10 Reasons Your Tech Startup Will Not Fail
It’s hard getting a tech startup off the ground. It’s tough and challenging. Breaking through canopy and being heard over the noise gets more competitive with every passing year and technical development. There are success stories and tested blueprints for tech success already written, so why do tech startups still fail?
In Peter Cohan’s article 7 Causes of Startup Failure and How To Avoid Them, he presents us with the depressing statistic that only 1 out of every 5,000,000 startups ever reach a billion dollars. The reasons he gives are:
1. Failure to find unsolved customer pain
Because consumers are savvy, they know not to get involved in a startup’s product because it’ll likely not be there soon afterwards. However they will try it when it clearly demonstrates an ability to solve customer pain where no-one else has.
2. Products, prototypes and problems
When start-us don’t let anyone see (or try) their product until it is perfectly perfect, then will it ensure it impresses customers? To think that no one will buy it unless it’s perfect, or worried that an idea might get stolen can mean missing out on vital early customer feedback.
3. No passion for market
There’s a good chance entrepreneurs won’t see a penny of income for a quite some time. For those who are not prepared for long days with little material return often aren’t passionate enough to last the race and succeed. Startups are successful because they help ‘solve’ customer problems. If they care about their customers enough, they’ll be repaid (hopefully) eventually.
4. Lack of skills
Most entrepreneurs can’t afford to hire a professional to wear each hat. So a certain amount of on the job learning and adopting multiple roles is a necessity. If they haven’t got the skills or aren’t quick enough to learn them, they will flounder.
5. Cash flow
Like any business cash flow is the lifeblood for a tech startup. Without cash it cannot operate and if there isn’t any external investment either then startups will find it difficult getting people to work for free. Watching money like a hawk and accounting for every penny spent is strategy that works best whilst continually being on the hunt for more of it.
6. Inability to raise capital
Not having any cash come in from investors usually ends in one thing, the end! But, as every entrepreneur knows, they need to approach a high number of potential investors before one says yes. Waiting for money to come in rather than seeking it out themselves is another fast track reason for failure.
7. Poor leadership
It doesn’t matter how strong or weak a team is, if the leader cannot demonstrate the skills needed to lead then it isn’t going to motivate anyone. Their charisma and strength of vision is often the only thread holding a startup together.
In addition to the above reasons, in Why So Many Tech Startups Fail the HuffPost highlights another two areas that contribute to tech startups failing:
8. A lack of direction
Even well planned and well funded ideas fail, often because there isn’t a strong team on hand to ensure a steady ship. The power of having strong advisors or mentors to bounce ideas off shouldn’t be underestimated. They can both support and reign in.
9. An undefined idea
Product is everything. When it doesn’t have a clear USP why will it be adopted? Jumping straight into the market without understanding how to ‘unpack’ that idea is a recipe for quick failure.
Venture capitalist David Skok has a popular SaaS blog called ForEntrepreneurs.com. In Why Startups Fail he highlights some of the metrics needed to ensure when a tech startup has the best chance of success:
10. Business model fail
One of the most common causes for failing startups is that they are too optimistic about how they will acquire customers. Attracting the right customer isn’t easy and neither is ensuring the money spent doing so actually offers a fair return on investment. If the business model is wrong, it is identified in the imbalance of the cost required to gain a customer as opposed to the lifetime value of that customer.
There are 2 guiding principles dictating YOUR failure
If we bullet point every reason for why startups fail, we are left with two groups: poor business decision making and leadership failure:
Poor Entrepreneurial Decision Making & Knowledge
- Lack of focus
- Lack of motivation, commitment and passion
- Too much pride/unwillingness to see or listen
- Taking advice from the wrong people
- Lacking good mentoring
- Lacking domain
- Specific business knowledge: finance, operations, and marketing
- Raising too much money too soon (yes, this is a problem!)
- Ran out of cash
- No market need
- Not the right team
- Got out-competed
- Pricing/cost issue
- Poor product
- Need/lack business model
- Poor marketing
- Ignore customers
Starting up is hard. There are many different problems to encounter and overcome. Navigate them all and and a tech startup has a chance. Don’t, and it becomes another multi-million-strong statistic.