Why Startups Fail

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28 Dec 2022
185

Startups can be rewarding but are also very difficult to run with success being far from guaranteed. In Australia, 20% of startups fail in their first year and 60% fail within their first three years. When you think about it more closely, that's a lot of failed businesses and maybe even 'wasted' effort.

So, why do startups fail?

In 2018, CB Insights conducted a study where they compiled a list of startup failure post-mortems and extrapolated the top 12 reasons for why these startups had failed. Some of the reasons aren't mutually-exclusive with several startups failing due to multiple issues. Here is what they came up with.

Top 12 Reasons Why Startups Fail


The infographic below shows the top 12 reasons for why startups fail:

Source: CB Insights (2021)


The ones that I found most interesting personally are:

  • No market need (35%)
  • Regulatory/legal challenges (18%)
  • Product mistimed (10%)


The first and third reason illustrate that sometimes the product isn't everything. You might have a killer product or idea but this alone won't guarantee you success. Being successful in the startup space is a combination of having a good product, identifying precise pain points in your target market's experience and strategically timing your product to maximise your gains.

Another thing worth mentioning is that sometimes you might be too far ahead of the curve. Yes, you might be a 'revolutionary' or a 'futuristic thinker' in seeing where your industry is headed, but your market ultimately doesn't care unless your product has something in it that solves a problem they are experiencing "now". It's much easier to solve an existing issue that the market knows they have rather than trying to convince the market they have a problem that needs solving.

The second reason about regulatory/legal challenges is unsurprising but still unfortunate nonetheless. It goes to show that startups may neglect the legal side of things until it is far too late, possibly because they are blissfully unaware of how complex the legal landscape can be, they don't see legal matters as a priority or they face significant financial barriers to accessing legal assistance.

This is why having a team member with some kind of legal knowledge or awareness is very helpful. You might not know everything about the law, but at least you can identify where legal issues might crop up and start thinking about your next right move in solving them.

So, why do you think startups fail? Are these reasons accurate? Drop a comment down below 😉


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References


[1] Alex Kepka, "Business Startups Statistics Australia (2022 Update)", Fundsquire (online, 31st August 2020) <https://fundsquire.com.au/business-startup-statistics-australia/>.

[2] CB Insights, "The Top 12 Reasons Startups Fail" (online, 3rd August 2021) <https://www.cbinsights.com/research/report/startup-failure-reasons-top/>.

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38 Comments

B
A
Amruth
now
Very startup needs a market demand if not it's not called startup why because if there is no requirements means no startup.. Yeah good article explains main 12 reason. And reason are good and acceptable.
Miguel
Miguel
now
ENDORSED
@Eyesakov2123 From my perspective, one of the top reasons startups fail is lack of preparation. Without proper planning and research, entrepreneurs often don't understand the market they're entering or have an inadequate strategy for success. Also, inadequate funding can prevent a startup from gaining traction and achieving profitability. The last thing on my list of what startups fail is that poor management decisions can lead to misallocating resources and failure to capitalize on opportunities. Great article! Keep up the good work! :)
Napes
Napes
now
Great post. It’s very interesting to see some of these reasons and I agree that there may be a combination of these factors that cause a start up to fail. However some of these failures result in new learnings and may result in the individual becoming successful with a subsequent venture.
south coast surfer
south coast surfer
now
ENDORSED
Insightful post and something that I can make a genuine comment on - as I work for a Start Up. We’ve certainly had our share of back and forth, cash flow issues, supply chain issues etc, but then got solid financial backing from a Venture Capital firm (Australian) with a thirst for green tech - fast forward, and we have employed 5 new staff members in the last month, with more to follow. With the demand and exposure increasing globally, our hope is to continue our rise and make a difference.
E
Expu
now
First you need to learn how to build a brand. And customer requirements.. some times it may failure because of product quality.. dissatisfied of customer
E
Expu
now
Some time it may fail because of marketing.. the part of market is very important.. and buffer also important
E
Ethoro
now
why startup fail include, poor finance, in adequate planning, poor management, lack of vision and incompetent man power
dammykhudz
dammykhudz
now
I was part of a startup that couldn't scale. It was almost time-wasting for me, except I learned a few new things. I didn't get any pay for working up to a year and the project simply went underwater. These are my thoughts on why startups may fail: 1. Putting together the wrong team 2. Poor management 3. Lack of resources 4. Building a product with no market fit 5. Waiting too long before releasing a MVP
E
Expu
now
The important part of startup that you need analysis the business and make a strong strategy about market
H
HK74
now
That's true
K
khiladi731
now
ENDORSED
Key Takeaways. According to business owners, reasons for failure include money running out, being in the wrong market, a lack of research, bad partnerships, ineffective marketing, and not being an expert in the industry. Ways to avoid failing include setting goals, accurate research, loving the work, and not quitting.
E
Emmily
now
ENDORSED
Personally I think because they fail to develop a product that meets the market need and premature scaling. It's important to acknowledge the common pitfalls that startups face in order to better prepare and avoid them.
Xenovia
Xenovia
now
I think as time passes by more, the % of start-ups that fail will increase because until we have more breakthroughs in science in general, a lot of what start-ups will have to offer already exist. Legal issues are quite interesting, but I think the 35% in no market need makes sense as a lot of what people need we already have at the cost we can afford. Until there is either a giant scientific break through which can expand our markets far and wide, it'll be difficult for start-ups to be successful
Valdyr
Valdyr
now
I used to work in the restaurant industry, and at that time in the United States, it was estimated that about a third of new restaurants failed within the first year of business! I'd definitely agree with the top four reasons in that infographic you shared, so good things to consider when starting any business.
M
Mohan333
now
Key Takeaways. According to business owners, reasons for failure include money running out, being in the wrong market, a lack of research, bad partnerships, ineffective marketing, and not being an expert in the industry. Ways to avoid failing include setting goals, accurate research, loving the work, and not quitting.
earane
earane
now
informative content
A
Amruth
now
Nice informative
M
MakeekAtada
now
This is an interesting and educative article. Without Proper and adequate planning most startups are bound to fail.
Rutvi
Rutvi
now
The only things need to success in a start-up is consistency and hard working.
Berlin
Berlin
now
There are a lot of reasons why startups fail of which some are insufficient funds, lack of experience, unrealistic goals and expectations,poor sense of strategy, no popularity,poor mangenant team but to mention a few. However I think before you go on journey of establishing a startup you should seek for all the right advice from experienced people.
O
Oam Baheti
now
similar situation here in India too!
B
bheema
now
Lack of knowledge of the business
Draxpart
Draxpart
now
ENDORSED
The notable and justifiable points mentioned by you, absolutely agreed points . As per my opinion, Startups often fail because they lack a viable business model, adequate funding, or a strong management team. Additionally, they may have difficulty scaling their operations or adapting to changes in the market. In some cases, startups may also fail because they are not able to generate enough revenue or attract enough customers. Other reasons might include lack of focus, poor execution, lack of differentiation, unproven market, and lack of planning.
R
ravi12
now
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