Why do SO MANY startups fail?

[AllenCrawley]

I mentioned this in another thread the other day.

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

The top reason? They make products no one wants.

"When the founder of a startup company shuts down her or his business, it’s customary to pen an essay that tells the rest of the community what went wrong. Call it a failure post-mortem. Nine out of 10 startups fail, which is why the failure post-mortem has become so common that it’s practically a Silicon Valley cliché. Some of these essays are honest, enlightening, and brave. Others point fingers or issue backward non-apologies. Medium, the publishing platform, is the preferred medium.

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. Starting a high-growth business is a roller coaster. Founder-CEOs feel pressure to keep up the facade of success, even when things are actually falling apart behind the scenes. Only recently, after the tragic suicide of Jody Sherman, CEO of a startup called Ecomom, did the technology community begin to publicly acknowledge the problems with its “entrepreneur as hero” narrative. Publicly admitting to failure, and examining it, can take guts. It also distills the narrative to a case study from which other entrepreneurs can learn."

 

[StompingAcorns]

So here's my question - you read stats constantly about how 90% of startups fail and it's the most difficult thing you'll have to deal with. Are these people who just disobey the fastlane commandments? People who don't work hard? Open up needless businesses, chase things they love doing, or franchises? How could 90% of startups fail it seems like so many unless these make up a large chunk of "do what you love" people.

I agree with many of the above posts, especially @AllenCrawley , and can tell you the common pitfalls I saw as a small business consultant.

1. Product/service no one wants was among the top. The vast majority of small business owners I met were people who had some skill or even just an idea, and a friend or relative said, you should open a business, or they said to themselves, hey I really like doing this, I should have my own business, and so they did. But they didn’t establish the need first and had not the first clue who might be interested in buying what they sold.
2. Corollary – lack of competitive research. They had no idea what the competition looked like and no plan for how to establish their business in the context of the market.
3. Competing on cost. As a general rule, small businesses are unable to compete on cost due to their lack of buying power and must establish added value in other areas. Competing on cost often starts a vicious down growth cycle. But most new business owners thought this was the right way to start – precisely because they hadn’t established the need.
4. No marketing ability and unwillingness to pay for it or learn it. Many people thought that if they bought an expensive store front (i.e., rented, renovated, furnished, inventory, employees) in a new development that the sales would automatically happen. They never established the need, and they had no clue how to market their business. (It always made me very sad to see this - people often lost their life savings opening store fronts.)
5. Speaking of buying store fronts, cashflow was another issue. Most small business owners have no clue how to manage this. It kills many B&M and manufacturing businesses, especially.
6. Belief in the almighty patent. If I patent it, someone will buy it and I’ll make a million. Wrong. You will be the one proving the idea by getting out there and selling it first, to establish need. Another common one – ideas they wanted to patent that offered little value against established goods or were too easy to bypass via alternative designs (i.e., not much substance to the design). (This is more a wannabe failure than an existing business failure.)
7. Speaking of marketing, stopping marketing. Established business owners, when facing tough seasons, will cut marketing first, which often contributes to the death of their business. Also goes back to cash flow.
8. Unwillingness to delegate. The small business owners that I met who usually succeeded to some measure were those who were determined and worked long hours. They also tended not to know how or be willing to change their processes in order to delegate. In most businesses, you can’t grow but so far until you’re willing to delegate (and put in the appropriate checks and balances). This also led to the death of their business through sheer exhaustion – after a point, they simply couldn’t keep up with it anymore. They got burned out but wouldn’t delegate and couldn’t or wouldn’t scale back.
9. Inability to implement systems and processes. This is especially apparent with the people above and goes hand in hand with unwillingness to delegate.
10. Not paying taxes. Rut-roh. That bill does eventually come due. Goes back to cashflow issues.
11. Then there are the ones who go into business with their family or their best friend – and it becomes all drama and no business getting done.

There’s probably more, but that’s off the top of my head.

