Starting a new business is often much harder than startups realize. For many reasons numerous startups fail. To the extent possible, they must be avoided.
Look at three of our prior posts about starting a new business:
- Do You Have a Really Good Concept for a Startup Business?
- Can You Start a Business in Your Garage?
- Best Blogs for Small Business
Reasons Numerous Startups Fail
Some startups succeed spectacularly. And we know Facebook as an obvious example. Back in 2005, Accel Partners made a $14.8 million investment in “thefacebook.com”. As a result, the firm made a whopping $5.6 billion return. This amounted to 378 times the original outlay. More often than not, however, startups tend to fail and they fail brutally. CB Insights found that 70 percent of upstart tech companies fail, along with 97 percent of seed crowdfunded companies.”
“CB Insights also analyzed a selection of startup post-mortems. This helped to paint a picture of where founders and investors go wrong. The following infographic shows the top twenty reasons that startups tend to grind to a halt. Goods or services not serving a market need appear in the first position. Not all ventures manage to attract lucrative investment like Facebook. In 29 percent of cases, they just run out of cash. It’s also important to have the right people on board. And pressing on without the right team is the third most frequently cited reason for startup failure.”
Now, take a look at Statista’s infographic.
25 Replies to “Reasons Numerous Startups Fail”
The chart provided definitely caught my attention, because all of those reasons seem to make sense as to why start ups fail. However, when they are successful, they are tremendously rewarding, and that is not a secret. It is a large risk, but of course, not always rewarding. However I was not expecting “need of market” to be far ahead of all other reasons, even running out of cash. Before analyzing the data, I would have assumed “ran out of cash” would have been the lead reason.
There are so many reasons why startups fail and by now, businesses should recognize these failures and try to avoid them. Indeed, starting up a business is very difficult and it is hard to succeed especially due to the significant amount of startup failures. I could see how many businesses fail from this chart above. For example, little mistakes such as bad location, lack of attention to customers, failure to pivot and more can extremely affect the success of a business.
It is important for start ups to do their research in possible fallacies of the company that are mentioned above in the chart. Prevention is their best bet. The issue of a market not being needed is one of the most outstanding reasons why they fail and that is surprising. You would think the start up would investigate if there was a market needed for their product or service in the first place.
The chart above about the top reasons why startups fail was very interesting. The first two reasons of no market needed and running out of cash has reassured me of the biggest challenges that startups face. With addition to the no market needed, I think timing plays a huge role. I remember seeing a documentary on Apple and executives would talk about when the company first started and how he timing of it really helped them succeed when they introduced products. What is surprising is the third reason of not having the right team. Is it the dynamics of the team or that they didn’t share the same values?
It amazes me that people can go on a capital venture into a situation where they attempt to break into markets that don’t have a need for their product. This astounds me, so much start up failure can be removed through simple research and analytics of market data. With big data now more accessible than ever, it really surprises me that people are not utilizing it before dumping money into ideas. Im sure venture capitalists use big data, and even they don’t select the winning idea every time, hopefully the learning curve causes this to subside.
It’s very interesting that the top reason that startups fail is because there’s no market need. I would expect them to have done research ahead of time to find that there’s a big enough market.
As evidenced by some of the statistics in this post, it is highly difficult for a startup to enter a market and successfully establish themselves. In this day and age, there is a firm for everything, and it is difficult to find a market that has not been tapped into yet. ‘No market need’ as the top reason for startups failing makes sense because firms try to create a unique product that hasn’t been seen before. This product then fails because consumers have no need for it. Every successful startup is in some way related to the advancement of technology (Facebook, GoPro, Netflix) and creating a market that hadn’t existed before, and I believe this trend will continue moving forward.
Startups often fail for many reasons. No market need, the top reason, is large because its hard to know. It is obvious if there is a lot of competition in the area, which is really it’s own reason; but I think the big thing with this is that it may be what consumers want or don’t yet know they want and perhaps the startup enters the market at a time when consumers are not yet willing to accept it, and the startup would not know that until already going into business. This ties into what Francesco wrote above. Timing plays a huge role with this. Also, many startups don’t realize how much money they will need before they profit, this is seen especially in the restaurant industry. A startup restaurant has many expenses and will need the cash to lay out for overhead and other expense and often do not see a profit quickly. Startups need enough cash to stay afloat before the business can actually pay for itself.
As per the chart above, “no market need” is the leading reason why startups fail. After looking at all of the other reasons why a startup fails, I see why this is the leading cause. As stated in some of the other comments above, it is very hard to find something completely different to create when we live in a technologically advanced world. I think that it is crucial for all those creating new startups to thoroughly do their research and see exactly what the market is demanding at that point in time. Although it is very risky to come up with something completely new, it is important that startups don’t choose something repetitive or else they will fail. For instance, if a technology startup similar to Snapchat tried entering the market today, they would most likely fail because there is no longer a market need for disappearing videos, messages, pictures, and the like.
