Any company may not prosper. Even following step by step each and every one of the actions that can be expected from the process of identification, ideation, launch and development of any initiative. In any case, there are a series of common errors that have been detected in startups in general.
Reason 20: Failed to change target
Not walking away from a bad product, a bad hire, or a bad decision by changing quickly enough. Living with a bad idea drains resources and money, as well as leaving employees frustrated by lack of progress.
An example could be immerciive. The company, which closed in 2009, originally intended to let people order at local restaurants via instant message.
That concept proved too difficult and expensive to work, and founder Keith Nowak decided to shift to a larger goal: instant messaging could be used to help people interact with all kinds of businesses, not just restaurants, and in turn , it would help those businesses to better interact with their customers.
But by the time Nowak recognized this new and bigger opportunity, Imercive had already burned through most of his seed round money. With no results or proof that the new vision could gain ground, the company had to close.
“We were stuck in the middle of change, halfway between a strategy that we knew would not work and one that we believed could succeed but could not be applied aggressively. This was a very difficult place to be both professionally and personally. We were extremely frustrated that we couldn't get the new strategy right, and every day that went by without significant progress was one step closer to the failure of my first venture. Even though we put everything we had to get through this phase, we were never able to get through the change.” (Keith Nowak)
However, there are those who believe that a change of course is not always the answer. For Fred Wilson of Union Square Ventures, he wrote in 2018 that the concept of retargeting from a bad idea is overhyped and that a bad idea is often better left to fail:
“There's nothing I dislike more than moving forward with something when I've lost interest, and worse, the founders have lost interest. So my opinion is if you've failed, accept it, announce it, and fix it. Close the business, return the cash and break the limit table. Then do whatever you want to do next. If it's another startup, make it from scratch and keep as much as you can. If it's about something else, then do that too."
Reason 19: Model sold out
Work-life balance is often lacking among startup founders, so the risk of burnout is high.
The ability to cut your losses when necessary and refocus your efforts in the face of impasse was seen as important to success and avoiding burnout, as was having a strong, diverse and driven team so that responsibilities can be shared.
What makes conversations about burnout difficult is the belief that building a successful company will always involve some degree of overwork.
"The prevailing view of startup founders in Silicon Valley is an illusion that to be successful, to build a high-growth company, you need to burn out." (Arianna Huffington, Uber Board Member and CEO of Thrive Global)
In turn, several founders have spoken out about how damaging burnout can be. Former CEO of Zenefits, Parker Conrad, has said:
"I think people are not prepared for how difficult and terrible it will be to start a company."
Reason 18: Not taking advantage of the network
Entrepreneurs often complain about the lack of networks or connections with investors, but in fact one of the reasons for the failure is that the entrepreneurs themselves say that they did not use their own network properly.
Get your investors involved. Your investors are there to help. They have to be involved from the beginning and don't be afraid to ask for help. The mistake is often made from the beginning of trying to do (and know) everything by ourselves, perhaps due to insecurity or being new to the business world. This is a big mistake.
Reason 17: Legal, compliance, regulation, etc.
A startup can enter a world of legal complexities that ultimately lead to closure.
For example, Decide.com launched in 2011 as a tool to help people predict when the prices of certain consumer goods would change. In addition to prices listed for products from major retailers like Target and Best Buy, Decide.com included the price of an item on Amazon. As the company itself wrote, Amazon was not happy about that: “We received a notice from them letting us know that we were not in compliance and unless we removed it, they would suspend our affiliate account. We weren't making a lot of money, but that account was probably over 80% of our income."
Several music startups also associated the high costs of dealing with record labels and legal issues as a reason for startup failure.
Turntable.fm wrote: “In the end, I didn't pay attention to the lessons of so many failed music startups. It is an incredibly expensive company to start and a difficult industry to work with. We spend more than a quarter of our cash on attorneys, royalties, and supporting music-related services. It is restrictive. We had to shut down our growth because we couldn't launch internationally."
