Why Do Startups Fail?

By James Santagata
Principal Consultant, SiliconEdge


I came across this interesting Silicon Valley Business Journal article entitled "Why do startups fail? Here are the top 20 reasons" which summarizes a large post-mortem analysis of startup failures conducted by CB Insights

One quick takeaway to highlight:

"After reading through every single of the 101 post-mortems, we’ve learned two things. One — there is rarely one reason for a single startup's failure. And two — across all these failures, the reasons are very diverse."

Here's the top twenty reasons:
(Note: percentages don't add up to 100 because sometimes there are multiple reasons for failure)

1. Building a solution in search of a problem: Falling in love with an idea or building it out with market validation. 42 percent cited this. 

2. Cash Out. No Mas: We'll assume this wasn't due to financial mismanagement or malfeasance but a natural outcome of a sane burn rate over an extended period with trailing revenues of a lean nature. 29 percent reported this.

3. Wrong team: Lacking key members or skill sets This was cited by 23 percent of the companies. 

4. Beaten by the competition: About 19 percent of the companies reported this.

5. Pricing/cost issues: Reported by 18 percent in the study.

6. Poor product: This was reported by 17 percent of the companies.

7. Need/lack business model: A lack of a viable model killed 17 percent of these companies.

8. Poor marketing: Knowing how to code or build good products isn't enough. Reported by 14 percent of the companies.

9. Ignoring customers: 14 percent of the companies in the studied pointed to this.

10. Mis-timed product (releases): 13 percent of the companies in the survey reported this. A Calxeda employee told CB Insights, “We moved faster than our customers could move. We moved with tech that wasn't really ready for them... We were too early.”

11. Lost focus: 13 percent reported this.

12. Founder/investor strife: Creative tension is far different than toxic infighting. 13 percent of the companies succumbed to this.

13. Pivot gone bad: As has been said, "The pivot used to be called the f****up".  10 percent pointed to this.

14: Lack passion: The passion to stick it out, to execute. 9 percent identified this as the reason.

15: Bad location: For hiring/retaining talent, customers, investors and so on. This was cited by 9 percent.

16. No financing/investor interest: This was pointed to by 8 percent.

17. Legal challenges: Cited by 8 percent of the companies.

18. Don't use network/advisers: Again cited by 8 percent of the companies.

19. Burnout: Never a good thing, many reasons why a team can burn out. 8 percent pointed to this as the culprit.

20: Failure to pivot: As has been said earlier, "The pivot used to be called the F****up" and while that may be true it doesn't change the fact that continuing down the same messed up path is going to get your any place faster (other than bankruptcy court) and certainly no where better. 7 percent cited this.