2011 Chevy Malibu Replaced Starter Started Up First Time but Then Wont Start Again
From lack of product-marketplace fit to disharmony on the team, we break down the pinnacle 12 reasons for startup failure by analyzing 110+ startup failure post-mortems.
After we compiled our listing of startup failure mail service-mortems , one of the most frequent requests we got was to use these posts to effigy out the primary reasons why startups failed.
Startups, corporations, investors, economic development folks, academics, and journalists all wanted some insight into the question:
"Why practise startups fail?"
So we gave those post-mortems the CB Insights information treatment to see if we could respond this question.
Later on reading through 111 post-mortems since 2018, we've learned there is rarely one reason for a single startup's failure. However, we did begin to see a blueprint to these stories.
Then later on sifting through the mail-mortems, nosotros identified the top 12 reasons startups neglect.
Since many startups offered multiple reasons for their failure, you'll come across that the nautical chart highlighting the height reasons doesn't add up to 100% (it far exceeds information technology).
Following the nautical chart is an explanation of each reason and relevant examples from the post-mortems.
the acme 12 reasons startups fail
From lack of product-market place fit to disharmony on the team, nosotros break down the top 12 reasons for startup failure by analyzing 110+ startup failure mail-mortems.
There is certainly no survivorship bias hither. But many very relevant lessons for anyone in the entrepreneurial ecosystem.
It's worth noting that this type of data-driven analysis would not be possible without a number of founders being courageous enough to share stories of their startup's demise with the world. Then a large thank you to them.
12. Burned out/lacked passion
Work-life residue is non something that startup founders frequently get, and so the risk of burning out is loftier. Burnout was given equally a reason for failure v% of the time. The power to cutting your losses where necessary and redirect your efforts when you see a expressionless end — or lack passion for a domain — was deemed of import to succeeding and fugitive burnout, as was having a solid, diverse, and driven team so that responsibilities can be shared.
What can make conversations about exhaustion difficult, especially in Silicon Valley, is the widespread belief that building a successful visitor volition always involve some caste of perhaps chancy overwork. As former Uber board member and CEO of Thrive Global Arianna Huffington puts it:
"The prevalent view of startup founders in Silicon Valley is a delusion that in order to succeed, in order to build a high-growth company, y'all need to burn out."
Amid the pandemic, burnout became even more than prevalent among tech workers: 68% of tech employees said they felt more burned out working from home, according to a survey past Blind.
Various founders have spoken up nearly how damaging burnout can exist. Erstwhile Zenefits CEO Parker Conrad said,
"I think people are unprepared for how hard and atrocious it is going to be to start a visitor. I certainly was."
At DaWanda, stagnation in both growth and team interest led to the company'southward eventual closure. Founder and CEO Claudia Helming shared this message on the company'south website:
"In the last quarter of 2017 nosotros reached profitability and have since been working to cover our costs. At the same time, we had to acknowledge that our growth is stagnating and that we tin can hardly manage by our own efforts to grow the number of sales on our platform to the desired extent – even our restructuring last yr could not alter this … Additionally, we haven't managed to implement enough innovative new ideas over the past few years.
DaWanda is non insolvent. However, we have realised that the risk of no longer being able to go on up is simply also big."
Doughbies , which raised $670,000 for an on-demand cookie delivery service in 2013, also cited a lack of passion from its founders and team every bit one of the reasons for its failure. The company appeared to be doing well, with 36% gross margins and 12% net turn a profit at the fourth dimension it shut downward . The problem, as CEO Daniel Conway put information technology, was that at that place wasn't massive growth or enough involvement in running the business concern:
"Ultimately we shut downwardly considering our team is set up to move on to something new."
eleven. Pivot gone bad
Pivots similar Burbn to Instagram or ThePoint to Groupon can become extraordinarily well. Or they can kickoff you down the wrong route.
As The Verge reported on Inboard Technology's failed pivot:
"The startup was one of the highest-contour competitors to top electric skateboard company Boosted, and concluding year announced plans to enter the electric scooter market — a push that seems to have doomed Inboard.