 

[GMSI7D]

I was curious to just garner some opinions on this topic. I'm a successful 25 year old business person, I've work in sales and marketing and understand hard work and persistence - branding a product properly and hitting the ground to sell the crap out of it, dealing with rejection. I'm leaving my job at the end of the year to sell my software full time, which I have yet to sell however I know I've been honest in honouring the fastlane commandments that it's a product I've directly seen and heard a large need for, the barriers to entry have been difficult, I control it, it's scalable, and it will be independent of my time. I know I will have to adjust along the way, but to be honest - with hard work I don't see building a business to be that difficult if you work hard and honour the fastlane commandments.

So here's my question - you read stats constantly about how 90% of startups fail and it's the most difficult thing you'll have to deal with. Are these people who just disobey the fastlane commandments? People who don't work hard? Open up needless businesses, chase things they love doing, or franchises? How could 90% of startups fail it seems like so many unless these make up a large chunk of "do what you love" people.

that's what Michael Gerber's books are all about : the myth of the entrepreneur

https://www.amazon.fr/dp/0887307280/?tag=

people say " i am smart enough, i can do the technical work so i will go into business"

but reality does not work that way

reality says " go read books and watch programs on entrepreneurship and then go into business"

i don't understand why people don't watch free programs offered by marketing geniuses like Jay Abraham

http://www.abraham.com/50shades/

i don"t understand why people waste time on absurdities like television, socializing too much and so on.

i ask these people : " will TV programs make you rich ? " and " will people you talk to at the bar make you rich ?"

the point is 98 % of people dont even know what they want in life. this is not my opinion, this is famous authors like Napoleon Hill opinion.

 

[devine]

Because 90% of startups have nothing of substance.
Just because entrepreneurs want money - is not a sufficient reason for people to pay them.
All these startups are just people screaming "I want money" with different words, using different design and marketing.

 

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[Green Destiny]

I think a lot of people like the idea of owning their own business or being an entrepreneur with zero understanding of the reality that it involves.

I used to work in the hospitality industry and it attracts so many of these types, starting restaurants, hotels, coffee shops etc with absolutely no idea what they're doing. So when you look at the failure rate, you have to figure out that a huge percentage of people never should have started in the first place, then you factor in the people who don't follow cents principles like you say and it accounts for most of the failure rate I'd say.

 

[MJ DeMarco]

I mentioned this in another thread the other day.

[Souce: Startups are failing because they make products no one wants]

The top reason? They make products no one wants.

"When the founder of a startup company shuts down her or his business, it’s customary to pen an essay that tells the rest of the community what went wrong. Call it a failure post-mortem. Nine out of 10 startups fail, which is why the failure post-mortem has become so common that it’s practically a Silicon Valley cliché. Some of these essays are honest, enlightening, and brave. Others point fingers or issue backward non-apologies. Medium, the publishing platform, is the preferred medium.

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. Starting a high-growth business is a roller coaster. Founder-CEOs feel pressure to keep up the facade of success, even when things are actually falling apart behind the scenes. Only recently, after the tragic suicide of Jody Sherman, CEO of a startup called Ecomom, did the technology community begin to publicly acknowledge the problems with its “entrepreneur as hero” narrative. Publicly admitting to failure, and examining it, can take guts. It also distills the narrative to a case study from which other entrepreneurs can learn."

View attachment 12995

Yup, most of the reasons can sum up to the product.

And yet, very few discussions (at least when I went to school) discuss how to make a product people want. As far as I know, value arrays, value attributes, and value competitions is something I've coined and identified, but I'm sure, will be stolen by a lurking wannabe guru.

 

[TreyAllDay]

I was curious to just garner some opinions on this topic. I'm a successful 25 year old business person, I've work in sales and marketing and understand hard work and persistence - branding a product properly and hitting the ground to sell the crap out of it, dealing with rejection. I'm leaving my job at the end of the year to sell my software full time, which I have yet to sell however I know I've been honest in honouring the fastlane commandments that it's a product I've directly seen and heard a large need for, the barriers to entry have been difficult, I control it, it's scalable, and it will be independent of my time. I know I will have to adjust along the way, but to be honest - with hard work I don't see building a business to be that difficult if you work hard and honour the fastlane commandments.

