Most startups fail, that’s just a fact, but why they fail and what can be done about it is a more complex issue.A new report put together by CB Insights looked at 101 startup failures to try and find out why startups fail and came up with the 20 most common reasons for a startup to fail. Combining numbers with the stories of founders willing to go into detail about their startup failures.
Most of the comapnies interviewed had multiple reasons for failure but the most commonly cited explanation was simply that a company built a product that nobody wanted or needed. It doesn’t matter how great a product is or how well it solves a problem if it’s not something people care about or a problem they need solved.
Failed startup Treehouse Logic explained it this way: “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. We had great technology, great data on shopping behavior, great reputation as a though leader, great expertise, great advisors, etc, but what we didn’t have was technology or business model that solved a pain point in a scalable way.”
Perhaps not too surprisingly, the number two spot among reasons startups fail was the rather straightforward reason of just running out of cash. You can see all of the top 20 reasons, broken d0wn into percentages are in the table below.
The other reasons cover a lot of aspects of business success and failure, but arguably could be broken down to simply the wrong time, the wrong people or sometimes pure bad luck. That’s not to say there aren’t a lot of good things to learn from the list though. At the very least it might provide something of a roadmap of the pitfalls of a startup business. If you insulate a business from the reasons for failure you can control, you have a better shot of riding out the luck problems that can’t be controlled for.
“There is certainly no survivorship bias here,” CB Insights concluded. “But many very relevant lessons for anyone involved in the entrepreneurial ecosystem.”
And really, make sure your idea actually deals with something people want, not just a problem interesting for its own sake, as failed startup Patient Communicator learned.
“I realized, essentially, that we had no customers because no one was really interested in the model we were pitching” the founder wrote in the report. “Doctors want more patients, not an efficient office.”