Founder (and at present-former CEO) Ryan Evans told The Verge his team had locked downward 'a very large order' from '1 of the largest European scooter operators,' which explains why the company quickly pivoted away from trying to sell its commencement eastward-scooter directly to consumers earlier this twelvemonth. Merely Evans said the evolution timeline for Inboard'due south east-scooter 'outstretched' its financial track."
Afterwards investors refused to inject more funds, the visitor was forced to shut down.
For Frances Dewing, the founder of Rubica, a last-ditch effort to save her cybersecurity startup from failure amid Covid-19 led her to pivot from focusing on consumers and minor businesses to larger companies.
In the end, the new direction didn't band truthful with investors:
"We were all actually surprised given how relevant and needed this is right now," Dewing said. "Investors didn't agree with that or meet information technology in the same mode."
ten. Disharmony among team/investors
Discord with a co-founder was a fatal issue for startup post-mortem companies. But acrimony isn't limited to the founding team, and when things become bad with a board or investor, it can get ugly pretty chop-chop, as evidenced in the case of Hubba.
Douglas Soltys writes for BetaKit:
"Considered for virtually of the decade one of Toronto's hottest startups, Hubba hit choppy waves in 2018, as the company lost its main technology officer and chief marketing officer in an three-month bridge, in add-on to two rounds of layoffs which saw headcount reduced by near half.
It is unclear to what extent the COVID-19 pandemic had hampered Hubba's growth and customer base. Yet, one source BetaKit spoke with claimed a months-long battle between [Hubba CEO and founder Ben] Zifkin and Hubba's lath of directors regarding the ongoing viability of the company."
At Pellion Technologies , the end came more quietly, as its major backer Khosla Ventures lost faith in the company'due south ability to execute :
"According to former employees, all of whom requested anonymity, Khosla Ventures lost conviction that Pellion could make enough coin serving a niche market. The lithium-metallic technology worked for products like drones, but the big money in the battery world is in the automotive sector. Investors weren't willing to sink the money needed to develop the battery for electrical vehicles."
In March 2019, Khosla decided the company would be shut down and removed Pellion'southward name from its online firm portfolio.
9. Poor production
Sometimes, it all comes downwards to the product — and a flawed one was enough to sink companies in 8% of cases.
According to a Forbes investigation into finance and accounting platform ScaleFactor,
"ScaleFactor used aggressive sales tactics and prioritized chasing upper-case letter instead of edifice software that ultimately barbarous far short of what it promised, according to interviews with 15 quondam employees and executives. When customers fled, executives tried to obscure the real damage."
Bad things as well happen when you ignore what users desire and need, whether consciously or accidentally.
Here'southward what Shoes of Casualty wrote about its vision to enable consumers to personalize their ain shoes:
"Nosotros learnt the difficult way that mass market place customers don't want to create, they want to exist inspired and shown what to clothing. They desire to see the latest trends, what celebrities and Instagram influencers are wearing and they want to wear exactly that — both the style and the make."
the peak 12 reasons startups fail
From lack of product-market fit to disharmony on the team, we intermission downwardly the top 12 reasons for startup failure by analyzing 110+ startup failure mail-mortems.
eight. Product mistimed
If you release your product too early, users may write it off as non good enough, and getting them back may be difficult if their first impression of yous is negative. And if you release your product too belatedly, you lot may have missed your window of opportunity in the market.
Equally Stefan Seltz-Axmacher, CEO of democratic trucking tech startup Starsky Robotics said,
"Timing, more than than annihilation else, is what I think is to blame for our unfortunate fate. Our approach, I still believe, was the right 1 but the space was also overwhelmed with the unmet hope of AI to focus on a practical solution. As those breakthroughs failed to appear, the downpour of investor involvement became a drizzle."
VR platform Vreal intended to build a virtual reality space for video game streamers to hang out with their viewers and raised almost $12M in its 2018 Series A. However, the bachelor hardware and bandwidth capabilities didn't evolve as fast every bit the visitor had expected, and though it delivered on its promise, Vreal struggled to attract whatsoever pregnant usage:
"Unfortunately, the VR market place never developed as quickly as we all had hoped, and nosotros were definitely alee of our time. Equally a result, Vreal is shutting downwards operations and our wonderful squad members are moving on to other opportunities."