So here's my question - you read stats constantly about how 90% of startups fail and it's the most difficult thing you'll have to deal with. Are these people who just disobey the fastlane commandments? People who don't work hard? Open up needless businesses, chase things they love doing, or franchises? How could 90% of startups fail it seems like so many unless these make up a large chunk of "do what you love" people.

 

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[MJ DeMarco]

He doesn't know. It's just another Quora answer.
https://www.quora.com/Why-do-so-many-startups-fail

Great find again! We already banned his other buddy who did the same thing. Now he's banned too.

What is your definition of "truly successful"?

You're talking to a brick who doesn't respond with his own content. And now he is banned.

 

[CareCPA]

Really? What is your definition of "truly successful"?

Now, if you said, "To be truly successful on the Internet you need to leverage a site/platform that is one of seven sites that a large swath of users regularly use", I might have been on board with you.

He doesn't know. It's just another Quora answer.
https://www.quora.com/Why-do-so-many-startups-fail

 

[Raoul Duke]

entrepreneurial seizure

 

[nradam123]

Well. I will tell you from what I have read.

Startups need cash to survive.
The way Gary Vaynerchuk puts it, Startup is like a human being.

• Humans will live on soda and sugar. And they will live longer with healthy food.
• But without oxygen humans wont last more than 10 minutes.

For startups messing around with customer support, quality product, giving value .etc are like choosing between soda and healthy food. Its important to survive for a long time.
But for a startup cash is oxygen. Without cash, business will die instantly.

So businesses fail due to lack of cash flow.

How does cash flow stop for a business?

Reason 1: Disruptive Technology. You can refer the book "Innovators Dilemma" to read more. This is one of the core reason for death of many fortune 500 companies. For example replacement of rope shovel by hydraulic shovel in the mining equipment industry lead to death of nearly 32 companies in 20 years. Also it lead to the emergence of new companies like Caterpillar. Another example is the disk drive industry. As technology changed from Mainframe computers to Mini Computers to PCs dozens of million dollar industries perished from 1960s to late 1990s. Disruptive technology is the most unpredictable cause for a business to fail in a very short span of time.

Reason 2: Getting too comfortable. Once a business gets bigger everything will become a process. Process is perfect for a business to remain the same but not to grow. If you stop growing there is a competitor growing faster than you.

Reason 3: Relying too much on investment. This is big, and happens all the time. Investment is great, but you cannot get funding forever. Startups burns cash to acquire customers, grow social media and what not - until all cash is burned. And what happens if there is no cash? Cash is oxygen, so you know what happens.

There are many other reasons as well, but finally all of it boils down to lack of cash. Period.

 

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[luniac]

Maybe 100% fail, but 90% percent quit after 1 try.

 

[Andy Black]

(Forgive me if I've already mentioned this in this thread... I can't remember.)

I think it was a line from James Altucher that stuck with me:

"You can get money from customers or investors, but not both."

Boom. That explained my experience in a startup.

While the CEO was off courting investors and we were working to create hockey stick growth, no-one was looking at generating revenue from customers.

Our market wasn't the customer, it was investors and businesses who might buy us.

Naturally, we knew more about them than the poor users who signed up to the platform we were building.

Naturally we didn't add much value to those that signed up and they reciprocated by keeping their money firmly in their pocket.

Russell Brunson reasons that startups that take investment are cheating. They're not cheating to win the game. They're cheating by skipping steps in the entrepreneurial process.

Maybe I'm being naive... I don't deal with investors, or businesses that need investment.

James Altucher's line is stuck like a splinter in my mind though.

