We all know the success stories of Facebook, Airbnb, Twitter and Uber.
But only 5% of startups are successful.
In a detailed review of over 2000 startups financed with venture capital reveals that more than 95% of the startups fail to see return on investment. And 40% of US startups liquidate all assets, with investors losing all their money.
Startups fail according to the study because the old management methods of a good plan, a solid strategy and thorough market research don’t work for startups, as they operate with too much uncertainty. An analysis shows us the top 20 reasons why startups fail.
- Insufficient market need . . . 42%
- Ran out of cash . . . . . . . . . 29%
- Poor management team . . . .23%
- Beaten by competitors . . . . . 19%
- Price/cost issues . . . . . . . . . .18%
- Poor product . . . . . . . . . . . . . 17%
- Poor/no Business model . . . .17%
- Poor marketing . . . . . . . . . . . 14%
- Ignore customers . . . .. . . . . .14%
- Product mistimed . . . . . . . . .13%
- Lose focus . . . . .. . . . . . . . . . .13%
- Disharmony with investors . 13%
- Bad pivot . . . . . . . .. . . . . . . .10%
- Passion fades . . . . . . . .. . . . .9%
- Poor location . . . . . . . . . . . . .9%
- No investor interest . . . . . . . 8%
- Legal issues . . . . . . . . . . . . . . 8%
- Did not use advisors . . . . . . .8%
- Burn out . . . . . . . . . . . . . . . . .8%
- Failure to pivot . . . . . . . . . . . .7%
There is seldom only one reason why start-ups fail, this is why the list exceeds 100% The main reason though why startups fail, is that the founders have a ‘big idea’ and come up with a so-called solution for something there is no market need.
A successful start-up needs three ingredients:
- a relevant market need (ideally a painkiller and not merely a vitamin – thanks Jerry Engel)
- a feasible simple solution and
- a viable business model.
The way to get things done is not to mind who gets the credit for doing them.