For some companies on our list, an unforeseen cistron like the Covid-19 pandemic contributed to product untimeliness. AI-powered vending car startup Stockwell AI shut down in July 2020 as consumers stayed at home and avoided surface contact. The company'south CEO Paul McDonald wrote in an email to TechCrunch,
"Regretfully, the current mural has created a situation in which we can no longer continue our operations and will exist winding downwardly the visitor on July 1st. We are deeply grateful to our talented squad, incredible partners and investors, and our amazing shoppers that made this possible. While this wasn't the way nosotros wanted to end this journey, we are confident that our vision of bringing the shop to where people alive, work and play will live on through other amazing companies, products and services."
seven. Not the right team
A diverse team with dissimilar skill sets was oft cited equally being critical to the success of a company. Failure post-mortems often lamented that "I wish we had a CTO from the start" or wished that the startup had "a founder that loved the business attribute of things."
At Fieldbook, which shut down after declining to build a sustainable business model for its database production, co-founder Jason Crawford wrote in his mail service-mortem weblog mail that the company'south inability to make key hires was one of the reasons for its downfall:
"I was blindsided by the difficulty of hiring. Hiring was something I'd washed successfully for years, including in the early days of Fieldbook and in a previous startup. Simply at a time when every engineer wanted to work on AI, self-driving cars or cryptocurrencies, a SaaS startup with modest, sporadic growth wasn't very attractive. I knew that investors would need to run into potent, consistent growth earlier our Serial A, but I didn't expect that engineers would need to see it to even join earlier Series A."
Lack of experience, combined with mismanagement, was one of the factors behind the downfall of Katerra, the loftier-flying construction startup which raised near $one.5B in funding. Equally The Information summarizes,
"The SoftBank-backed startup said it could slash the toll of building and renovating apartments, luring big-proper noun investors. Merely the company, run by a tech veteran with no previous construction experience, ignored escalating bug and at one point tried to burnish revenue information shown to its lath and financial backers."
For Stratolaunch, the passing of its founder meant the company wasn't able to continue on in the same way, every bit Failory reported:
"Despite everything looking neat on paper and the all-time of minds working together on this projection, null could have predicted Paul Allen's passing away in October of 2018, which would before long spell out the same fate for Stratolaunch. It became articulate that Stratolaunch had been powered only past the vision of its founder, which wasn't necessarily shared by those left in ability after him."
6. Pricing/cost issues
Pricing is a dark art when it comes to startup success, and startup postal service-mortems highlight the difficulty in pricing a production high enough to eventually encompass costs only low enough to bring in customers.
Hey Tiger struggled to find the right balance in its attempt to produce high-quality chocolate and address inequities in the cocoa industry, writing,
"Just similar whatever start up, there comes a time when you need to take a hard look at the company's long term viability. Although we designed a business that customers absolutely love, it proved hard to calibration into the profitability it needed to be a sustainable social enterprise. As the scale of our chocolate production grew, and then did the tensions between the very things that made Hey Tiger special. Ultimately while succeeding in one goal, we couldn't make the other."
The 2019 shutdown of genetic testing and scientific health startup Arivale came as a surprise to many partners and customers, but the reason behind the visitor'southward failure was simple: the toll of running the company was too high compared to the revenues it brought in:
"Our decision to terminate the program today comes despite the fact that client engagement and satisfaction with the program is high and the clinical health markers of many customers have improved significantly. Our decision to finish operations is attributable to the simple fact that the cost of providing the programme exceeds what our customers tin can pay for information technology. We believe the costs of collecting the genetic, blood and microbiome assays that form the foundation of the programme will eventually decline to a point where the program can be delivered to consumers cost-effectively. Regrettably, we are unable to continue to operate at a loss until that time arrives…"
5. Regulatory/legal challenges
Sometimes a startup tin evolve from a simple idea and enter a world of legal complexities that can ultimately shut it downwards.
