Tripping, Falling, Tumbling - What Makes Start-ups Fail?

Nothing ventured, nothing gained — unless you fail. For startups in particular, these two outcomes are in very close proximity because a risk-free startup isn’t a real startup. If you create something new, you will not be following the well-trodden path. Even if many founders have a reliable map, the markets can change or become unstable, or another competitor might join the field — in the end, the map might not be as up-to-date as it once was.

In this case, ‘why’ is a question that requires a pretty complex answer: Why do founders ‘fail’?

There are many reasons why entrepreneurs are often not capable of enforcing a good idea on the market. The only relevant, available statistic was published by CB Insights, a very popular platform from New York that interprets and analyses data of large growth companies and their respective venture capital. 101 startups were analyzed by CB Insights resulting in 20 possible reasons for a failed company:

A summary of the top 5 reasons for failure:

1. No market / lack of demand
2. No more money left in the pot
3. Not the right team
4. Lost to the the competition
5. Problems in pricing / expenditure

The website silicon.de quoted Prof. Erik Strauß’s “Practical Handbook on Startup Management” and came to the conclusion that other sources had identified further reasons, such as e.g. insufficient product conception and adaptation of the business model to real market conditions, or insufficient time spent addressing bureaucracy and administration. 
According to CB Insights, there are specific obstacles associated with the areas, e.g. FinTech, e-commerce or SaaS, in which startups operate. FinTech companies, for example, should make sure that they do not overlook licensing issues and legal regulations, or approach investors without any experience in the sector.

Being a founder also means keeping an eye on the situation, market, point in time, marketing and figures — you have to act as a lighthouse that is able to react to changes induced by competitors or new technological advances in order to change and adapt the course of the startup. It is precisely because the passionate founder is very often too involved in his or her own company that it can be difficult to stay on top of everything and delegate daily procedures. With all these responsibilities, sometimes all it takes is the wrong moment in time.

I would like to share with you a fictitious example in order to outline the complexity of the problem:
In 2013, a company wanted to introduce an app to the Indian market. According to Statista, at least 76 million smartphone users are indicative of a large target group, especially as that number represents a mere 6.07% of the Indian population and smartphone use is constantly increasing. The timing seemed perfect — the earlier a startup is able to establish itself, the more popular its solution becomes and the less it needs to fear the competition. However, in 2013, the development of mobile Internet was not particularly advanced yet, only one in five smartphone users also accessed mobile Internet which naturally had a detrimental effect on the app.

One year later, work started on the rapid development of the wireless broadband network, and Cisco expected annual growth of 44% in IP traffic via mobile connections. Even though demand and the extraordinarily large market were identified, even though the team worked well together, and even though the technology was perfect, the early point in time was chosen a little too early here resulting in the app being left behind within the first two years.

So, what can founders do?

There is no simple, universal solution as the reasons for failure are too diverse. That is why qualified feedback is so important. If you need feedback, approach a business angel or an expert in the crowd because they will be able to give you individual advice that is not grounded in textbook knowledge but in direct, personal experiences gained in company foundation. Aside from business angels, you also need to speak to other founders: Share your experiences and take the time to reflect on your actions. It is vital that you distance yourself once in awhile in order to make objective decisions about the future of your business. In the end, every startup is unique and has to find its own way — after all, we are discussing innovative business here.

And what is the moral of the story?

Failure comes in different shapes and sizes, is experienced by many and is caused by a variety of reasons. Failing will help you learn — one of the reasons that investors like to support founders who already have experience developing a company. These experiences are instructional and necessary, and the founders can prove that they are capable of getting back up. 
We probably all remember that childhood feeling of wanting to throw the bike in the next bush and never try to ride it again. But we did because the only way to learn how to ride that bike is to get up and try again.

The app founder from India might own a flourishing hearing aid company now because you don’t need mobile Internet to operate hearing aids in India (yet).

Have you ever failed? Write me on the Companisto Blog!

Photos: D. Sharon Pruitt and Stefano Ravalli /flickr

 

About the Author:

Cristin

Stories about entrepreneurship, european startups and crowdfunding insights. Berlin-based Companisto blogger.

 


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