The 7 real reasons why startups fail

The market research firm CB Insights recently did a post-mortem on 135 failed startups. As part of that effort, they asked the people involved in each startup why they thought it had failed.

The study surfaced twenty reasons, with most startups citing multiple reasons. The reasons cited, however, fall into seven categories, each consisting of a specific emotional or intellectual limitation:

1. Arrogance (85%)

Successful entrepreneurs are always overconfident and that’s a good thing. Without overconfidence, nobody would ever buck the odds to start their own business.

Overconfidence turns into arrogance, though, when you’re so sure of the wonderfulness of your ideas that you don’t bother to take the pulse of the market. Arrogance causes startups to fail through:

  • No Market Need: 47%
  • Product Mis-Timed: 13%
  • Need or Lack of Business Model: 17%
  • Not Using Network/Advisors: 8%

Fix: Temper your overconfidence with the humility to accept criticism without becoming defensive.

Related Post: The new startup mantra: “learn, try, fail, and repeat”

2. Shortsightedness (55%)

Startups can’t afford “paralysis by analysis” and it’s simple good sense to realize that can’t anticipate everything in an undertaking that inherently involves the unknown.

That being said, there’s truth in the corny old quote “failing to plan is planning to fail.” Shortsightedness causes startups to fail through:

  • Running Out of Cash: 29%
  • Pricing/Cost Issues: 18%
  • No Financing/Investor Interest: 8%

Fix: Maintain some reserves so that you don’t crash and burn the first time you hit a speed bump.

3. Hubris (47%)

All too many entrepreneurs believe that “if you build a better mousetrap the world will beat a path to your door.” That’s classic engineering hubris that results in treating sales and marketing as if they were of secondary importance.

Sadly, though, the history of business is full of excellent products have failed due to weak marketing or poorly-planned sales efforts. Hubris causes startups to fail through:

  • Getting Outcompeted: 19%
  • Poor Marketing: 14%
  • Ignoring Customers: 14%

Fix: Pay as much attention to hiring marketers and salespeople as you do to hiring your engineers.

Related Post: 6 ways to bounce back after experiencing a failure



4. Egotism (36%)

Startups require talented, experienced and energized employees who have specialized knowledge.

However, building a business is always a team effort and all it takes is one prima-donna for a team to fall flat on its collective face. Egotism causes startups to fail through:

  • Not the Right Team: 23%
  • Disharmony on Team/Investors: 13%

Fix: Read the newly-published book Team Genius, which contains team-building rules based upon actual scientific research.

5. Sloppiness (34%)

When big companies do a slipshod job, they can float on their brand reputation or throw money at the problem.

Entrepreneurs must be meticulous and make certain that nothing falls through the cracks. Remember: “genius is an infinite capacity for taking pains.” Sloppiness causes startups to fail through:

  • Poor Product: 17%
  • Bad Location: 9%
  • Legal Challenges: 8%

Fix: If you tend to be a “big picture” person, partner with somebody who’s detail-oriented.

Related Post: Failure – an inevitable part of success

6. Imbalance (30%)

Thousands of articles and books have been published about the lack of work/life balance creates stress and leads to bad decisions. And yet many startups try to operate in round-the-clock crunch mode. Imbalance causes startups to fail through:

  • Loss of Focus: 13%
  • Lack of Passion: 9%
  • Burning Out: 8%

Fix: Exercise or meditate every day, turn your phone off when you go to bed, eat right, etc. You know the drill; now just go ahead and do it.

7. Inflexibility (17%)

The most important advantage that a startup has over an established firm is freedom to be nimble.

However, there’s a natural human tendency to continue to pursue a course of action after it’s been proven unworkable. Inflexibility causes startups to fail through:

  • Pivot gone bad: 10%
  • Failure to Pivot: 7%

Fix: Plan from the start that you’ll need, at some point, to radically change direction. Welcome rather than resist the inevitable change when it comes.

Related Post: 7 Things I learned from my first startup failure



Image credit: Emptyengine

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Author: OOS Team

Explaining bits and bytes of startups and entrepreneurship.

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