Widely regarded as one of Kickstarter's greatest failures, Coolest Cooler finally ceased operations in Dec 2019 later on floundering for 5 years (and failing to deliver its coolers to more 20,000 people). In a projection update, the team blamed the merchandise war:
"As you lot may know, late last year the U.S. authorities imposed 10% tariffs on many products imported from China. … All the same, as of early on summertime, the "trade state of war" continued, and the tariff was increased to 25% which affected our unabridged Coolest product line."
Mobile savings app Beam met its end quickly afterwards falling afoul of the Federal Trade Commission. FTC Interim Director of Consumer Protection Daniel Kaufman stated at the time of its close downwardly of the visitor:
"The message here is simple for mobile banking apps and similar services: Don't prevarication about your customers' ability to become their coin when they demand it."
Smart luggage manufacturer Bluesmart also fell victim to legal challenges. The company shut down in 2018 after well-nigh major US airlines enacted a policy requiring all airline travelers to remove lithium-ion batteries from their checked baggage :
"Nosotros have bloodshot news to share. The changes in policies announced past several major airlines at the end of concluding year—the banning of smart luggage with non-removable batteries—put our company in an irreversibly hard financial and business situation. Later on exploring all the possible options for pivoting and moving forrad, the company was finally forced to wind down its operations and explore disposition options, unable to continue operating as an independent entity."
4. Flawed business organization model
Nigh failed founders hold that a business model is important — staying wedded to a single channel or declining to notice ways to make coin at scale left investors hesitant and founders unable to capitalize on any traction gained.
Equally Lumina Networks, a provider of open up-source software for telecom networks, wrote,
"Essentially, revenue continued to menstruum to proprietary vendors. The switch to open source did not accept place at a step anywhere close to the speed that would enable us to operate and grow our concern, despite commitments from many to the reverse. We have also found that Covid-xix has actually redirected funds away from automation projects and into building-out raw infrastructure, further delaying adoption."
"Selling Lumina to a proprietary vendor who is naturally antithetical to our mission proved an impossible task and for this reason we must now shut our business," it concluded.
At Aria Insights , the concept of outfitting drones with sensors to collect data from extreme environments seemed promising. But while the company got off the ground and plant a few high-contour investors — including Bessemer Venture Partners — it ultimately couldn't discover a compelling use for that information, and, therefore, couldn't adequately monetize its business model:
"CyPhy Works rebranded as Aria Insights in January 2019 to focus more on using artificial intelligence and machine learning to help clarify data collected by drones. 'A number of our partners were collecting and housing massive amounts of information with our drones, but there was no service in the industry to chop-chop and efficiently turn that data into actionable insights,' Lance Vanden Brook, old CyPhy and current Aria CEO said at the fourth dimension of the rebranding."
Various music startup mail service-mortems also pointed to the difficulty of finding a feasible business model in the industry equally a reason for startup failure.
Uk-based blockchain music startup JAAK pointed to several reasons for its undoing, including its scaling challenges, in a series of Tweets on the company'due south corporate business relationship:
"6 years is a long time in startups, peculiarly pre-acquirement ones, and, ultimately, we failed to secure the funding required to go to market. Markets modify and we didn't change chop-chop enough.
I take a Notion full of painful lessons almost why we failed but I'll salve those for another mean solar day.
tl;dr: users > partners, no premature scaling."
the summit 12 reasons startups fail
From lack of production-market fit to disharmony on the team, we suspension down the top 12 reasons for startup failure by analyzing 110+ startup failure mail service-mortems.
3. Got outcompeted
Despite the platitudes that startups shouldn't pay attention to the competition, the reality is that once an idea gets hot or gets market validation, others may try to capitalize on the opportunity. And while obsessing over the competition is not healthy, ignoring it was also a recipe for failure in 20% of the startup failures.
Silas Adekunle of Reach Robotics talked nearly shutting downwards after being unable to make it in the hypercompetitive consumer hardware manufacture in his mail service-mortem message, stating:
"The consumer robotics sector is an inherently challenging space – especially for a start-up. Over the past six years, we have taken on this challenge with consistent passion and ingenuity. From the outset trials of development to accelerators and funding rounds, we accept fought to bring MekaMon to life and into the hands of the next generation of tech pioneers. Unfortunately, for Reach Robotics, in its current course at to the lowest degree, today marks the end of that journey."
