The Top 4 Reasons Startups Fail, According to 14 International Accelerators
Inadequate Testing was by far the most mentioned reason for startup failure. This factor is identified by several other terms like not getting started, not understanding how to access the market, and not understanding the barriers to entry. But Greg Wright, founder of HATCH pitch put it quite succinctly, “failure to test and validate hypotheses and assumptions,” and its corollary, “premature scaling (seeking/obtaining funding too early, ramping production/team/advertising before achieving product-market-fit).”
Keith Hopper, CEO of Danger Fort Labs adds, “Not addressing an important enough need that customers are willing to pay for.” Ben Hsieh, program manager of Nest and Jason Cole, CEO, of Da Primus Consulting both agree that “not finding product market fit” is a main cause of failure.
Team Incompatibility was the second most mentioned cause of start-up failure. We were surprised at how often this roadblock to success was mentioned. It’s about how the members of the founding team work together and whether they have the proper skill sets to overcome the challenges ahead.
Elza Seregelyi, director of L-SPARK points out that a “fatal flaw in (a) founding team (is when) founders who are self-aware may successfully get help to overcome a gap or conflict in a certain area, but those who are blindly one-sided (e.g., too technical or lacking domain expertise) or dysfunctional as a team will be unable to execute.”
Keith Hopper, CEO of Danger Fort Labs says, start-ups can fail because of a “lack of a core vision that aligns with the founders’ values and purpose.
Joseph Bush, executive director, of Worcester CleanTech Incubator thinks “inability to recruit, build and manage a team of people smarter than oneself” is a big factor in start-up failure.
Lauren Tiffan, director of Ocean Accelerator adds simply, “Lack of business acumen.” Or as Ben Hsieh, program manager of Nest, bottom lines, start-ups fail when “(the) team lacked skills to execute.”
Eric Mathews, founder and CEO, of Start Co expands on this common theme. “It is important that the founding team have complimentary skills, not be too large, be sacrificing equally to build the dream, be flexible and coachable, and finally have bias towards action.” But he warns, “misalignment of stakeholders …accounts for 20% of failures and occurs after product launch. When the investors, founders, employees, board members, and other stakeholders are not rowing in the same direction the company gets ripped apart as various parties try to pull the business in different directions.”
Alyse Daunis , Program Manager, of Launch Alaska adds, “many founders come together quickly around an idea and do not take the time to discuss founder dynamics at the very beginning. Lack of trust, and differences in commitment levels, financial expectations, goals, and culture are often why startups fail. These items should be discussed among founders from the get-go to limit surprises and ensure the founders are aligned.”
Lack of Persistence
Lack of Persistence was the third most commonly mentioned reason for startup failure. As Jason Cole, CEO, of Da Primus Consulting puts it, “The leadership is unable to set a clear strategy for the company and stick with it long enough to succeed, resulting in a lot of wasted money and energy from constant changes in direction.”
Or as Keith Hopper, CEO of Danger Fort Labs puts it, “A lack of creativity and persistence in working through the inevitable challenges of launching a new venture.”
Alyse Daunis, Program Manager, of Launch Alaska, adds “Lack of grit. We all know startups are hard. They take a tremendous amount of time and often require sacrifice. Founders need to have grit to overcome obstacles and burnout.”
But as Elza Seregelyi, director of L-SPARK warns, “Inability or unwillingness to adapt or pivot quickly when there is lack of product-market fit. Some founders can’t take a hint, or choose to outright ignore the data. There is a fine line between persistenceand stubbornness and sticking with a product or business model that is not gaining traction is just wasting resources.”
Other reasons for startup failure are included in thoughtful comments from:
Nobu Kumagai, founder and managing partner of Wildcard Incubator who points out that greed can be a cause of failure. “This is the opposite of compassion (which is) the key element for success. Internal greed will end up with a breakup of talented co-founders. External greed will force you to lose customers and community (pricing, extra services, economic impact, etc.). It used to be a Wall Street norm, nowadays it seems to become the norm for Silicon Valley techies.”
Jim Bowie, site manager/associate director of the University of Central Florida Business Incubation Program, warned about an absence of proper tools and reports. He says startups fail; because of “no sales plan with a CRM tool to track prospects, proposals & sales follow-up. And, “no accountability to make sure milestones and processes are working.”