According to CB Insights, 70 percent of all start-ups go out of business during the first 20 months of operations, not to mention companies which, although they do exist, are struggling to survive. Another survey shows that hardware companies that have raised funds through crowdfunding services have gone bankrupt in as much as 97%. To find out the cause of this phenomena, CB insights analyzed 101 cases, basing their research on key reasons given by the companies themselves:
- 42% of the surveyed said that their product did not meet the expected market demand,
- 29% of companies simply run out of money,
- 23% believed that they had mismatched team members,
- 19% did not stand up to competitive pressure,
- 18% wrongly calculated the price, comparing it with costs,
- 17% admitted that the quality of their product was not high enough,
- 17% were based on the wrong business model,
- 14% said that their weakness was marketing,
- 14% ignored customer needs,
- 13% stated that they had entered the market at the wrong time,
- 13% lost their motivation to act,
- 13% had developed bad investor relations.
Why Do Start-Ups Fail?
Dr. Russel Keith-Magee, a businessman and a programmer, is the creator of a start-up called “TradesCloud” – SaaS for people working in various professions – plumbers, electricians, carpenters. The company survived almost six years on the market until the project was closed. Its creator decided to share three main reasons why his business failed. These are the following:
- He didn’t check – Keith-Magee mentions that if he had talked to, for example, plumbers before, he would have saved his time.
- He wasn’t able to sell his products – even if the website had its recipients, they didn’t want to “pay” for it.
- It is extremely difficult to eliminate the human factor – it turned out that replacing people with software isn’t an easy thing to do, especially when human intercourse in the company is taken into account, which the automation of processes limits. Besides, the heads of companies are reluctant to use project management software, not fully believing in the automation of processes.
How To Successfully Operate Start-Up?
Y-Combinator (YC) is the largest business accelerator in the world, since 2005 it has helped or financed nearly 1450 start-ups. The YC experts listed the principles of how to stay on the market which are so universal that they could form the basis for the operations of each start-up business:
- The product is the most important.
- Respond to people’s needs.
- Do things that do not calibrate.
- Look for solutions that satisfy 90% of customers.
- Listen to customers who love your product and not just like it.
- Do not focus on many problems at once.
- Identify and focus on the main indicators for development.
- Relations with co-founders are crucial.
- Do not worry about competition, do your own business.
- Take care of yourself and your team.
- Growth must be profit-driven.
- Choose more demanding and ambitious things.
Every start-up business experiences “birthing pains”. The initial delight and optimism are accompanied by frequent disappointment and pessimism. However, it is essential to consistently pursue the goal and set ourselves tasks that will lead to our success.
One thought on “Why Do Start-Ups Fail?”
Very interesting article. I especially enjoyed the insights you shared from Y-Combinator though some expanded discussion on those points would have been nice to see 🙂