Co-founder John Rees besides weighed in:
"I'yard still taking stock of it all only the curt version is that it is true what they say – that 'hardware is hard' and consumer hardware is even harder due to the reliance on the Christmas sales menstruum."
Children's apparel delivery service Mac & Mia found itself in a tough spot, facing competition from highly successful companies like Run up Fix, and shut down only a year after its 2018 launch:
"Mac & Mia faced a host of competitors in the children's commitment box infinite, including the aforementioned Run up Fix, which launched its kids clothing service in 2018. Run up Ready went public in 2017 and has a market cap around $2.7 billion. At least 20 other upstarts accept launched like commitment services for children's dress."
2. No market place need
Tackling issues that are interesting to solve rather than those that serve a marketplace demand was cited as the No. two reason for failure, noted in 35% of cases.
Mobile-focused streaming service Quibi, which shut down in October 2020 just half dozen months after launching and raising a mammoth $one.8B, found itself in this position. As reported in the Wall Street Periodical, founder Jeffrey Katzenberg and chief executive Million Whitman said in a letter to employees at the time of the shutdown:
"…[T]hither were 'i or two reasons' for Quibi'due south failure: The thought backside Quibi either 'wasn't strong plenty to justify a stand-solitary streaming service' or the service's launch in the middle of a pandemic was especially sick-timed. 'Unfortunately, nosotros will never know, only nosotros suspect it's been a combination of the two.'"
CEO Justin Kan of Atrium was direct about the difficulty of disrupting police firms, telling TechCrunch in an interview,
"If you expect at our original business model with the verticalized law firm, a lot of these companies that have this kind of total stack model are non going to survive," Kan explained. "A lot of these companies, Atrium included, did not effigy out how to make a dent in operational efficiency."
For a company similar nuptials wearing apparel retailer Brideside, Covid-19 obviated the need for its offerings:
"With two-thirds of weddings cancelled in 2020 and an uncertain twelvemonth alee, our affiliate has come to an end."
A month after Paul Graham, Jessica Livingston, Trevor Blackwell, and Robert Morris started the Y Combinator seed accelerator in 2005, they picked "make something people want" every bit their motto.
Our report shows that declining to practise this is one of the easiest ways to guarantee startup failure.
1. Ran out of cash/failed to raise new upper-case letter
Coin and time are finite and need to be allocated judiciously. For the startups on our list, running out of cash — tied with the inability to secure financing/investor interest — was the top reason startups cited for their failure.
In September 2019, augmented reality startup Daqri close downwards after called-for through more than than $250M in funding and failing to raise a new circular from investors:
"Daqri faced substantial challenges from competing headset makers, including Magic Leap and Microsoft, which were backed by more expansive war chests and institutional partnerships. While the headset company struggled to compete for enterprise customers, Daqri benefited from investor excitement surrounding the broader infinite. That is, until the investment climate for AR startups cooled."
Despite fostering partnerships with Boeing, General Electric, and NetJets, aeronautical engineering startup Aerion Corporation was unable to convince investors of its potential:
"The AS2 supersonic business jet program meets all market place, technical, regulatory and sustainability requirements, and the marketplace for a new supersonic segment of general aviation has been validated with $11.two billion in sales excess for the AS2.
However, in the current financial surround, it has proven hugely challenging to close on the scheduled and necessary large new capital requirements to finalize the transition of the AS2 into production.
Given these atmospheric condition, the Aerion Corporation is now taking the appropriate steps in consideration of this ongoing fiscal environs."
European upkeep airline Wow Air met a like fate; Chairman Skuli Mogensen wrote to employees:
"Nosotros have run out of time and take unfortunately not been able to secure funding for the company… I will never exist able to forgive myself for not taking action sooner."
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Source: https://www.cbinsights.com/research/startup-failure-reasons-top/
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