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Why Startups Fail (Hint: It's the #1 Commandment)

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MJ DeMarco

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http://fortune.com/2014/09/25/why-startups-fail-according-to-their-founders/

And it's why being product centered is everything.

The proliferation of the failure post-mortem has helped create a bizarre cult of failure that seems wrong-headed. Celebrating failure (“Fail fast” goes the mantra) seems to let people off the hook for bad behavior. Upon closer inspection, it seems less misguided than necessary.

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WorldImperator

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Lol,(the reasons made me laugh). Each of the top reason is just the basic business mistake, which should be solved before starting a company. However, from what I have seen, there are dozens of people who thinks "well, I will start a company and be a millionaire" without even understanding the basics.

Nothing new here, can be used as a reminder on what to not forgot when starting a new business or product.
 

Andy Black

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Thanks for the share MJ.

No surprises really...

The top reason? They make products no one wants.


A great line I heard recently:

"Ideas are bullshit."
 
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sle3pyguii

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The "Lack of business model" amazes me. I've met a lot of "startup entrepreneurs" who want to build things and their business model is literally "get bought out".
 
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Andy Black

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The "Lack of business model" amazes me. I've met a lot of "startup entrepreneurs" who want to build things and their business model is literally "get bought out".

Yeah, I worked for a startup whose customers were the investors who wanted that big buyout. It was obvious that they didn't really care about adding value to people signing up to their service. It caused all sorts of product and user experience issues, because the business was faking it really.
 

DennisD

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The way I define terms, 100% of businesses fail due to "failure to pivot"

When things go bad, when prices are too high, when you don't have the right team, when there's no market need, you can ALWAYS pivot your failures into successes. I don't even see "Failure" as anything except "Quitting too soon."
 

Andy Black

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The way I define terms, 100% of businesses fail due to "failure to pivot"

When things go bad, when prices are too high, when you don't have the right team, when there's no market need, you can ALWAYS pivot your failures into successes. I don't even see "Failure" as anything except "Quitting too soon."

Yes. Seemed funny that only 7% cited that.
 
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DennisD

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Yes. Seemed funny that only 7% cited that.
I think in this case they defined "pivoting" as becoming obsolete as a result of not evolving alongside market innovations.
  • Making candles after the invention of the lightbulb
  • Providing video rentals when everybody else is streaming
But who knows. I skimmed through the article and didn't even see where exactly they got their data from or how terms are defined.
 

Jam Wheel

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Yeah, I worked for a startup whose customers were the investors who wanted that big buyout. It was obvious that they didn't really care about adding value to people signing up to their service. It caused all sorts of product and user experience issues, because the business was faking it really.

My bf is currently at the very final point of interviewing for an interesting position with a startup that has a great product, UI, need, well positioned in the market, funding, etc. They also don't have a business model yet, which bothers me a bunch, and suggests they are partially playing the buy-out game. He did meet with the founders this week in the final interviews, and I plugged him on their backgrounds and there is enough there that would suggest the app heading towards the monetization model I would think they would pursue. Still... cmon people, you got $10M in funding and you don't have any monetization going yet? (I suppose current focus is in building a user base).

Curious as to how many of these businesses have ever "overpivoted" for lack of a better word.
 
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Andy Black

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a startup that has a great product, UI, need, well positioned in the market, funding

don't have any monetization going yet

How do they know there is a need if no-one's paying for it?

Who says the people signing up for free have a big enough need to pay for it later on?

Some SaaS business owners using the freemium model say that if they listen to the users on the free plan, they would add loads of new features, and those users would never upgrade anyway. Whereas the paying users ask for different functionality completely (typically improvements on the functionality they are already paying for). Some are moving away from the freemium model.

I suppose current focus is in building a user base

Businesses exist to create customers.

Customers have a custom of spending money with you.

If your users aren't spending money with you, they aren't customers.

So I'm not sure they're building a business.

(Can you spot I trained as a Mathematician? :))


Spend millions building a user base? Hmmmm...

"We'll work out how to monetise it later on" = "We hope someone will buy our user base soon"

I thought that model died with the dot com crash, but obviously it's alive and well.

There's a chance it can work alright. I think it's akin to playing the lottery though.

I'd personally prefer to get a customer first by finding a need, solving it, and adding value.

Which I believe is what MJ's book and this forum advocate.


EDIT: Forget "Minimum Viable Product", what about "Minimum Viable Customer"?
http://finding-marbles.com/2013/02/25/minimum-viable-customer
http://unicornfree.com/2013/how-do-you-create-a-product-people-want-to-buy
http://www.boards.ie/vbulletin/showthread.php?threadid=2055721635
 
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Zen Focus

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The #1 reason why startups fail in my opinion, is because their founders aren't mature enough.

They didn't pause and figure out how to first be a person. A real person. A human being.

