While it is true that starting your own business is one of the most exciting and rewarding experiences there is, the fact remains that most startups won’t succeed; according to leading entrepreneurial sources such as Forbes and Harvard Business Review, a whopping “nine out of ten startups [...] fail”, never managing to “deliver a positive return to [their] investors.” These are sobering statistics, but they don’t have to be completely disheartening. While it is easy enough to say that the failure of a startup is solely the result of poor foundership, it is almost always a cop-out that greatly oversimplifies a much more complex situation. Truth is, beyond the entrepreneurial competence of its founders, there are myriad additional factors at play in the evolution of a startup, and they all need to align in order for your business to fly.
In this blog post, we will guide you through 4 common reasons why startups fail, and what you can do to ensure that your business gets off to a good start.
Fortune reports that, according to their founders, the number one reason why startups fail is that “they make products no one wants.” What they mean by this is that the market has no real need for their product, making it impossible (or at the very least incredibly difficult) to ever reach product-market fit. You would think that if you’re intending to spend a lot of time, resources, and money on building a product from scratch, you would take all the necessary precautions in order to ensure that you’re developing the right product for the right market. Instead of dedicating all your time to rushing production towards launching your product as quickly as possible, it is absolutely crucial that you prime your product launch with thorough customer and market research that generates real insights into relevant market needs. By neglecting this step on your startup journey, often as a result of putting too much of your trust into the idea of a lean startup methodology (launching early, often, and fast), you will be jumping the gun on business development and achieve nothing more than what we deem a “false start.” In short, your eagerness to get your product onto the market should never override ensuring that there is a space for your product to land – and to grow.
The first thing you should do before building your product is to perform thorough market research, from which you’re able to carefully mold your product after your future customers’ needs. There are several effective ways of doing this, but we would especially recommend that you “conduct a competitive analysis [...] including user testing of existing solutions;” this will help you understand “the strengths and shortcomings of rival products” on one hand, and allow you to properly “measure customer behaviors and attitudes” on the other. Building on this need to measure customer needs, it is absolutely essential that you perform real-life (and rigorous) interviews with potential customers in order to determine early on what problems your product needs to address. However, it is important to remember that these interviews should not function as a platform for you to pitch your product; rather, your aim should be to garner valuable information that helps “validate your concepts with real customers in real-world settings.”
Perhaps one of the more obvious reasons – yet always decisive – why your startup fails is not being able to fund enough cash. While it may be easy for you to see (and even explain) why your business should keep increasing in worth because of the hard work of your team and the quality of your product, unfortunately, “the valuations of a startup don’t change in a linear fashion over time.” And while you may succeed in the initial funding rounds, there is no guarantee that investors will see the same potential in you by the time the next round comes along. Still, “timing is everything,” and for your business to remain profitable long-term, “the amount of time it takes [your] startup to raise money means everything.”
In order for your business to increase in valuation in time for each funding round, it is crucial that you set up and maintain key milestones. While your milestones should always be molded to fit your unique business needs, we’d like to suggest that you implement at least 3 main ones that are guaranteed to get you going in the right direction. The first we’ve already touched upon: performing thorough market and customer research to ensure that your product reached product-market fit should always precede any other startup objective, and it is just as important in terms of funding capability as it is for the overall success of your business. When this milestone is reached, you should work to implement a “repeatable [...] and profitable growth model,” i.e. a predictable funnel process that helps you demonstrate to potential investors that your business growth “will have a predictable and repeatable impact” on returns. Finally, when you’ve secured your product-market fit and repeatable processes, it is time to start effectively scaling your business in order to remain increasingly profitable.
Beyond implementing a solid funding strategy to ensure that your business goes through each funding round successfully, perhaps the most important thing you should do is consult a reliable and experienced set of investors who know when to press go on acceleration. A relatively new yet statistically effective choice is the venture studio – “a business model that directs all its capital into building start-ups from the ground up [...] making it the perfect long-term business partnership that is sure to stand the test of time.” What makes the venture studio the most successful asset when it comes to funding cash for your startup is the fact that “they are able to buy ownership in a capital efficient way;” due to this high level of owner- and co-foundership, the venture studio can provide your startup with “follow-on funding” throughout your growth journey, ensuring that all milestones are reached when they need to be. Furthermore, through the venture studio’s extensive network, founders are able to access and “leverage [...] additional financial resources” in the form of carefully selected investors.