Last year I wandered into a local enterprise office to find out if there was an incubation centre nearby so I could get a cheap office. The lady there was so excited about what I do that she said I could have a HPSU (High Potential Startup). Off she went to get a rake of forms.

I left the office disappointed and binned the forms.

It would have been a full-time job for me to fill in the forms and learn the dance needed to get the grants and investment on offer.

I'd have gone out of business if I'd neglected my clients like that.

I'd have never learned what the market will pay me to build.

Whenever I hear of businesses trying to get investment I wonder why they can't get the money they want by generating revenue instead...

 

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[ZCP]

cashflow

 

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[Kung Fu Steve]

Without knowing the story of the anonymous 90% of failing startups you mention we can only speculate. Lack of cash, lack of demand, lack of sales, lack of customers -- whatever.

My suggestion is always the individual.

Our patterns and habits tend to determine success or failure.

 

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[GuestUser450]

It's self importance. And all problems (capital, marketing, sales, customer satisfaction, etc.) lead back to the individual rationalizing bad business decisions based on personal want.

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.

And leave them vulnerable to another mistake. The fail parade mints revisionist historians who rewrite their startup obits, without really knowing what killed them. Why isn't "I don't know." ever given as the reason?

 

[maverick]

90% of the time consumer Internet companies fail for one reason: Inability to acquire and retain a substantial number of users. In isolation the founders can articulate a reasonable value proposition, but in the real world cutting through the clutter of the 3,000 advertisements per day that the average American is bombarded by is extraordinarily difficult. There are only 24 hours in a day and most are already claimed by family obligations, work, sleep and existing entertainment options; even if you get a user's attention your new product needs to be so compelling that he is willing to forego something else he is already invested in.

To be truly successful on the Internet, you need to build something that becomes one of seven sites that a large swath of users will regularly use. Quite difficult.

Not entirely true. I use Uber whenever I need a cab. Doesn't mean they're on my "seven sites" list. Same goes for spotify, netflix and any other SaaS I use. When I have the need, I use it. Doesn't necessarily mean that I use them frequently.

Like @AllenCrawley, @MJ DeMarco, @Vigilante and other regular contributors have said before:
Businesses/startups fail because they don't have a compelling value proposition.

Building a Compelling Value Proposition | Startup Secrets

 

[Ninjakid]

Because most of them are trash.

I make websites and apps, and some of my clients have been startups.

I remember this one where they wanted to make a poker website, but it was EXACTLY the same thing as a pre-existing one. Nothing new, no ideas about how to provide more value. Just do the same thing and make millions.

Another time a guy contacted me to build the Android version of his startup app. Their VP was a degenerate who tried to sabotage their startup over a disagreement, but apparently was "still considered part of the company." The dude who contacted me was practically begging me to accept shares instead of cash, which I had no interest in, then tried to sell me some cockamamie scheme about how I would get money from this without them paying me. It was seriously pathetic.

Once I was working from my laptop at a coffee shop and overheard these two dudes talking about a kind of app they wanted to make. They came up with nothing and the whole conversation was moaning about how hard it is to come up with ideas. I can't imagine they got anything done.

The last startup I was in the dude who came up with the idea had some new convoluted plan every week, and it was impossible to get anything done and stay on track. That and every idea I had ended up getting shot down because it seemed "too difficult" which is why I left and won't ever have a startup again unless I'm calling the shots.

Just about every startup is worried about getting their idea stolen because they think they're going to be the next facebook.

Sometimes people will have a "business" but it's really an MLM.

So you see, the reason most of them fail is because most are trash.

 

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[AllenCrawley]

To be truly successful on the Internet, you need to build something that becomes one of seven sites that a large swath of users will regularly use. Quite difficult.

Really? What is your definition of "truly successful"?

Now, if you said, "To be truly successful on the Internet you need to leverage a site/platform that is one of seven sites that a large swath of users regularly use", I might have been on board with you.

 

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[CareCPA]

Great find again! We already banned his other buddy who did the same thing. Now he's banned too.

