Why startups fail??

Reason 1: Market Problems

A major reason why companies fail, is that they run into the problem of their being little or no
market for the product that they have built. Here are some common symptoms:

There is not a compelling enough value proposition, or compelling event, to cause the
buyer to actually commit to purchasing. Good sales reps will tell you that to get an order
in todays tough conditions, you have to find buyers that have their hair on fire, or are
in extreme pain. You also hear people talking about whether a product is a Vitamin
(nice to have), or an Aspirin (must have).

The market timing is wrong. You could be ahead of your market by a few years, and they
are not ready for your particular solution at this stage. For example when EqualLogic first
launched their product, iSCSI was still very early, and it needed the arrival of VMWare
which required a storage area network to do VMotion to really kick their market into
gear. Fortunately they had the funding to last through the early years.

The market size of people that have pain, and have funds is simply not large enough

Reason 2: Business Model Failure

As outlined in the introduction to Business Models section, after spending time with hundreds of
startups, I realized that one of the most common causes of failure in the startup world is that
entrepreneurs are too optimistic about how easy it will be to acquire customers. They assume that
because they will build an interesting web site, product, or service, that customers will beat a
path to their door. That may happen with the first few customers, but after that, it rapidly
becomes an expensive task to attract and win customers, and in many cases the cost of acquiring
the customer (CAC) is actually higher than the lifetime value of that customer (LTV).
The observation that you have to be able to acquire your customers for less money than they will
generate in value of the lifetime of your relationship with them is stunningly obvious. Yet despite
that, I see the vast majority of entrepreneurs failing to pay adequate attention to figuring out a
realistic cost of customer acquisition. A very large number of the business plans that I see as a
venture capitalist have no thought given to this critical number, and as I work through the topic
with the entrepreneur, they often begin to realize that their business model may not work because
CAC will be greater than LTV.

The Essence of a Business Model

As outlined in the Business Models introduction, a simple way to focus on what matters in your
business model is look at these two questions:

Can you find a scalable way to acquire customers

Can you then monetize those customers at a significantly higher level than your cost of
acquisition

Thinking about things in such simple terms can be very helpful. I have also developed two
rules around the business model, which are less hard and fast rules, but more guidelines.
These are outlined below:

The CAC / LTV Rule

The rule is extremely simple:

CAC must be less than LTV

CAC = Cost of Acquiring a Customer

LTV = Lifetime Value of a Customer
To compute CAC, you should take the entire cost of your sales and marketing functions,
(including salaries, marketing programs, lead generation, travel, etc.) and divide it by the number
of customers that you closed during that period of time. So for example, if your total sales and
marketing spend in Q1 was $1m, and you closed 1000 customers, then your average cost to
acquire a customer (CAC) is $1,000.
To compute LTV, you will want to look at the gross margin associated with the customer (net of
all installation, support, and operational expenses) over their lifetime. For businesses with one
time fees, this is pretty simple. For businesses that have recurring subscription revenue, this is
computed by taking the monthly recurring revenue, and dividing that by the monthly churn rate.
Because most businesses have a series of other functions such as G&A, and Product
Development that are additional expenses beyond sales and marketing, and delivering the
product, for a profitable business, you will want CAC to be less than LTV by some significant
multiple. For SaaS businesses, it seems that to break even, that multiple is around three, and that
to be really profitable and generate the cash needed to grow, the number may need to be closer to
five. But here I am interested in getting feedback from the community on their experiences to
test these numbers.

The Capital Efficiency Rule

If you would like to have a capital efficient business, I believe it is also important to recover the
cost of acquiring your customers in under 12 months. Wireless carriers and banks break this rule,
but they have the luxury of access to cheap capital. So stated simply, the rule is:

Recover CAC in less than 12 months

Reason 3: Poor Management Team

An incredibly common problem that causes startups to fail is a weak management team. A good
management team will be smart enough to avoid Reasons 2, 4, and 5. Weak management teams
make mistakes in multiple areas:

They are often weak on strategy, building a product that no-one wants to buy as they
failed to do enough work to validate the ideas before and during development. This can
carry through to poorly thought through go-to-market strategies.