As Forbes so accurately puts it, “rapid growth is the sign of a great idea in a hot market.” While it may seem self explanatory that a startup must always stay scaling – and fast – in order to remain increasingly profitable, it is still crucial to remember that as founder, it should never be acceptable for you to feel satisfied with “marginal single-digit growth after many months of operating.” The harsh truth of the market is that if your growth does not happen within a set period of time, your continued growth will never reach a state of exponentiality. Alas, your startup will never become sufficiently profitable for the amount of work you’ve put into your business. For this reason, it is hugely important for your company to start scaling fast at the very onset of your business journey and never stop – easier said than done, perhaps, but immensely rewarding in the long run.
Growth is an ongoing process – it requires continuous hard work, a whole lot of patience, and boundless dedication. While it may be hard to accept, there is no secret all-purpose formula to achieve neither fast growth nor fast success. Still, teaming up with a “well-connected team of professionals” that is experienced in the art of innovation is undoubtedly a step in the right direction, and a great way of “avoiding common pitfalls and mistakes that may impede [your] growth.” Owing to their extensive experience in everything innovation and entrepreneurship, the venture studio is “specifically designed to solve real problems in-market” fast, building their ventures in a way that ensures that they remain ahead of the market. Through moving fast and continuously establishing novel streams of revenue, working with a venture studio will secure your startup’s pace of growth longterm, and simultaneously allow you as a founder to focus more attention on building your business. If you’re still not convinced, the statistics speak for themselves. For a ‘traditional’ startup, obtaining their Series A funding takes roughly 56 months; in comparison, a startup working with a venture studio reaches the same funding stage in approximately 25 months – less than half that time. Hence, if rapid growth is the key to business success, the venture studio might just be the supreme locksmith.
As we’ve already mentioned, there are a whole lot of other parties besides the founder of a startup – from employees to strategic partners and investors – that can and will play a significant role in your business’s demise. While most founders understand that versatility is key when building a team to drive your business forward, many tend to forget that versatility “involves so much more than someone’s skillset.” In order to attract the right investors, gain the trust of experienced factory partners, and maintain healthy relationships between all involved parties, your business associates and employees must employ a mindset that allows them to change, adjust, and adapt in tandem with your business growth. On top of that, if you fail to acquire relevant (and reliable) industry connections, your startup won’t be able to leverage these professional networks to recruit additional team members or even ensure prompt delivery on production. Without a solid industry track record, you’ll find that – especially as a first-time founder – few investors are willing to bet on your success, and your business will soon end up in the graveyard of startups that put their trust in unreliable partnerships.
In order for your startup to succeed in the long run, it is crucial that you have access to a high-ranking bench of talent that “is able to quickly generate new solutions for [its] corporate partners” (especially if you don’t yet have a market-ready technology within your means) on one hand, and an extensive network of reliable investors and experienced business partners on the other. While you may be able to secure an inhouse team of capable professionals that are dedicated to you and your product, as we’ve already discussed, without a noteworthy industry track record in your arsenal, chances are that potential investors will overlook your potential due to a lack of trust in your credibility. This is where the venture studio’s propensity for entering their collaborations with startup companies as co-founders becomes invaluable. Not only is the venture studio able to provide your startup with the resources and manpower needed to build your business, but “due to their proven iteration process and speed of development,” they make one of the strongest innovation partners on the market today. In addition to this, the co-foundership provided by the venture studio makes for a partnership built on accountability and longterm trust, which in turn helps you avoid the common pitfalls that may materialize when journeying through the startup jungle on your own.
Most entrepreneurs are (and should be) familiar with the concept of failure – after all, it comes with the trade of risk and opportunity. Failure must therefore be accepted as a plausible outcome in any business venture. But failure does not only take a toll on a personal level, but on both the economy and society as well. The hard truth is that “a doomed venture ties up resources that could be put to better use,” and, perhaps most importantly, acts as a deterrent to would-be entrepreneurs who may be facing barriers when trying to raise capital – predominantly women and other minorities in the field. So, while failure will always remain a reality in the field of innovation, it is important that entrepreneurs recognize that most failures are avoidable as long as they follow a reliable and repeatable trajectory. In turn, “the payoff will be a more productive, more diverse, and less bruising entrepreneurial economy” in all aspects.
