5 Reasons Startups Fail

It’s easy to get swept up in the tales of startup successes in this age of “unicorns” and hot IPOs, however startup failures are far more common. Starting a company is harder than most people believe. A company so in tune with its niche that it can float along with limited effort is rare. In 2019, the startup failure rate was around 90%; but why do so many businesses fail? 

There’s rarely a single reason for a startup’s defeat. From poor product-market fit to lack of team harmony, here are 5 main reasons why startups fail:

1: Market Hassles

One of the main reasons why businesses fail, is that there’s little or no market for the product that they have created. In fact, “no market need” was the number one reason for startup failure. In other words, they had no customers.

2: Business Model Failure

One of the most common reasons for startup failure is that entrepreneurs are overly optimistic about how easy it is to acquire customers. They presume that if they create an appealing website, product, or service, customers will flock to them. That may be true for the first few customers, but after that, attracting and winning customers becomes an expensive task, and in many cases, the Cost of Acquiring the Customer (CAC) becomes higher than the LifeTime Value of that customer (LTV).

3: Team Failure

Failure can sometimes be attributed to not having the right people on board. A diverse team with unique skill sets was frequently cited as critical to a company's success. Young entrepreneurs are often challenged when it comes to identifying and retaining the required talents. Along with bringing in functional skills, it’s also key to bring in those who have previously scaled a venture and understand the predicaments associated with scaling.

4: Cash Shortage

A fourth major reason for startup failure is a lack of funds. Money and time are limited resources that must be allocated and used wisely. The CEO's primary responsibility is to understand how much cash is left, and whether those available funds will lead the company to a successful milestone, securing a positive cash flow.

5: Product Misfit

Another customer-related issue that doomed startups was product design that did not meet customers’ needs. This could be due to poor execution, or to a far more strategic issue, such as failure to achieve Product/Market fit.

Many startups fail due to a lack of a viable idea or business model. Many fail because they’re unable to gain enough traction with customers or because they’re unable to compete. While that seems to be reasonable, some startups fail to survive despite successfully navigating market challenges. Failure can be laid on a myriad of other factors, including being in the wrong market, a lack of research, poor partnerships, ineffective marketing, and often the founder not being an industry expert.

Are you looking for ways to avoid failing? Set your goals, conduct an accurate research, love the work, and don’t quit!