Why do SO MANY startups fail?

[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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[MiguelHammond10]

THE WRONG PEOPLE, hands down. Every single other issue are a subsidiary.

Practically every effective business in which I've contributed has included a turn, a re-situating, a key shake or some likeness thereof. The world is loaded with questions, and the dangers of these questions to a meagerly promoted start-up are army. The way these questions are explored is a component of organization vision and administration. Regardless of the possibility that the earth is poor, the demigod business visionary can cut costs, run lean, take advantage of a market require and go for incomes. At the point when things turn up, they can raise capital and pull out all the stops. Be that as it may, meanwhile they haven't kicked the bucket. They can oversee issues of frail capitalization, troublesome situations and wild contenders. Such a large number of organizations I've seen with incredible innovation and splendid authors have fizzled on the grounds that they needed awesome administration. I think it was John Doerr who said that he backs organizations and plans of action, not individuals. My thoughts are almost exactly the opposite.Great people with flexible minds, a customer-centric approach and nerves of steel win. Great people with high IQs and weak leadership skills need a perfect storm to win. Just my $.02.

 

[Kwikbitz]

Sorry, got to have my 21 penneth worth

Let's attack this the other way round, not 'Why do SO MANY startups fail?' but rather 'Why do so few startups succeed' the reality being that is the real question. OK the answer is complex and always will include an element of one factor - luck, but the ones that do succeed (and there have been plenty of them) have many thinks in common - innovation, open mindedness and the ability to see beyond what is possible - now.

Remember this what we see and read on the internet is out of date by the time we read it - what we have to do is think beyond that time, become time-travellers (if you like), voyeurs into the future whilst at the same time be scholars in history and have the ability to take a piece of history (an historic practice) and then link the to the future. Simply put, what did people do to access 'this or that service or product' and how can I trigger that feeling of comfort and familiarity but at the same time apply that to what can be done 'today'

Think of UBER (or not as the case may be , OK a simplified version - historically there were Hackneys (pony & traps) - hence the name Hackney Carriage - no phones etc. Hackneys would travel round looking for fares, people would hire them, then 'traps' became less expensive and horses 'popular' as the personal mode of transport - Then came the horse drawn tram - Hackneys 'falling' out of the market because trams could transport many people at a time for less cost and greater revenue, then the internal combustion engine .. horse drawn trams out -' cars in' but not everybody could afford a car so the 'automotive' Hackney Carriage become popular again - then cars became 'mainstream' most people owning one, 'automotive' Hackney Carriage become less popular again - ooops then we get congestion too many cars so people started calling upon the good old ''automotive' Hackney Carriage (taxis) again. We all get phones - to overcome congestion we can call taxis from anywhere .. and so on it's only a few more logical leaps to get to UBER.

So a 'modern' success story really has its roots in a 300 - 400 year old service. - What people did then applied to now.

 

[Longinus]

A guy I know has a hardware business. Since 2 years, it grows and he created a steady b2c customer base. I told him that he could scale his business and concentrate on b2b as well.

But, it's not going fast enough for that man. He wants to get rich and he wants it now. Started with MLM (which had nothing to do with his business) and started with LikeXL (some pyramid scam system).

Last week he called me to ask if I could help him with a computer problem of his b2b clients. He was angry and frustrated and swore it was the last business client he would work for EVER.

From then I knew his business will probably fail because:

• He doesn't want to do the dirty and uneasy work.
• He's impatient, seeks shortcuts and is easily lured into quick rich schemes.
• He can't see opportunity.

I've lend him TMF but based on his choices, he probably never glimpsed at it.

Just another failing startup.

 

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[hatzil]

Too many people that do not have a realistic business view of things. They may have the knowledge and talent(for example a group of app developers as a day job), but it is simply not enough. After all- building a business may require you to wear many different hats even if you are most talented as being X.
-The most innovative things are not always the most profitable as it seems people tend to think.
-Building a business with no market need
-HUGE investments without making a single dollar or at least proving a need are common mistakes in my opinion.
Even after successfully launching, start-ups may lack the importance of magnitude, scale, etc.
There are much more complexities, but in my opinion ( I live in Israel, and there is a lot of startups here) what I noted is the most common I saw.

 

[maverick]

The same reasons that most relationships fail...

- The founder just isn't ready to settle down. If the founder wants to "play the field" (try lots of ideas at once), it's unlikely that any one of them will "get to the next level." Unless, of course, the founder eventually finds one lovely business that he is ready to devote himself to.

- The two sides (the founder and the company) are just incompatible. They need different things. For example, some companies don't need an especially innovative product as as long as they have great sales and marketing; if you're a founder who is an innovator, this probably isn't a good fit. Or vice-versa.

- The founder has commitment issues. Just like with a relationship, if you can't commit, it will fall apart. Any many founders can't commit to an idea/business for long enough to make it work. They give up when the first fight/struggle comes along.

