Why do most startups fail?
“Everybody has a plan until one gets punched in the face” — Mike Tyson.
This saying stands very true for most entrepreneurs who delve into the fantasy world of startups. They have a plan, a team, a brand, funding and all the makings of a successful startup and yet most of the startups emerge as failures.
According to the statistics, 90% of new startups fail and 75% of venture-backed startups fail.
Under 50% of the businesses are able to live up to their fifth year and only 40% of the startups make a profitable income.
So, the question these stats pose is why do most startups fail?
Let’s look at some of the main reasons for the failure of startups in general.
“Time isn’t the main thing. It’s the only thing.” — Miles Davis
In his Ted Talk, Bill Gross from Idealab, talks about timing being the most important factor in determining the success or failure of startups, closely followed by other factors such as idea, team and execution, business model, and funding.
When startups launch at a time and place where the market isn’t ready for the product and technology, the product offerings are likely to fail.
Consider the example of Google Glass. Google Glass was a venture launched by one of the biggest companies in the world, Google and yet it failed to take off.
The reason behind it’s failure was simple: too innovative for its time. It tried to launch technology that was ahead of its time and hence was expensive.
Consumers weren’t ready and the product tanked.
Startups, such as Airbnb and Uber went on to succeed because they launched at a time when market was already showing signs of acceptance and requirement of on-demand services.
Knut Haanaes, a professor of strategy at IMD business school, talks about two reasons why a startup fails.
According to him, its all about a “balancing act between exploitation and exploration”.
Businesses need to find a perfect balance between being innovative and being stagnant.
Companies shouldn’t become too comfortable in what they have already succeeded in neither should they try to be always and extremely innovative.
In an article, CB Insights listed 20 reasons why startups fail.
One of the reasons is no market need. It kind of resonates with being too innovative and ahead of time. In both of the cases, if there are no consumers, there is no business.
Some others include lack of funding, underestimating the competition, poor customer service/relationship management, and burnout.
In the end, let’s have a look at some of the failures in the startup world that failed big.
Jawbone, a wearable technology company, failed because of over funding. It tried to delve into markets that had too many competitors or else they were fading away.
Shyp, a shipping company, failed due to improper business model.
Yik Yak, an anonymous message sharing company, could not change with the changing dynamics and tech environment and soon lost its charm with the emergence of other chatting and social sharing apps.