What are the main reasons for the failure of a new company?
A BCinsights study, after analyzing 101 startup failure post-mortems, explains the top 20 reason why they fail before they even get started.
So, what are the reasons for companies’ early failure?
Let’s see them now, from the most uncommon to the main reason for the business lack of success.
20. Failure to pivot
Not pivoting away or quickly enough from a bad product, a bad hire or a bad decision was mentioned as a reason for failure in 7% of the post mortems.
19. Burn out
Responsibilities and volume of work to grow a start-up are a heavy burden to carry, and often founders underestimate that: in the 8% of cases, burn out determines the end of the company (8%).
18. Do not use your network
Another reason is about the lack of engagement of your personal and professional connections, which is around the startup. Often, the issue is not the absence of a network but the fact that significant people, as the investors, are not actively engaged by founders (8%).
17. Legal challenges
Sometimes a startup can evolve from a simple idea to a world of legal complexities that can prove to be a core cause of shutting a startup down (8%).
16. No financing or interested investors
In other cases, failure is caused by no funding or interest for the startup’s product/service by the investors (8%).
15. Bad location
The location affects the success of the company in two different ways. On one side, there has to be congruence between your startup’s concept and location: a product working well in one place, maybe is not good enough in another one. On the other side, location has an important role in failure for remote teams. If your team is working remotely, make sure you find effective communication methods, else lack of teamwork and planning could lead to failure (9%).
14. Lack passion and domain expertise
Lack of interest for the product/service domain determines the failure in the 9% of startups. No matter how good an idea is, if there is no real interest for the product you are very close to shutdown.
13. Pivot gone bad
Pivoting for pivoting’s sake is worthless. It should be a calculated affair, where changes to the business model are made, hypotheses are tested, and results are measured. Otherwise, you can’t learn anything (10%).
12. Disharmony with Investors/Co-founders
Discord with a cofounder or with an investor was a fatal issue for startup post-mortem companies: it is the cause for failure in the 13% of startups analyzed.
11. Lose focus
There are many things that can quickly get ugly and distract the team from the startup development. Other projects, private issues, loss of interest are only some examples of the reasons that can bring to failure (13%).
10. Release product at the wrong time
If you release your product too early, users may write it off as not good enough and getting them back may be difficult if their first impression of you was negative. And if you release your product too late, you may have missed your window of opportunity in the market (13%).
9. Ignore costumers
14% of failures depend on ignoring customer feedback: do not consider their thoughts and opinions represent a big risk for failure.
8. Poor marketing
Knowing your target and knowing how to convert them into final costumers is a precious skill, indispensable for a successful company. Poor marketing skills and planning cause the 14% of failure.
7. Lack business model
Having a good business model is important to ensure the success of a startup. The idea or the product is not enough, you have to calculate anything in details to be sure of great results (17%).
6. A “User Un-Friendly” Product
Often things gone bad when you ignore the consumer needs and desires, creating a product not good enough, not useful, undesirable…(17%).
5. Pricing/cost issues
Defining the pricing of new products is no easy subject: make a mistake, assigning a too high or too low price, can compromise the development of the company (18%).
4. Get outcompeted
Once an idea market validation, there may be many entrants in a space. And while obsessing over the competition is not healthy, ignoring them was also a recipe for failure (19%).
3. Not the right team
A starting team, including individuals with different skills is crucial for the success of a startup. Often the lack of a specific professional figure can determine instability and difficulties in the development of the business (23%).
2. Ran out of cash
Money and time resources are finite and need to be allocated judiciously. Indeed, the 29% of startup failures depend on wrong use of money invested.
1. No market need
The 42% of startups fail for this reason: the lack of market need. Companies don’t survive if they don’t help to solve a market problem, even if the idea, the team, or the technology can be very valid. So, is the market demand the one which affects more the success or failure for startups.
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