Why startups fail?
Startups are hard and many fail. Here’s some of the common reasons why startups fail, and what you can do to avoid the pitfalls.
Startup pitfalls
As a software agency, we’ve had the opportunity to work with a variety of startups (and founders) over the years and while some have achieved success, others have not.
No funding
Startups often require a significant amount of capital to get off the ground, but many fail to secure the necessary funding. This can be due to a lack of understanding of the funding landscape, not having a clear plan for how the funding will be used, or not having a strong team in place to attract investors.
Arrivo was a transportation startup founded in 2017 which raised $200 million but closed down in 2021 when it was unable to complete a Series A funding round. (The Verge, 2018)
Industry advisory
One of the biggest reasons many startups fail is that they don't have a solid business plan in place. This includes not understanding the target market, not having a clear value proposition, and not having a well-defined revenue model. Without a clear plan in place, it can be difficult to attract investors, hire employees, and scale the business.
Thernos was a biotech startup founded in 2003 raising $900 million before its technology was revealed to be fraudulent in 2015. Its business plan was based on the assumption that it could develop a revolutionary new blood testing technology that was more accurate and affordable than traditional methods however the technology was never developed. The founder and CEO faced criminal charges. (Forbes, 2018)
No market research
Many startups don't fully understand their target market, their customers, and their competition. This leads to a product or service that doesn't meet the needs of the market, and ultimately, doesn't generate enough revenue to sustain the business.
Quibi was a short-form video streaming startup that raised $1.75 billion before failing in late 2020. It targeted millenials and Gen Z users who were already using other video streaming services and its product was not unique or compelling enough to get them to switch. (Bloomberg, 2020)
Poor product or market fit
Many startups fail to fully understand their target market, customers, and competition. This results in a product or service that does not meet the needs of the market, ultimately failing to generate enough revenue to sustain the business.
In 2017, Juicero, a Silicon Valley juicer startup that raised $120M from investors, filed for bankruptcy after its $400 juicer was roundly mocked when videos of users squeezing the $5 juice packs with their hands faster than the juicer could do. Juciero become a symbol of startups raising huge sums of money for solutions to non-problems. (The Guardian, 2017)
Lack of a strong team
A startup is only as strong as its team. Without a dedicated and skilled team in place, it can be difficult to develop a successful product, attract customers, and scale the business.
Our technical expertise, product development and engineering experience will help you identify and avoid many of the common pitfalls that startups face.
Color was a photo-sharing app that raised $41 million in 2011. CEO and founder Bill Nguyen was a former Apple engineer but he and his team had no experience in social media so they made a number of strategic results including limiting users to people invited by existing members. It closed down in 2012. (The Verge, 2012)
What you can do to avoid the pitfalls
Here are some tips to help you avoid the pitfalls that can lead to startup failure:
- Validate your idea: Before you invest too much time and money into your startup, make sure that there is a real market need for your product or service. Talk to potential customers and get their feedback.
- Build a strong team: Surround yourself with people who are passionate about your mission and have the skills and experience to help you achieve it.
- Be frugal with your resources: Startups typically have limited resources, so it's important to be frugal and spend wisely. Focus on the most important things and avoid unnecessary expenses.
- Be willing to adapt: The startup world is constantly changing, so it's important to be willing to adapt your plans as needed. If something isn't working, don't be afraid to pivot.
Building a new startup is a challenging but rewarding experience. By understanding the common pitfalls and taking steps to avoid them, startups can increase their chances of success.
Our technical expertise, product development and engineering experience will help you identify and avoid many of the common pitfalls that startups face.
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