It is, in my point of view, really easy for a start up business to fail and it is actually normal. Also, i found that there are new businesses falling because there are actually no market for them. Whenever I`m having my own business, I would def look into that.
This article is useful for youth since I realize startups need plenty preparation. Insightful market research, enough money and excellent team is necessary to a growing company.
This article is useful for youth since I realize startups need plenty preparation. Insightful market research, enough money and excellent team is necessary to a growing company. However, these elements are hard to achieve to a startup company. One successful example is my friend partners
with an experienced business person, who helps him a lot. I think it is also a good choice.
This post was very helpful to me specifically since I’m currently in the process of building up my own start-up production house. There’s so many do’s and don’t’s regarding this topic that It would be absolutely necessary for me to get all the info I can. The info-graphic towards the bottom was my absolute favorite within the article!
The graph shows lots of information, and the main reasons of fail startup businesses are market demand, product quality, and company management. It makes sense that all of this three parts are important for a company development and a company can not approach success leaving anyone of them.
The chart shows that “no market need” is the largest reason why startups fail, and this makes sense. A lot of the time, entrepreneurs and engineers take a product approach to their startup by designing a product that they’re passionate about and pushing it to consumers. However, I believe that this approach has a higher failure rate than first analyzing a market and attempting to identify niche segments that aren’t being reached by the current firms in an industry. For example, Warby Parker markets trendy glasses at low prices that can be delivered to your home, which is very different from the traditional eye ware model, but they are successful because they saw a consumer desire for low price, convenient, attractive glasses.
Undoubtedly, it is not easy to start up new business since it has high demands on several sources such as budget, market demand and company management. However, government in China really encourage young generations to start up business no matter on innovation or any other industry these years. I cannot say it is definitely wrong but we should have a clear mind that starting business is a cost for young graduates whose families can not afford the predictable situation in the future.
I think that is extremely difficult to start and keep a new business. First, you need money to start up a business and if you are young and in college, it becomes difficult to find the finances to fund what you are trying to do. In addition to that, if you’re starting a new business, it has to be different and has to stand out in order to catch the attention of consumers, especially if your business is already something that has been done before. As stated in the infographic, not having the right team can also play a large part; you have to find people who will be just as committed to the business as you are. The reasons stated in the infographic seem to be very accurate, and I can understand how each of those reasons play into the failure of a business.
When I was in high school, my mom tried to start up a pet-sitting business. This business was going great, she was getting a few clients here and there, mostly friends. But the demand was low, since she only had a few people. There were also so many certifications that she had to get, that it was becoming too much of a financial endeavor for not enough in return. Unfortunately this company did not work out, but it might have been able to if she had some kind of sponsorship behind her.
It’s an extremely competitive market for start-up companies to compete in, especially when they try to break into an already established market segment with a product that has little differentiation from what’s currently on the market. I also think start-ups are at a disadvantage when it comes to raising capital. Unless you have confident and willing investors from previous business networks, it’s extremely difficult to raise adequate capital. The process of getting legal patents and the time it takes to research and develop a product demands a lot of capital. A lot of time and money goes into the product before the product even hits the market. I am in the Hofstra start-ups club on campus, and I experience first-hand how lengthy of a process it is to research and develop an idea. A lot of the research and developing revolves around finding a need in the market and being able to actually find the resources to create and build a prototype. Although this post is rather discouraging, I think it’s worth saying that failed ventures are sometimes key in developing a successful start-up. A lot of successful entrepreneurs will tell you that they’ve failed numerous times before finding success, and that every failure has taught them crucial knowledge that they capitalized on in future ventures.
Typically when one thinks of startup companies, one may think of the motivated and inspiring individuals that create the new venture. It doesn’t surprise me that one of the reasons as to why start up companies fail is due to the business not choosing the right team. One thing to think about when choosing your team is focusing on the weak spots. Different people have different strengths and weaknesses, so a company should take into consideration the skills the team may have. Another example to consider when choosing your team, is to identify time commitments. If other members in the team are more committed than others then nothing will get accomplished in the long run because everyone is one different pages. I feel like people don’t consider some of these examples since the 23% of start-ups fail because of this.
It’s an interesting graph but with so much overlap it’s hard to tell if there’s a major factor which kills a startup by itself or if several reasons need to be met before a startup fails. It’d also be nice to see if these companies that were surveyed were companies which heavily relied on customer service or the product itself.