Selfishness is very damaging. It causes one to have:
1.) Limited perspective
2.) The ignorance of others
3.) The need to put themselves first out of their insecurities & etc.

That is why you'll see failures as a part of every successful entrepreneur. They had to first fail, many times in life, and experience enough pain that just forces them to change how they think and live, before they finally become mature enough to do what's right.

And if a person has experienced enough pain in life, they'll better be able to feel others' pains.

When a person is able to sincerely feel others' pain, is when they'll be able to offer others the most value.
 

ClintonSkakun

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My top reasons for my failures have always been:
- No need / Too wide market (Made this mistake like 1000 times in the past 5-8 years, I finally learned)
- Bad marketing (where, when, which words and who --> follows the need) - It's hard to market a product with no need and no defined niche
- Bad delivery (Shipping stuff with fatal bugs, building way too much)
- Spending way too much time (8months - 1.5 years) coding full blown systems with no validation (which would have been made simple with a defined need and market)
- Bad business model (Not asking for money, asking too little, undervaluing the product, how it fit in to the marketplace and how I was going to get customers)
- No direction (changing my execution plan every 2 days)

23 years old and I'm much wiser than I was 5 years ago. Still have lots to learn, but I think the major things I'm at least aware of now and I've prevented myself from making the same mistakes in the past little while.

A lot of it has it to do with your mindset. Stop being afraid and waiting for your break. Go out and take it.

Also...stop thinking you have to build another social network or project management app. There are much easier to deliver solutions to unmet needs in places no one looks.
 
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Andy Black

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Wow. Love this. Rep+

The #1 reason why startups fail in my opinion, is because their founders aren't mature enough.

They didn't pause and figure out how to first be a person. A real person. A human being.

Selfishness is very damaging. It causes one to have:
1.) Limited perspective
2.) The ignorance of others
3.) The need to put themselves first out of their insecurities & etc.

That is why you'll see failures as a part of every successful entrepreneur. They had to first fail, many times in life, and experience enough pain that just forces them to change how they think and live, before they finally become mature enough to do what's right.

And if a person has experienced enough pain in life, they'll better be able to feel others' pains.

When a person is able to sincerely feel others' pain, is when they'll be able to offer others the most value.
 

Zen Focus

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Interesting stats and has got me thinking about "No Market Need " - which is my biggest concern for a product that my business partner and I are currently designing. Maybe someone here can help.

Our situation is basically this:
  • Business partner tells me of a problem a friend of ours has and we both agree on a solution (2weeks ago)
  • I discuss the problem/solution with my girlfriend. She agrees and would probably buy the product
  • Did some research on eBay - existing products seems to have a decent market (based on Alibaba margins are probably 2x-4x)
  • Google Keywords shows strong results
  • Friend and I agree we would target upper end of this niche
  • Created a physical prototype over the weekend and got his whole family to critique it (prototype is using different materials to what we want our final to be)
  • We take down valuable feedback from his family which is helping us redesign the product

Now our problem:
  • this product doesn't solve massive problem, it's more of a 'nice to have'
  • The products I mention on eBay actually solve more problems than our product. e.g. we solve 1, they solve 4 (with cheap looking material)
  • Our product is targeting higher end customers who would hopefully value this product more but we don't know that
  • By going higher end (higher material cost), we are basically shrinking our profit margins as we can't picture someone paying 2-4x the amount for our item vs existing products

What's do you guys think is the best way to test this product so that we can move forward or kill it. Finish the redesign and create a physical prototype OR finish the redesign in Photoshop and put up the picture on a test ecomm page?
Maybe you can try selling it Davo. Make a prototype, sell it to the people that's going to buy it in a sustainably profitable volume e.g. retailers/wholesalers. If they want it, you can make it.
 
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RogueInnovation

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Nice one MJ!

The #1 reason why startups fail in my opinion, is because their founders aren't mature enough.

Definately helps the due diligence/pivoting process AND properly identifying needs.
But more than that, it stabilises your financial position, and the tempo at which you fuel your business relative to your opportunities (some run too hot, most minor businesses too cold in a attempt to fake stability and consistency).

Curious as to how many of these businesses have ever "overpivoted" for lack of a better word.

Ha!
I think you can pivot your way out of a market. Like zen******* used to say "drill in one place, not 6 inches deep all over the place". You have to pivot with the realistic understanding of where results are and what is needed to get to them, otherwise pivoting isn't pivoting at all, its just moving furniture around in the hope that people care enough to trickle in. I think that pivoting in this sense is misunderstood.

To pivot, you need traction FIRST and to get that traction you need a great call to action.
Pivoting heightens what you have or OVERLOOKS what is working and BLOCKS OFF your revenue.

Lets take Coke as an example, and how they pivot, they would never DARE block off their key revenue streams, and they look very closely at new add campaigns.
Pivoting done right is very fragile, almost "touchy", BUT not at the beginning, only once you HAVE key strengths.