Smart luggage maker Bluesmart was also the victim of legal challenges. The company closed in 2018 after most major US airlines enacted a policy requiring all airline travelers to remove lithium-ion batteries from their checked baggage:
“We have bittersweet news to share. Policy changes announced by several major airlines late last year, banning smart luggage with non-removable batteries, put our company in an irreversibly difficult financial and business situation. After exploring all possible options to turn around and move forward, the company was eventually forced to wind down its operations and explore disposal options, unable to continue operating as an independent entity."
Reason 16: No investment interest
Related to the reason for running out of cash, several startup founders explicitly cited a lack of interest from investors, either at the early stage (the Serie A Crunch) or at all.
Smart headphone startup Doppler held hundreds of meetings to try to raise the necessary capital, but investors just didn't seem to believe the broader market: “The market has changed remarkably for hardware. We're incredibly optimistic about Here Two, and the Over-the-Counter Hearing Aid Act has passed, but we need real capital to do it. The feedback we continually get is, we're not investing in hardware, and especially we're not investing in hardware at these numbers. It's too high a risk even for Silicon Valley."
A similar fate befell the real-time reconnaissance platform Shnergle, which closed in 2013 due to an insufficient amount of venture capital “Is your idea only monetized on a large scale? If your idea can only be monetized on a large scale, head to San Francisco/Silicon Valley. There is not enough venture capital, or enough risk appetite, in the UK/EU venture market to invest capital in unproven R&D concepts. If you want to build in the UK, you have to find a way to get money from day one. A freemium structure can still be used to sell later. Shnergle was never going to monetize before it had scaled quite significantly."
Finally, sometimes companies can't raise the money they need because one of their competitors has already done so. This was the case for Sidecar, which raised more than $35 million for its B2B ride-sharing and delivery service before being forced to sell to GM in 2016: “In short, we were forced to shut down operations and sell. We were unable to compete against Uber, a company that has raised more capital than any other in history and is notorious for its anti-competitive behavior. Sidecar's legacy is that we surpassed Uber in innovation, but still failed to win the market. We fail, for the most part, because Uber is willing to win at any cost and they have virtually unlimited capital to do so."
Reason 15: Expansion errors
The location is a problem of two different aspects: there must be congruence between the concept and the location of the startup.
As Meetro, the location-aware instant messaging service, wrote, “We launched our product and we had all our friends in Chicago. Then we had the biggest newspapers in the area write detailed reports on us. Things were going great… The problem we would soon discover was that having hundreds of active users in Chicago didn't mean you'd have even two active users in Milwaukee, less than a hundred miles away, not to mention any in New York or San Francisco. . The software and the concept just didn't scale beyond its physical borders."
Location also plays a role in failure when working with remote teams. The key is that if the team is working remotely, ensure effective communication methods are in place, otherwise a lack of teamwork and planning could lead to failure.
As Devver wrote, “The biggest drawback of a remote team is the administrative hassle. It's a hassle to manage payroll, unemployment, insurance, etc. in one state... for a small team, it was a huge hassle and distraction."
Reason 14: Lack of passion
There are many good ideas in the world, but lack of passion for a field of business knowledge and lack of knowledge are key reasons for failure, no matter how good the idea is.
On NewsTilt, the team spoke candidly about their lack of interest: “I think it's fair to say that we didn't really care about journalism. We started by building a commenting product that grew out of my desire to have the perfect commenting system for my blog. This turned into the design of the best damn commenting system of all time, which led to the discovery of an ideal client: newspapers… But we didn't really care about journalism and we weren't even avid news readers. If the first thing we did every day was go to news.bbc.co.uk, we should have been making this product. But even when we had NewsTilt, it wasn't my favorite place to be entertained, it was still Hacker News and Reddit. And how could we build a product that we were only interested in from a business perspective? «
Doughbies, which raised $670,000 for a cookie delivery service in 2013, also failed due to a lack of interest from its founders and team. The company seemed to be doing well, with 36% gross margins and 12% net profit at the time it closed. The problem, as CEO Daniel Conway put it, was that there wasn't massive growth or enough interest in running the business: "We ultimately closed because our team is ready to move on to something new."