I come here for original information. If I wanted Quora answers from "experts" I would just go to Quora.

 

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[G-Man]

I come here for original information. If I wanted Quora answers from "experts" I would just go to Quora.

Would the answer to what makes people plagiarize random people on the internet give insight into why most startups fail?

 

[cutthroughstatic]

Oh, and a big red flag for me from a prospect is:

"I've this idea for an app..."

Nooo... Please make it stop!!!

But, but... it's a gamechanger! Just look at how much revenue farmville generated! I have an idea for the next farmville!!!!!!

HEY CAN SOMEONE DEVELOP THIS APP FOR ME I CANT PAY YOU BUT ITS A GREAT IDEA ILL GIVE YOU EQUITY IN MY COMPANY IT WILL BASICALLY BE LIKE FACEBOOK ONE DAY ANY DEVELOPERS OUT THERE PLZ?

 

[TreyAllDay]

entrepreneurial seizure

Had to google that one But interesting read! Thanks. I've seen this happen a lot- our graphic designer left last year to start her own graphic design company and it was just "Kate's design".... Just a technical person trying to make money doing their technical skill and it never lasts.


Sent from my iPhone using Tapatalk

 

[Jon L]

you say you haven't started selling your software...why not?

 

[Joe Cassandra]

Most of the reasons have been hashed over. Here's an example that I was involved in while in college...

I took a job after my freshmen year in college to work at a local Quiznos. The guy, Remy, who started it:

- 40-50
- 3 kids, married
- Worked full-time at Intel (or IBM don't remember). He would sit in the back doing his work for Intel and watch us over the surveillance cameras to make sure we weren't goofing off or eating the food.​

-----------
At the time, I knew nothing about business, so I'm drawing lessons from my memory.

By the way he acted towards us and his business...it's obvious he thought this was a ticket to riches.
He'd probably watched some other Quiznos in downtown Atl that bustled from 11am - 3pm, and thought 'Hey, I could get rich from this.'

At a lowly $7/hour, you're obviously not going to attract the best workers. So, you can imagine, I worked with druggies, drug dealers, unreliable teenagers etc. Remy wanted the cheapest labor. He even had his kids volunteer for free (and they didn't want to be there).

Remy picked a tiny back-corner on the corner of building at a busy intersection for his Quiznos. What he probably didn't realize, you couldn't see our little sub shop from the intersection because we were in the flippin' back corner...

Remy's only marketing was having me stand on the corner with a sign saying '$5 lunch combo special!'. Think it got a few people until the cops told me it was illegal to stand there. Remy still sent me out there.

Obviously, as a franchise, there are restrictions on what Remy could do marketing-wise. So, in his case, he needed to do 3 'types' of marketing:

---> Incredible service so people wanted to come back
---> Tasty food made exactly as it should and baked beautifully
---> Incentives for repeat customers...Remy needed to be there at lunch to see the regulars come in.
---> Get involved in the community. With the parks and team to build up the 'Remy' brand. (Chick Fil A's are incredible at this)

[No, he didn't do these.]
-----------------
Remy never thought long-term about the business. He lived day-to-day hoping there was a little more in the cash register when the doors closed at 9pm.

It was a hope-and-pray mission. He'd skimp on soap to clean the dishes, and toilet bowl cleaner...anything to save a penny. He was an employee with pipe dreams of being an entrepreneur. He wasn't ready. You can't go from 0-6mph in 2 seconds and expect not to crash.
With 3 kids, and a wife plus a full-time job, you can see where this is going...​

-------
3 years later, the Quiznos closed.

 

[BrooklynHustle]

I was curious to just garner some opinions on this topic. I'm a successful 25 year old business person, I've work in sales and marketing and understand hard work and persistence - branding a product properly and hitting the ground to sell the crap out of it, dealing with rejection. I'm leaving my job at the end of the year to sell my software full time, which I have yet to sell however I know I've been honest in honouring the fastlane commandments that it's a product I've directly seen and heard a large need for, the barriers to entry have been difficult, I control it, it's scalable, and it will be independent of my time. I know I will have to adjust along the way, but to be honest - with hard work I don't see building a business to be that difficult if you work hard and honour the fastlane commandments.

