Top-10 reasons why Startups fail

This top-10 is composed of personal experience by directly coaching more than 100 startups and indirectly involvement in 300 other startups the last decade.

1. Underestimate the timelines before the company is making profit (underestimate the marketing & roll-out costs)

Lots of startups really think they make profit within 12 months. In all the business plans I see huge revenues in the first year. The practice is, unfortunately, that most startups after 3 years still have a negative cash flow.

2. Overestimate the market size

Lots of startups start to calculate with 1% or 2% of the market size and think they can reach that in a few years. In practice they even don’t reach a market share of 0,001%. They forgot to calculate the huge sales & marketing costs to reach a certain level of market size.

3. Funding problems and cash flow problems

It is always difficult to get funded. Or at least the difficulty is to get funded on the right timing. Lots of startups think they can get funding within a few months; in practice you need more often 1 year then a few months. Startups with funding within a few months from the startup date are exceptional. Focus on your market and focus on the next funding round. Without cash it feels like running a machine without oil. Without cash your business will be jammed. Do not underestimate the period time to get funded. It is sometimes a very frustrating process; only the real entrepreneurs will survive.

4. Problems with customer acquisition (“everyone likes it, but don't buy it”)

There is a big difference between product liking and product buying.

  1. I like the product.
  2. Yes, I definitely like it.
  3. I would like to have it.
  4. Yes I’m sure I would like to have it.
  5. I think I will buy it.
  6. I will buy it.
  7. I’m sure I will buy it.
    • But when: next week or after 3 years?
    • Is it a substitute? Do you need to wait when the time is ready for replacement ?
    • Why should people order it today ?
    • Why should people pay money for it? (it is really a big problem ?)
    • But when: next week or after 3 years?
  8. I want to have it this week. I will ask my husband to buy it.
  9. I will step on my bike / into my car and will ride to the shop ? (even when it’s raining ?)
  10. Yes, I got it.

5. No clear pricing and/or revenue model

Lots of startups have no glue about pricing. They forgot the process of Customer Validation: talk with potential customers and ask/discuss the potential value, the savings and the price they want to pay. Lots of startups are so stupid to communicate directly prices into the market; sometimes is it better to discuss it first with some launching customers. And do not forget to price your product/service “value based” and not “cost-price plus”; and have a look at substitutes, competitors and their value for money.

6. Not enough experienced sales power in the team

Most startup teams are young and smart, but more than 90% of this teams do not have experienced sales power on board (men or women with at least 20 years sales experience).

It is very important to have a balanced management team and a mix of people.

7. Competition of other products or services

There is always competition. Even if you think you found everything on Google, you will be surprised what happened in another region in the world.

8. Product / service is not as good as expected

Lots of entrepreneurs think they have an unique product or service. But unique products will not always be automatically bought by customers. It's all about perception of the customers.

9. Problems with scaling up and growth

A business model with potential scaling up possibilities is very important. Lots of startups forget to prepare for international growth and sometimes their pricing models are not suited for worldwide distribution. Also language and cultural problems can be a threshold.

10. Internal troubles within the management team

One personal will go left, another right. One person wants to have direct a huge salary, another will not push up the burn rate. Some persons have no respect for others, some are not listening to others; some persons have a short-term focus, some have mid-term focus, some people are very smart, some people are less smart and cannot discuss on the same high level. Some people are professionals, some are not more than well-intentioned amateurs. Some team members work 16 hours per day, 7 days per week. Some of them start at 10.00 and leave at 17.00. There are always lots of possible internal troubles. Do not forget: “you are together in the same boat and have the same goal”.

Another interested list is the Top-20 list of CB Insights.

Author - Alain le Loux

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