Reason 13: Bad change of course
Turnarounds like Burbn to Instagram or ThePoint to Groupon can work extraordinarily well. Or they may head down the wrong path.
As Flowtab explains, “Turning for turning's sake is useless. It should be a calculated affair, where changes are made to the business model, hypotheses are tested and results are measured. Otherwise, you won't be able to learn anything."
For David Hyman, the founder of Blin.gy, a last ditch attempt to save his startup from failure led him to pivot: “Blin.gy was a game changer from our previous app, Chosen, which tried to gamify the competition space of performance… We came up with a new take on the plethora of AR-style apps that create visual effects based on face detection and tracking. «
In the end, the new target market did not save the company: “[The poor user experience] had a huge impact on our retention metrics. We needed 40% returns on day one and we were closer to 25%. The clock was ticking… We hosted 18 VC meetings and hit the road, hard. The response was revealing and generally the same: “Really great technology and vision. But how does this become a platform? … We didn't have a convincing answer."
Reason 12: Disharmony with investors
Discord with a co-founder is often a fatal problem for startups. But it's not limited to the founding team, and when things go wrong with an investor, they can get messy pretty quickly.
In the case of ArsDigita, Phillip Greenspun writes:
“For about a year, Peter Bloom (General Atlantic), Chip Hazard (Greylock), and Allen Shaheen (CEO) wielded absolute power over ArsDigita Corporation. During this year they:
- I spent $20 million to get back the same income I had when I was CEO.
- Microsoft's bid (summer 2000) to be the first enterprise software company with a .NET product was rejected.
- Removed old full-featured product (ACS 3.4) before terminating new product (ACS 4.x)
- A much higher cost structure was created; It had 80 people mostly with base salaries of less than $100,000 and was generating revenue at the rate of $20 million a year. Greylock, General Atlantic and Allen's ArsDigita had nearly 200 with many new executive positions at $200,000 or more.
- Market leadership was lost”
At Pellion Technologies, the end came more quietly, as its main backer, Khosla Ventures, lost faith in the company's ability to execute: “According to former employees, all of whom requested anonymity, Khosla Ventures lost confidence that Pellion could make enough money serving a niche market. Lithium-metal technology has worked for products like drones, but most of the money in the battery world is in the automotive sector. Investors were not willing to invest the money needed to develop the battery for electric vehicles”.
In March 2019, Khosla decided to close the company and removed the Pellion name from his online portfolio of companies.
Reason 11: Loss of focus
Getting sidetracked by distracting projects, personal problems, or a general loss of focus on another relevant factor that contributes to failure.
As MyFavorites wrote at the end of their startup experience, “In the end when we got back from SXSW we all started to lose interest, the team wondering where this was ultimately going, and me wondering if I even wanted to run a startup, have investors, have employee responsibility and answer to a board of investors.”
Similarly, DoneByNone cites a lack of focus and its effect on the experienced customer as reasons for the company's demise: "Here's the long story: We're a small startup, and as you can imagine, life has been pretty rough." difficult for small e-commerce retailers, and we went to hell and hopefully come back from there. While we were focused on other things that needed to be resolved, we took our eyes off you and your problems.”
Reason 10: Not opportune. Product at the wrong time
Launching a product too early causes users to dismiss it as not good enough, and winning them back can be difficult if their first impression of you is negative. And if you launch your product too late, you may have missed your window of opportunity to market.
As one Calxeda employee put it, “In [Calxeda's] case, we moved faster than our clients could move. We moved with technology that
wasn't really ready for them, i.e. 32 bit when they wanted 64 bit. We moved in when the OS environment was still being developed – [Ubuntu Linux maker] Canonical is fine, but where's Red Hat? We're too early."
Virtual reality platform Vreal intended to build a virtual reality space for game streamers to hang out with their viewers and raised nearly $12 million in its 2018 Series A. However, the available hardware and capabilities bandwidth did not evolve as fast as the company hoped, and while it delivered on its promise, Vreal struggled to attract significant usage: “Unfortunately, the VR market never developed as fast as we all hoped, and we definitely got ahead of ourselves. our time. As a result, Vreal is winding down its operations and our wonderful team members are moving on to other opportunities."
