Why startups fail? Top 20 reasons

After going through of the 101 postmortems of failed startups by cbinsights team, the conclusion is rarely one reason for a single startup’s failure. After deep reading identified the top 20 reasons startups failed.

Here is the list of top 20 reasons of starups failure. It’s all important for the entrepreneur to understand deeply the top reasons behind the failure of startups. One should aware about the reasons that he can able to control the situation and make a successful startup.

#1: No market need : Tackling problems that are interesting to solve rather than those that serve a market need was cited as the No. 1 reason for failure, noted in 42% of cases.

#2: Ran out of cash: Money and time are finite and need to be allocated judiciously. The question of how should you spend your money was a frequent conundrum and reason for failure cited by startups (29%).

#3: Not the right team: A diverse team with different skill sets was often cited as being critical to the success of a company. Failure post-mortems often lamented that “I wish we had a CTO from the start,” or wished that the startup had “a founder that loved the business aspect of things.”

#4: Get outcompeted: Despite the platitudes that startups shouldn’t pay attention to the competition, the reality is that once an idea gets hot or gets market validation, there may be many entrants in a space. And while obsessing over the competition is not healthy, ignoring them was also a recipe for failure in 19% of the startup failures.

#5: Pricing / cost issues: Pricing is a dark art when it comes to startup success, and startup post-mortems highlight the difficulty in pricing a product high enough to eventually cover costs but low enough to bring in customers.

#6: User un-friendly product: Bad things happen when you ignore what a users wants and need, whether consciously or accidentally

#7: Product without a business model: Most failed founders agree that a business model is important – staying wedded to a single channel or failing to find ways to make money at scale left investors hesitant and founders unable to capitalize on any traction gained.

#8: Poor marketing: Knowing your target audience and knowing how to get their attention and convert them to leads and ultimately customers is one of the most important skills of a successful business. But an inability to market was a common failure especially among founders who liked to code or build product but who didn’t relish the idea of promoting the product.

#9: Ignore customers: Ignoring users is a tried and true way to fail. Tunnel vision and not gathering user feedback are fatal flaws for most startups.

#10: Product mistimed: If you release your product too early, users may write it off as not good enough and getting them back may be difficult if their first impression of you is negative. And if you release your product too late, you may have missed your window of opportunity in the market

#11: Lose focus: Getting sidetracked by distracting projects, personal issues, and/ or general loss of focus was mentioned in 13% of stories as a contributor to failure.

#12: Disharmony among team / investors: Discord with a cofounder was a fatal issue for startup postmortem companies. But acrimony isn’t limited to the founding team, and when things go bad with an investor, it can get ugly pretty quickly as evidenced in the case of ArsDigita.

#13: Pivot gone bad: Pivots like Burbn to Instagram or ThePoint to Groupon can go extraordinarily well. Or they can start you down the wrong road.

#14: Lack of passion: There are many good ideas out there in the world, but 9% of startup post-mortem founders found that a lack of passion for a domain and a lack of knowledge of a domain were key reasons for failure no matter how good an idea is.

#15: Failed geographical expansion: Location was an issue in a couple of different ways. The first was that there has to be congruence between your startup’s concept and location.

#16: No financing / investor interest: Tying to the more common reason of running out of cash, a number of startup founders explicitly cited a lack of investor interest either at the seed follow-on stage (the Series A Crunch) or at all.

#17: Legal Challenges: Sometimes a startup can evolve from a simple idea and enter a world of legal complexities that can ultimately shut it down

#18: Didn’t use network: We often hear about startup entrepreneurs lamenting their lack of network or investor connections, so we were surprised to see that one of the reasons for failure was entrepreneurs who said they did not properly utilize their own network

#19: Burnout: Work-life balance is not something that startup founders often get, so the risk of burning out is high. Burnout was given as a reason for failure 8% of the time. The ability to cut your losses where necessary and redirect your efforts when you see a dead end was deemed important to succeeding and avoiding burnout, as was having a solid, diverse, and driven team so that responsibilities can be shared.

#20: Failure to pivot: Not pivoting away or quickly enough from a bad product, a bad hire, or a bad decision was cited as a reason for failure in 7% of the post mortems. Dwelling or being married to a bad idea can sap resources and money as well as leave employees frustrated by a lack of progress.