- The founder doesn't understand how much work it takes to maintain a successful relationship (business). Once the honeymoon phase is over, he's not ready to deal with the day-to-day struggles of keeping the business going.

- The founder chooses the business for the wrong reasons. Maybe your family pushed you into a particular business. Or your friends told you how great the business would be. Or you just picked the first business that came along. If the founder isn't in love with the business, it's going to be hard to handle the day-to-day problems that come up.

- The founder stays with a business that's not working because he's scared to admit it didn't work out or because he's terrified to start over. If you be honest about where your business is going (or not going), you're going to end up sticking with an unsuccessful business for way too long.

Good list. I'd like to make an addition:

- The founder doesn't have 100% belief in the idea or the co-founding team. If you're not convinced, you'll never be able to convince others.

I recently walked into an investment pitch (from us) where I hoped we wouldn't get funded as I felt it would only compound the issues we had as a team. This made my realize that I didn't actually believe our idea was viable myself so needless to say, I've stopped pursuing that idea.

 

[maverick]

A guy I know has a hardware business. Since 2 years, it grows and he created a steady b2c customer base. I told him that he could scale his business and concentrate on b2b as well.

But, it's not going fast enough for that man. He wants to get rich and he wants it now. Started with MLM (which had nothing to do with his business) and started with LikeXL (some pyramid scam system).

Last week he called me to ask if I could help him with a computer problem of his b2b clients. He was angry and frustrated and swore it was the last business client he would work for EVER.

From then I knew his business will probably fail because:

• He doesn't want to do the dirty and uneasy work.
• He's impatient, seeks shortcuts and is easily lured into quick rich schemes.
• He can't see opportunity.

I've lend him TMF but based on his choices, he probably never glimpsed at it.

Just another failing startup.

This is nothing personal, but I've seen this a lot on the forum and would like to propose a change of perspective. These people were brave enough to setup their own business, and have showed that they can fill a need (i.e. by finding customers). I'd suggest that if you have yet to make this step yourself, you save your judgements.

Everyone has their own journey.

 

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[Longinus]

This is nothing personal, but I've seen this a lot on the forum and would like to propose a change of perspective. These people were brave enough to setup their own business, and have showed that they can fill a need (i.e. by finding customers). I'd suggest that if you have yet to make this step yourself, you save your judgements.

Everyone has their own journey.

I think I didn't use my words well lol.

He did start with his computer business and because that wasn't going fast enough, he started following quick rich schemes afterwards. Not vice versa.

 

[minivanman]

Or maybe after all of these posts the simple answer is..... Oh look, a squirrel......

 

[MJ DeMarco]

the simple answer is

Hypothetical question...

If you formulated the cure to cancer, how HARD would it be to fail?

 

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[fhs8]

Why do so many startups fail? I would say that it's multi-factorial and based on the circumstances. Bad decisions, product/services that not many people want, not expanding, CPA cost is too high (business never gets big/efficient enough to be profitable), and etc can all cause a business to be more likely to fail.

Take a food truck business for example. The owners that are strapped for cash might buy a brand new truck instead of used, misprice items, don't advertise well, have items people don't want, have an inefficient way of making the products, and take out a loan to pay for the overspending. Then when the business fails the owner(s) scratch their head and just attribute it to luck and circumstances outside their control instead of the bad decisions they've made.

Blaming circumstances outside of one's own control is frequently used by poor people. For example: "I'm poor because the minimum wage isn't $15/hr. I can't control the minimum wage so therefore it's not my fault that I'm poor and there's nothing I can do to make more money."

 

[Ninjakid]

So looking back at some of the successful 'startups' you've been part of, what made them different?

I haven't been a part of a successful startup, and I'm not motivated to create one atm. I'm too comfortable with my current lifestyle, and I've taken a keen interest in investing. But should I ever embark on this path again, this is what I'm going to do:

1. Clearly and specifically solve an issue for people. I might even go up to random people and say "wouldn't it be great if you never had to worry about x?"
2. Having a realistic method to finance the operation.
3. Only having shareholders who provide essential value to the growth of the business, not just people who think it's a cool idea.
4. Setting clear goals, then subjecting myself to tireless work on them until they're accomplished.

I only started to make money when I implemented these points, and I'm certain if I was to apply them to a startup with the intention of making bucket loads of passive income, I could call the project a success. But like I said, today I'm not motivated.

 

[Jon L]

Hypothetical question...

If you formulated the cure to cancer, how HARD would it be to fail?