Reason 9: Ignoring customers
Ignoring users certainly produces a tried and true way to fail. Tunnel vision and not collecting user feedback are fatal flaws for most startups.
For example, eCrowds, a web content management system company, said:
“We spend too much time building [our product] for ourselves and don't get feedback from potential customers; it's easy to get tunnel vision. I would recommend spending no more than two or three months from initial startup to getting into the hands of prospects who are truly objective."
Similarly, VoterTide wrote: “We didn't spend enough time talking to customers and were rolling out features that I thought were cool, but we didn't collect enough information from customers. We didn't realize it until it was too late. It's easy to be fooled into thinking yours is great. You have to pay attention to your customers and adapt to their needs.”
Reason 8: No or poor marketing
Knowing your target audience, knowing how to get their attention, converting them into leads and ultimately customers is one of the most important skills in a business.
But the inability to market is a common mistake, especially among founders who like to code or build products, but don't relish the idea of promoting the product.
As Overto wrote, “The thin line between life and death of Internet service is a number of users. During the initial period of time, the numbers increased systematically. Then we reached the ceiling of what we could accomplish effortlessly. It was time to do some marketing. Unfortunately, none of us had experience in that area. Worse yet, no one had enough time to fill the void. That would be another hurdle if we solved the issues mentioned above."
Reason 7: No business model
Most founders agree that a business model is important: Staying wedded to a single channel or not finding ways to make money at scale leaves investors hesitant and founders unable to capitalize on the traction gained.
As Tutorspree wrote, “Although we accomplished a lot with Tutorspree, we were unable to create a scalable business… Tutorspree did not scale because we relied on one channel and that channel suddenly changed radically. SEO was built into our model early on and became increasingly important to the business as we grew and evolved. In our early days, the period we call ourselves combinator, we had no money to spend on acquisitions. SEO was free, so we focused on it and got it right."
At Aria Insights, the concept of equipping drones with sensors to collect data from extreme environments seemed promising. But while the company took off and found some high-profile investors, including Bessemer Venture Partners, it ultimately couldn't find a compelling use for that data, and thus couldn't properly monetize its business model: "CyPhy Works rebranded itself as Aria Insights." in January 2019 to focus more on using artificial intelligence and machine learning to help analyze data collected by drones. A number of our partners were collecting and storing massive amounts of information with our drones, but there was no service in the industry to quickly and efficiently turn that data into actionable information," said Lance Vanden Brook, former CyPhy and current CEO of Aria in the moment of rebranding.”
Reason 6: Not customer friendly
When what a user wants and needs is ignored, either consciously or accidentally, it is a typical mistake based on believing that the founders uniquely know what customers want.
GameLayers on their product's UI, “Ultimately, I think PMOG lacked too much of a core gaming compulsion to drive mass enthusiast adoption. The concept of "leaving a trail of funny web annotations" was too abstruse for most people to accept. Looking back, I think we needed to clean the covers, swallow our pride, and do something that was easier to have fun with, in the first few moments of interaction."
Reason 5: Price
Pricing is a complex art when it comes to startup success, highlighting the difficulty of pricing a product high enough to eventually cover costs, but low enough to attract customers.
Delight IO saw this struggle in multiple ways: “Our most expensive monthly plan was $300. The clients who hired never complained about the price. We simply did not meet your expectations. We originally priced by the number of recording credits. Since our clients had no control over the length of the recordings, most of them were very cautious about using the credits. Plans based on cumulative length of recordings make much more sense to us than to customers and amount of subscription used."
The 2019 closure of genetic testing and wellness startup Arivale came as a surprise to many partners and clients, but the reason behind the company's failure was so simple: the price of running the company was too high compared to the revenue it earned. generated: “Our decision to end the program today comes despite the fact that client engagement and satisfaction with the program is high and many clients' clinical health markers have improved significantly. Our decision to cease operations can be attributed to the simple fact that the cost of providing the program exceeds what our customers can afford. We believe that the costs of collecting the genetic, blood, and microbiome tests that form the basis of the program will eventually decrease to a point where the program can be delivered to consumers profitably. Unfortunately, we cannot continue to trade at a loss until that time comes…”
Reason 4: Overtaken by the competition
Despite the platitude that says a startup shouldn't pay attention to the competition, the reality is that once an idea appears or gains market validation, many other entrants will appear for that new space.
