The main reason why startups fail (hint: it’s not about money)

The failure rate among start-ups is pretty high —somewhere between 75% and a whopping 90%. And while running out of cash and being outcompeted are of course frequent reasons for that, neither is the most common reason for failure: according to a study published by CB Insights, the main reason for failure is creating something with no market need.

Top 20 Reasons Startups Fail, based on analysis of 101 startup postmortems by CB Insights:
No market need: 42%
Ran out of cash: 29%
Not the right team: 23%
Pricing or cost issues: 18%
User un-friendly product: 17%
Poor marketing: 14%
Ignore customers: 14%
Lose focus: 13%
Disharmony among team or investors: 13%
Pivot gone bad: 10%
Lack passion: 9%
Failed geographical expansion: 9%
No financing or investor interest: 8%
Legal challenges: 8%
Didn't use network: 8%
Burn out: 8%
Failure to pivot: 7%

Testing ideas and reacting quickly to unproven hypothesis is key to success —not only in today’s Silicon Valley, but throughout history. Thomas Edison famously said, about having reportedly failed thousands of attempts to invent the lightbulb: “I have not failed 10,000 times. I have successfully found 10,000 ways that will not work”. 

Unfortunately, this is not always the founders’ mindset. In a research with 14 international accelerators published by Entrepreneur, the lack of proper testing is considered to be a key failure reason:

“Inadequate testing was by far the most mentioned reason for startup failure. This factor is identified by several other terms like not getting started, not understanding how to access the market, and not understanding the barriers to entry.”

Michael Houlihan & Bonnie Harvey for Entrepreneur.com

Many entrepreneurs fall in love with their idea, and they tend to try to make it “perfect”. The thing is, “perfect” does not exist. The main goal for any company or product should be to solve a problem.

And while this may sound obvious, in general, it isn’t. It’s easy to get trapped in a vast product backlog with advanced features. And it’s even easier to spend a lot of time worrying about a pixel-perfect design before actually shipping a product.

Nowadays, anyone with an idea can be an entrepreneur, especially when using low-code and no-code tools. With those technologies, we’ve seen makers build companies in weeks instead of months either doing it themselves or hiring a no-code expert. It is that faster, and it takes exponentially less money.

Building with no-code solves two parts of the problem: it allows you to ship and start learning in weeks, and it also saves you money, so you can use it in an even more vital step: iterating your product with user feedback.

But it does not guarantee success, of course. So here are the three main bits of advice we usually give when consulting:

1 – Solve the cause, not the symptom

Every good product serves a purpose. In order to deeply understand its purpose, it is crucial not to focus only in the surface (i.e.: ‘hotels are boring’), but get to its core (‘people want to have an authentic experience while traveling’). As Donald Norman says in The Design of Everyday Things (2002) “Invariably, the problem I am asked to solve is not the real, fundamental, root problem”.

2 – Design experiments

The best way to learn something is by testing ideas in the real world. As Eric Riess puts:

“The reason to run experiments is to discover customers’ revealed preferences trough their behavior. In other words, don’t ask customers what they want. Design experiments that allow you to observe it.”

Eric Riess – The Startup Way (2018)

3 – Embrace change

After rounds of experimentation, you might feel your original idea is not the most appropriate way to tackle a problem. Perhaps some things need to change, and that is good learning. As Peter Drucker says, “There is nothing so useless as doing efficiently that which should not be done at all”. It is important to understand that changes in the original plan are inherent to how a successful startup works.

To sum it up, a good idea is a great place to start a business, but execution is everything. Your chances increase dramatically when you unleash the full potential of your idea by iterating it.

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