product is harder to use.”
Pricing/cost issues: 18 percent
If you’re selling a product or service no one’s ever heard of before, it’s hard to figure out how much to charge and what pricing model has the best chance of success. That’s what happened to Delight.io, which tracked app users’ interactions with their devices. “We originally price[d] by the number of recording credits. Since our customers had no control [over] the length of the recordings, most of them were very cautious on using up the credits. Plans based on the accumulated duration of recordings [would have made] much more sense for us.”
These are just the top five company-busters identified by CB Insights. For the entire list of 20, you’ll have to read the full report available here. Hopefully, you won’t recognize too many of them at your own company–and still have time to fix them if you do.
Kimberly Weisul is editor-at-large at Inc. and co-founder of One Thing New, the digital media startup that is rebooting women’s content. She was previously a senior editor at BusinessWeek.
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