Startup Failures and How You Can Learn from Them
Do you love to get caught up in the stories of startup successes? We definitely do! Unfortunately, there are also numerous examples of startup failures around us. This should definitely not discourage you from trying to build your own business: studying a bad experience from another startup is an opportunity to learn and will save you from repeating their mistakes.
According to CB Insights 2019, here are the top 5 reasons why previous startups failed:
#1) There is no market need for the startup.
Tackling problems that are interesting to solve rather than those that serve a market need was cited as the No. 1 reason for startup failures. This happened to tech startup, Treehouse Logic, which offered a hosted design tool solution that enabled customer co-creation while online shopping. The company had great technology, great data on shopping behavior, great reputation, great expertise and great advisors. BUT the startup was missing one thing: a technology or business model that solved a pain point in a scalable way. In their failure, Treehouse Logic gave one important piece of advice for future startups, “Startups fail when they are not solving a market problem. We were not solving a large enough problem that we could universally serve with a scalable solution.”
#2) The startup runs out of cash.
#3) The startup does not have the right team.
A diverse team with different skill sets is often cited as being critical to the success of startups. For example, Zirtual is an online agency that provides services for companies. They work as a matchmaker between busy entrepreneurs with small companies to efficient and ready to work virtual assistants. Unfortunately, the startup was forced to lay off 400 employees overnight. The reason for this was due to a series of financial mistakes and miscalculations. Co-founder and CEO Mary Kate Donovan later admitted that one key mistake was not bringing a CFO on board, “In retrospect, if we had a senior finance person and a senior ops person it would have been a completely different story.”
#4) The startup gets outcompeted.
Startups not paying attention to their competition is a huge myth. The reality is that once an idea gets market validation, it is likely that there will be other entrants in the space. Obsessing over competition is certainly not healthy BUT you should never ignore it! The main cause for 19% of startup failures is because startups ignored their competitors. For example, children’s apparel delivery service, Mac & Mia, found itself in a tough spot competing with highly successful companies. Eventually, Stich Fix outcompeted them and they had to shut down just a year after launch.
#5) The startup has pricing and cost issues.
Startup success can be achieved by pricing appropriately which can definitely be a dark art. For startups, it is often a challenge to price their product high enough to eventually cover costs. At the same time, the price has to be low enough to bring in customers.
For example, the 2019 shutdown of genetic testing and scientific wellness startup, Arivale, came as a surprise to many partners and customers. However, the reason behind the company’s failure is simple: the price of running the company, for instance, collecting the genetic, blood and microbiome assays that formed the foundation of the program, was too high compared to the revenues it brought in.
Even with a good idea, enough financial resources and a good team, there are still many more factors you should consider when building a business. You should definitely think about a user-friendly product, a great business model and a smart marketing plan! If you would like to read the whole CB Insights Report that summarizes the 20 most common reasons why startups fail in 2019, click this link.
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