As a source of inspiration, I’ve been reading a lot of startup success stories recently. They are fun, easy to find online, and extremely motivating. Perhaps most of all, they make you want to quit your day job and go “all in” on your idea. But reading about everyone’s “oh so easy” successes got me thinking: we know that 90% of startups fail, so why is it that its so much easier to find stories about startup successes than failures? More importantly, can we learn from other people’s startup failures in order to increase our odds of success?
I don’t know the answer to the first question, but the answer to the second is a resounding YES. It is critically important to learn from others’ mistakes. As I consider my startup future, I’ve compiled what I believe to be the top five reasons that startups fail*:
1. The mythical product-market fit stays mythical
If you haven’t heard of product-market fit, you need to read about it. Right now. The term was coined in 2007 in a blog post by Marc Andreeson, the cofounder of Netscape. It has since become the mantra of all startups, everywhere. According to Marc, “product/market fit means being in a good market with a product that can satisfy that market.” It sounds simple enough, yet it is also the hardest thing to achieve for a young startup. We all have great ideas that we think people would be interested in enough to pay for. Yet chances are we’re not right — at least not on our first product iteration. So we pivot. Perhaps we pivot again. Some of us keep pivoting and never find the product-market fit, and so our company, like many others, goes to the startup graveyard. Startups are born and die every day — only the best live on to find product-market fit. For the rest of us, it remains a mythical holy grail.
2. They run out of runway
A fundamental truth of business is whoever controls the money controls the company. Here’s why: suppose you have an amazing product that people love and are even willing to pay for (lucky you!). Then suppose you run out of runway because your company isn’t profitable enough to be self-sustaining. You need a cash infusion quick. So you go to the bank to ask for a loan, or you approach your VC firm or angel for another funding round. In this scenario, who controls the future of your business? You? Of course not — even if you own 100% of the shares in your company. If your lender or investor refuses to give you money and you’ve reached the end of your runway, your company dies. Simple as that. Whoever controls the money controls the company. So, don’t reach the end of your runway. Easy, right?
3. Deafening echo chambers
We all love to hear that we’re loved. Especially when the love relates to our startup idea — we are spending the majority of our waking hours thinking about it, after all. Its just dandy to hear that everyone thinks we’re brilliant! The problem, of course, is that we’re probably not as brilliant as we think, our idea probably isn’t as good as we imagine, and the people we talk to are probably predisposed to give us positive feedback. Its not enough to get out of the building. We need to get out of our echo chamber. Strategies like “the mom test” help, but far too many entrepreneurs fail because they refuse to heed the advice of those outside their echo chamber.
4. Having no business model
Ok, let’s get this out of the way. You need a business model. Too many first-time entrepreneurs think this is hogwash. I know I used to. On the surface, the popular mantras “stop planning and start doing” and “fail fast” both tell us to put our heads down and GO. But if you don’t have a vision with a plan to back it up, how will you know what feature to build next? Which customers to focus on? What marketing strategy to employ? Remember, having a business model doesn’t necessary mean writing down 500 pages of detail that no one will read. Your business model can be very lightweight. But either way, you need one. Otherwise, you’re just shooting darts at the dartboard hoping something will stick.
5. Too big, too fast
Growth! We all want growth — revenue growth, valuation growth, customer acquisition growth. The trouble is its also very possible to grow too soon, too fast, or even in the wrong direction. This relates back to the first reason startups fail — their inability to find product-market fit. Too many startups grow before determining whether the market they are in is large enough to be self-sustaining. And when they realize they’ve grown in the wrong way, they have to scale back and pivot … which might work, but think of all the cash they’ve already burned through! Imagine if they had realized it earlier, before all their jetpack-fueled growth! They could have saved time, money, and a whole lot of headache. And perhaps given them a better chance at succeeding. So remember: growth can kill.
So there it is. Nothing earth-shattering for a seasoned entrepreneur, but useful to keep in mind nonetheless.
* – Note that this list is entirely anecdotal. It is, however, based on a lot of reading and on commonalities I found time and again. Use it at your own risk 🙂