So here's my question - you read stats constantly about how 90% of startups fail and it's the most difficult thing you'll have to deal with. Are these people who just disobey the fastlane commandments? People who don't work hard? Open up needless businesses, chase things they love doing, or franchises? How could 90% of startups fail it seems like so many unless these make up a large chunk of "do what you love" people.

I think the top reason is building something nobody needs or wants

(no idea how this data was sourced, but #1 sounds right)

 

[Ubermensch]

Most people don't do what's necessary to succeed. Period.

 

[Andy Black]

GREAT thread. Love all the opinions given here. The general idea from many seems to be that startups fail because they are focused on the founder's needs, rather than the user's potential wants or desires. No value? No business.

A recommended read is Pat Flynn's book "Will it Fly"

I know Pat has a spotty reputation with some because his main income stream is affiliate marketing/telling people how to make money online/bluehost. But the book is actually really good, and outlines some super practical and applicable steps for gauging potential demand and finding wants in the marketplace.

If people put half the time in developing a business plan based around actual wants and desires rather than abstract projections and "potential size of the market", way more businesses would succeed.

Also, most people don't have the balls to do what it takes. Thats a big part of it too.

This reminds me...

IMO a business plan should be a spreadsheet of what's already been done, not a pretty presentation of what could be.

I've seen it... achingly beautiful 59 page Powerpoints, a full on cathedral drawn in the clouds and built on thin air.

Excel beats PowerPoint.



"Tell me what you've done and I'll tell you who you are."

 

[minivanman]

Let's use your friend Kate for example. She wanted to do graphic design but once she started her own business, that went out the window. Graphic design was the EASY part of it, the rest of the business is what she should have been interested in and concentrating on. I used to try and help many struggling moms start their own cleaning business and they always thought it was about cleaning. Hell, anyone can clean but not everyone can run a cleaning business. I bet I tried to help 2000 girls and I only know of a hand full that actually succeeded.

I saw this just tonight. This show was not about selling at all, it was about 2 girls having boyfriends that were messing around on them but here is what I observed (this was one of those real life shows the lil woman had on as I was near the tv)..... 2 young girls at a flea market. 1 girl made these really nice little trinkets with glitter, all clean and looked nice and they were new. The other girl had used things such as stuffed animals and used trinkets, not so clean but not dirty. The girl with the glitter stuff sat in her moms car because she was cold (her mom kept telling her to get out and sell). She sold nothing all day. The girl with the used stuff was out talking to people and all bubbly, she sold almost all of her stuff. That is basically the difference in being a success and a failure. Today I screwed off and waited for a sale to come to me all day, finally I gave in, did 15 minutes worth of work and made $352 profit. Don't let laziness take over. You may have the best stuff out there but if no one knows......

 

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[Green Destiny]

Reason 1: Disruptive Technology. You can refer the book "Innovators Dilemma" to read more. This is one of the core reason for death of many fortune 500 companies. For example replacement of rope shovel by hydraulic shovel in the mining equipment industry lead to death of nearly 32 companies in 20 years. Also it lead to the emergence of new companies like Caterpillar. Another example is the disk drive industry. As technology changed from Mainframe computers to Mini Computers to PCs dozens of million dollar industries perished from 1960s to late 1990s. Disruptive technology is the most unpredictable cause for a business to fail in a very short span of time.

Some good points above but I think for established businesses Disruptive Technology is a big one. A lot of companies seems to bury their heads in the sand when the barbarians are at the gate and they end up paying the price for this. The long term, successful companies however, light up the barbecue and feast on their own sacred cows, realising if they don't someone else will and they'll starve to death anyway.