Problem is, most businesses neglect strengths and "over pivot" themselves to circulate around their own vision of "effective business".

You have to keep wide awake to what REALITY is telling you and not overlook the value of subtle strengths that naturally develop in your business. You also have to make sure you are not happy chasing your own tail and are fed up enough to just look at what works, and help bring out the best in that.
 

YellowFlash2012

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When ppl claim "no market need", i really wonder what they mean.

Jump in with a MVP and then start listing and collecting data, information and intelligence. It's thru that data mining that you'll find the market need.

Buy staying aloof and finding a market need, keep dreaming...

So all of you outta there seeing those stats, don't be afraid to jump in even if you are fully convinced no one needs your products. Just one thing I'd ask you: don't delay or delegate data/intelligence collection.

Entrepreneurship is a data collection endeavor. The more data you have the more you are positioned to find the missing median.
 

3things

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The original link list of 'startup failure' essays that this study compiled data from can be found here: http://www.cbinsights.com/blog/startup-failure-post-mortem/

There's 101 of them now, but some interesting reading if you get an afternoon spare. If i ever get the time I might hack together a kindle format doc of them all for ease of reading. Will share ITT if i get round to it.

Some stories you read and just sit in wonderment at how they got funded in the first place. I read some of the original list of 50 essays back in January, some good/sad/bad horror stories in there. Probably a good lesson/something to be learned from each and every story imho, well worth reading in long form anyway.

CB Insights also published a 10 page report about the top failure reasons, but MJ's post is a pretty good tldr; version of that ;)

This is a good one about not solving anyones problems/needs: https://medium.com/@michalbohanes/s...ailure-of-my-first-startup-dinnr-c166d1cfb8b8
 
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Nicoknowsbest

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Learn This One Thing And You Will Increase Your Chances For Success Dramatically.

I see it every day. I don't even have to look that far. I don't even need to read the newspaper. I just have to call a couple of my friends and ask them how their startups are doing. Many mistakes are being made, and you need to fail in order to succeed. No discussion about this. But I see people making the same mistake OVER and OVER again. It is a very simple problem, still it takes a huge effort to finally incorporate into your everyday behavior.

Most People Don't Know How To Listen

And this is the problem. Being able to listen is one of the most important skills you need have in order to succeed, no matter which stage you are at.

- If you want to build a business, you need to provide value. Providing value means that you are solving a pain point other people are struggling with. How do you find this pain point? You talk to people and LISTEN.

- You identified a need you might be able to serve and started pre-selling your "prototype" (no matter if physical or digital) to potential clients. How do you make sure that people really want to buy your product? You present people your idea and LISTEN to what they have to say. By listening, you will be able to make the modifications needed in order for people to be willing to buy it.

- You started your business, your sales are going up steadily, but suddenly hit a plateau. They even start decreasing a bit. In order to find the reasons for this, you need to talk to your existing clients and LISTEN.

"Most people think "selling" is the same as "talking". But the most effective salespeople know that listening is the most important part of their job." - Roy Bartell

Learn How To Listen And You Will Increase Your Chances For Success Dramatically

Everybody cries for a mentor. But very few will ever be mentored. Why? Because most people don't know how to listen. If the legends on this forum start a gold thread with unbelievable wisdom shared, people don't listen to what they have to say. They ignore the advice given and start screaming louder and louder if not heard. Who would you want to mentor? Instead of screaming the loudest, you should be silent and listen.

If you don't know how to listen, you become ignorant very easily. Once you are ignorant, selfishness is right around the corner. And this combination will make it nearly impossible for you to succeed. Because it is not about YOU. It is about what you will be able to GIVE.

Me, Myself And I

Recently I heard from a startup founder that all the investors are so shy and extremely risk-averse. No one would offer them funding. Well, after working on their business for more than two years, they have ZERO sales. Would you invest in such a business? How did it come to this point? They had SUCH A GREAT IDEA that they didn't even consider asking people if they would be willing to pay for it.

Don't Be One Of Those Guys. Learn How To Listen. You Will Save Yourself A Lot Of Pain.
 

3things

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Sorry to bump this, but per my post above, I actually had some spare hours today and managed to hack up an ebook [epub/mobi/pdf] which includes 77 of the better failed startup essays and articles mentioned above. So now you can just dump it onto your kindle or whatever and enjoy the convenience of having them in one place :)

Grab a copy here, i've put it up on Gitbook totally free as it's various assorted web content, I've just collated it into one file. Download in your preferred format or read online, you shouldn't even need to sign up.

https://www.gitbook.io/book/3things/77-failed-startup-post-mortems

Enjoy!

As an aside, I did this as a project to have a play around with the Git ebook creator - and I have to say, it's pretty slick/simple. Formatting is a breeze, super simple to use/get used to. The whole Gitbook platform is pretty nice actually, only stumbled across it today.
 

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