Why do Startups fail?
I’ve been associated with entrepreneurs and startups for a number of years, one thing that predominantly strikes out is that the majority fail in the first few years. In fact, after five years only one in ten is still in the race. If more than two-thirds never deliver a positive return then what makes the journey so enterprising? This is one question I try deciphering as no easy answers are available.
I have drawn from my experience of creating entrepreneurs through my soldiers while in the Army, brainstorming with entrepreneurs, my experience as an Angel investor, and my work with startups as a Mentor with the sole aim of creating a sustainable venture.
If you have been to a racecourse then you will hear about horses and jockeys, and a sauve investor bets on a seasoned jockey. In the startup context, the horse represents the opportunity and the jockey is synonymous with a founder. I have been a Mentor in angel investing communities where when forced to choose most investors would favor an able founder over an attractive opportunity. The important question was when this new venture would eventually stumble most were opinionated to cite inadequacies of the founder, their lack of leadership acumen, industry ability, and inability to exhibit moral fiber during adversity.
Although there are plenty of reasons, in order to simplify things I’ve chosen to focus on two prime reasons for the sake of simplicity and ease of understanding. The number one reason was “no market need” or in other words, there was no customer. Startups fail when they are not solving a market problem. They may have great technology, great data on shopping behavior, great reputation as a thought leader, great expertise, great advisors, etc, but the need was technology or a business model that solved a pain point in a scalable way. If only the start-up founders had listened to the customers they were trying to serve. The folks at a web content management system company admitted not prioritizing customer input, saying, “We spent way too much time building it for ourselves and not getting feedback from prospects — it’s easy to get tunnel vision.”
Another major reason for failure was not having the right people on board. The lack of alignment among the founders and/or their investors was equally to blame. Business is fundamentally a human endeavor – humans trying to connect to other humans. Products, technology, business models, funding – success in these dimensions are the result of getting people right. So ultimately start-up success comes down to people – the people inside the organization and the people outside it (customers).
Oftentimes the lack of integration and alignment between these two groups of people is why startups fail. The biggest, most tragic failures happen when people inside the company don’t care about customers, or don’t cultivate a culture centered on the customer. Sir Richard Branson has built his global business empire on his unique principles and ethics where the common adage, “The customer is always right” he has espoused the cause of, “Clients do not come first. Employees come first. If you take care of your employees, they will take care of the clients.”
Let these two reasons be the foundation of your success and serve as stepping stones for aspiring entrepreneurs. People must be your priority and they must be aligned. Your customers and your people drive your business. Ignore them at your own peril.
The startup ecosystem can learn from the mistakes of others and benefit from the knowledge potential shared on this platform to overcome the jinx of research which concludes 21.5% of startups fail in the first year, 30% in the second year, 50% in the fifth year, and 70% in their 10th year.