Top reasons startups fail

I am always intrigued with titles like this one I saw recently: The Top 20 Reasons Startups Fail.  Why would I not be interested? We are in the startup business; and I don’t like failure; and it is the start of a new year!

The study analyzed more than 101 startup post mortems for reasons for their failure. Before looking at the full study and the graph, think about the top three; quoted here from their blog.

• No Market Need – 42%
• Run out of Cash – 29%
• Not right team – 23%

1. No market need

If there is no demand or you do not know how to create demand, then no amount engineering talent will solve this. Selling demand to something that does not exist yet (selling faith while knowing you can deliver) is a skill in itself.

2. Ran out of cash

This can happen in three ways:• You didn’t raise enough cash to begin with;• The results didn’t happen before you ran out of cash; or• You scaled prematurely.
The whole point of the bootstrapping phase is to test and gain clarity in a new unknown area, while keeping expenses as low as possible so you can still be in the game when you can execute the clarity you gained. You don’t want to run out of cash before you can fully execute what you have learned in the startup phase.

3. Not the right team

There is nothing worse than working with the wrong people. It is a horrible way to spend your time. Note that you CAN’T change people. You may be able to train them +/- 5 to 10% in either direction but you can’t fundamentally change a person. Getting the people that naturally exhibit the personality traits for the success in the role is the only way to create a great team. These sorts of teams create 1000% returns with a lot less effort. In these sorts of teams, people want to work together and enjoy each other’s company.

While we may not concur with all points made on this site, the full graph here and other comments are great food for thought.

Graph sourced from CB Insights: The Top 20 Reasons Startups Fail (October 7, 2014)

As I look back over the business clients IBEC has had in the past eight years and especially those that did not make it or are currently struggling, I see some of these top three but also some of the other factors such as: lack of a business model, loss of focus, legal challenges, failure to pivot, and disharmony among ownership.

It would be a good strategy in early 2015 for IBEC consultants, coaches, business owners and investors to think about these 20 reasons and ask the hard question: is the business struggling or potentially failing because of one or more of these reasons?

As for IBEC itself, one of our challenges is to continually ask the question: is there a market need for our services?  Are we ahead of the times?  What price point will the market withstand?  What marketing strategy will best match supply with demand?  How does one develop faith in the consulting product?  What does it mean to create value first?

These and other related questions are the subject of an IBEC study in the coming weeks which we are doing in partnership with others.  It is our attempt to understand and act upon “market need.”  As a reader, please know we are open to any suggestions, comments or questions.

Larry W. Sharp, Director of Training, IBEC Ventures

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