And while obsessing over the competition is unhealthy, ignoring them was also a recipe for failure in 19% of startup failures.
Wesabe's Mark Hedland spoke about this stating, “Between the worst data aggregation method and the much greater amount of work Wesabe made you do, it was much easier to have a good experience at Mint, and that good experience came much faster. . Everything I've mentioned, not being dependent on a single source provider, preserving users' privacy, helping users make positive changes in their financial lives, all of those things are great and rational reasons to pursue what we're after. But none of them matter if the product is more difficult to use."
Children's clothing delivery service Mac & Mia found itself in a tough spot competing with blockbuster companies like Stitch Fix and went out of business just a year after launching in 2018: “Mac & Mia faced a lot of competition. competitors in the children's delivery space, including the aforementioned Stitch Fix, which launched its children's clothing service in 2018. Stitch Fix went public in 2017 and has a market capitalization of around $2.7 billion. At least 20 other startups seeing the result have launched similar children's clothing delivery services."
Reason 3: Unsuitable Equipment
A multi-skilled team is often cited as critical to a company's success. Failed startups often lament that “I wish we had a CTO from the start” or wish the startup had “a founder who loved the business side of things.”
The Standout Jobs team wrote in their company ending:
“…The founding team was unable to build a minimum viable product on its own. That was a mistake. If the founding team can't launch the product on their own (or with a small amount of outside help from freelancers), they shouldn't be founding.
a startup. We could have hired additional co-founders, who would have been compensated primarily with equity rather than cash, but we didn't."
In some cases, the founding team wanted more checks and balances. As the founder of Nouncer wrote: "This brings me back to the underlying problem: I didn't have a partner to balance me out and provide sanity checks for business and technology decisions being made."
At Zirtual, which was forced to lay off 400 employees overnight after a series of financial blunders and miscalculations, co-founder and CEO Maren Kate Donovan later admitted that a key mistake was not bringing in a CFO to the board: “If [a component] had been really fine-tuned, this would have been caught like six months ago… I blame myself a lot for this, for not hiring more experienced people, but it wasn't any malice beyond from naivety… In hindsight, if we had a senior finance person and a senior person in operations, it would have been a completely different story.”
Reason 2: Lack of cash
Money and time are finite and must be allocated wisely.
As the Flud team exemplified, running out of cash was often tied to other reasons for startup failure, including failure to find a fit between product and market and misguided course changes.
“In fact, what ended Flud's life was that the company was unable to raise additional funds. Despite multiple approaches and incarnations in pursuit of the ever-elusive product market fit (and monetization), Flud ultimately ran out of money and a runway.”
In September 2019, augmented reality startup Daqri closed after spending more than $250 million in funding and failing to secure a new round of investors: “Daqri faced substantial challenges from competing manufacturers, including Magic Leap and Microsoft, that were underpinned by broader economic models and institutional partnerships. As the company struggled to compete for enterprise customers, Daqri benefited from investor enthusiasm around the broader space. That is, until the investment climate for augmented reality startups cooled.”
The European low-cost airline Wow Air met a similar fate; Chairman Skuli Mogensen wrote to employees: "We have run out of time and unfortunately have not been able to secure funding for the company... I will never be able to forgive myself for not taking action sooner."
Reason 1: No need for a market
Addressing problems that are interesting to solve instead of those that satisfy the needs of the market is the main reason for failure.
This type of attitude appears especially when the knowledge of a technology, methodology, personal experience, etc. is put before the observation of the clients.
“I realized, essentially, that we had no customers because no one was really interested in the model that we were launching. Doctors want more patients, not an efficient office." Patient Communicator,
“Startups fail when they don't solve a market problem. We weren't solving a problem big enough to be able to serve universally with a scalable solution." TreehouseLogic
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