Why Startups Fail

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28 Dec 2022
127

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/>.

12 Comments

Napes
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.
Xenovia
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