This is interesting because it goes along with what I've been thinking about while reading through this thread. Businesses need a few things in order to succeed. Miss any one of these, and you're out of business:

1) A marketable product (Cancer cure obviously checks this box)
2) Sales that can market the product effectively (Cure cancer, and people will beat a path to your door, so no worries here, either)
3) Operations that can produce/deliver/support the product (Said cure can fail here and bring down the company with it. Produce a bad batch of cure that kills a few thousand people, and there goes your company.)
4) Finance (enough money/cashflow/good cash management)

I think the reason why so many businesses fail is that owners/employees don't check all the checkboxes above. Its not enough to just check 3 of the 4. All four have to be managed correctly in order to have a viable business. That ain't easy.

 

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[SquatchMan]

Businesses fail because they have more cash going out vs coming in for a prolonged period of time (usually until their creditors get pissed).

Why do they have negative cash flow?

They aren't selling enough product at a profitable price.

Why aren't they selling enough product at a profitable price?

1. The product sucks (pull factor).
2. The process to deliver profitable product sucks.
3. The marketing of the product sucks (push factors).

Why does the product/process/marketing of the product suck?

The people that run the business suck.

Despite what the media tells you: businesses are nothing more than a group of people performing a process to sell a product.

 

[fxmm]

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

I agree with the part where most people build something that the market doesn't even want.

But after doing numerous startups, my opinion is that it comes down to the person/team. I have seen people with great business ideas but extremely poor execution and them not willing to truly hustle. And on the flip side I have people with a mediocre business with good execution and hustle succeed.

 

[Ubermensch]

I agree with the part where most people build something that the market doesn't even want.

But after doing numerous startups, my opinion is that it comes down to the person/team. I have seen people with great business ideas but extremely poor execution and them not willing to truly hustle. And on the flip side I have people with a mediocre business with good execution and hustle succeed.

Right.

It's like walking into a gym in the United States; you see all types. You see the young kid just starting to lift, lowkey embarrassed about the smallness of the plates on his bar. You see the guy trying to bulk up by doing nothing but curls and isolation exercises, instead of doing what he should do - the hardest, heaviest lifts (squat, deadlift, bench, etc), focusing on natural testosterone production.

And yet, most people do not do the hard work necessary to create a god-like (or goddess-like) presence in the mirror. Just like hustling, it requires sweat, commitment, focus, passion, and the desire to level-up at every step of the process. Hence why I say wealth and health (whealth) should be intricately linked, especially for us millennials pulling in location-independent income.

 

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[StartToday]

I know of many people who start businesses that require a lot of capital but returns aren't that great, not even good.

A lot of them quit in a matter of months because they can't keep up with costs.

 

[hungryhippocampi]

I have had three friends pitch their business on Shark Tank. One bombed miserably, one got some funding and is doing okay and the other one hit it out of the park. What's the difference between the three?

Numero Uno -- never validated his idea, had no sales, the value proposition was bad and it was in an area he knew nothing about. His product was overpriced and he could not articulate why anyone would pay that price.
Numero Dos - he solved a problem he had as a cyclist but his solution was limited to a small passionate group. He knew his value proposition and the problem he solved, had some sales, and knew his market well.
Numero Tres - his wife stumbled onto the market out of her passion for crochet and it took off. Market fit! They had established scalable production and direct-to-consumer distribution channels, had massive sales, the market was huge and with a little more exposure they would blow the top off the thing which they did.

So, when considering why Fastlane startups (not franchises) fail I would boil it down to these two things:
1. No market fit -- you either aren't really solving a problem or the problem you're solving doesn't have scale, magnitude, or passion by consumers to change.
2. People - you don't have the drive, knowledge, or the drive to get the knowledge, you may be unteachable and therefore will never learn to pivot, you overestimate your returns and invest in office space and personnel prior to being able to pay for it, you don't have a clear monetization strategy, you don't build your business to be scalable, you put OTHER people in control of critical functions (sales for example), perhaps your startup is just a conversation piece and you really don't want to put in the time/effort to be successful, or you let the dream stealers sew seeds of doubt and they choke off your money tree.

Just my $.02.

 

[silentownage001]

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?

Have you read Zero to One by Peter Thiel? He said the exact same thing. There's no point in trying to figure out what went wrong because there are probably many things that contributed to failure and you can't pick one above all the others.

 

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[Flybye]

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

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

#7 is what has me worried at the moment as I mentioned in my thread about how much is enough to start a business with to cover a lease if you plan for zero sales

Opening up the doors - how much should you have saved up for the lease?

How long are you even supposed to plan for if a zero sale scenario did occur?

 

[Flybye]

Have you read Zero to One by Peter Thiel? He said the exact same thing. There's no point in trying to figure out what went wrong because there are probably many things that contributed to failure and you can't pick one above all the others.

Even so shouldnt one at least recognize the fault in order to not do it again in the future?

 

[silentownage001]

Even so shouldnt one at least recognize the fault in order to not do it again in the future?

That's my thought as well. You can figure out what mistakes you made to avoid making them again, but you may never be sure as to what really killed the business.

 

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[TonyStark]

Probably because there was no real need for them to begin with.