They are usually poor at execution, which leads to issues with the product not getting
built correctly or on time, and the go-to market execution will be poorly implemented.

They will build weak teams below them. There is the well proven saying: A players hire
A players, and B players only get to hire C players (because B players dont want to work
for other B players). So the rest of the company will end up as weak, and poor execution
will be rampant.

etc.

Reason 4: Running out of Cash

A fourth major reason that startups fail is because they ran out of cash. A key job of the CEO is
to understand how much cash is left and whether that will carry the company to a milestone that
can lead to a successful financing, or to cash flow positive.

Milestones for Raising Cash

The valuations of a startup dont change in a linear fashion over time. Simply because it was
twelve months since you raised your Series A round, does not mean that you are now worth more
money. To reach an increase in valuation, a company must achieve certain key milestones. For a
software company, these might look something like the following (these are not hard and fast
rules):

Progress from Seed round valuation: goal is to remove some major element of risk. That
could be hiring a key team member, proving that some technical obstacle can be
overcome, or building a prototype and getting some customer reaction.

Product in Beta test, and have customer validation. Note that if the product is finished,
but there is not yet any customer validation, valuation will not likely increase much. The
customer validation part is far more important.

Product is shipping, and some early customers have paid for it, and are using it in
production, and reporting positive feedback.

Product/Market fit issues that are normal with a first release (some features are missing
that prove to be required in most sales situations, etc.) have been mostly eliminated.
There are early indications of the business starting to ramp.

Business model is proven. It is now known how to acquire customers, and it has been
proven that this process can be scaled. The cost of acquiring customers is acceptably low,
and it is clear that the business can be profitable, as monetization from each customer
exceeds this cost.

Business has scaled well, but needs additional funding to further accelerate expansion.
This capital might be to expand internationally, or to accelerate expansion in a land grab
market situation, or could be to fund working capital needs as the business grows.

What goes wrong

What frequently goes wrong, and leads to a company running out of cash, and unable to raise
more, is that management failed to achieve the next milestone before cash ran out. Many times it
is still possible to raise cash, but the valuation will be significantly lower.

When to hit Accelerator Pedal

One of a CEOs most important jobs is knowing how to regulate the accelerator pedal. In the
early stages of a business, while the product is being developed, and the business model refined,
the pedal needs to be set very lightly to conserve cash. There is no point hiring lots of sales and
marketing people if the company is still in the process of finishing the product to the point where
it really meets the market need. This is a really common mistake, and will just result in a fast
burn, and lots of frustration.
However, on the flip side of this coin, there comes a time when it finally becomes apparent that
the business model has been proven, and that is the time when the accelerator pedal should be
pressed down hard. As hard as the capital resources available to the company permit. By
business model has been proven, I mean that the data is available that conclusively shows the
cost to acquire a customer, (and that this cost can be maintained as you scale), and that you are
able to monetize those customers at a rate which is significantly higher than CAC (as a rough
starting point, three times higher). And that CAC can be recovered in under 12 months.
For first time CEOs, knowing how to react when they reach this point can be tough. Up until
now they have maniacally guarded every penny of the companys cash, and held back spending.
Suddenly they need to throw a switch, and start investing aggressively ahead of revenue. This
may involve hiring multiple sales people per month, or spending considerable sums on SEM.
That switch can be very counterintuitive.

Reason 5: Product Problems

Another reason that companies fail is because they fail to develop a product that meets the
market need. This can either be due to simple execution. Or it can be a far more strategic
problem, which is a failure to achieve Product/Market fit.
Most of the time the first product that a startup brings to market wont meet the market need. In
the best cases, it will take a few revisions to get the product/market fit right. In the worst cases,
the product will be way off base, and a complete re-think is required. If this happens it is a clear
indication of a team that didnt do the work to get out and validate their ideas with customers
before, and during, development.

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why do most indian startups fail

I am writing an article after a long time. This time the topic is with regards to Indian
startups. The reason that I am particularly writing about startups is because a very
large number of students are opening their startups or are joining existing startups
after graduation. The number of startups is growing at an exponential rate, and I
believe that this will be a continuing trend. I want to give my take on this new sociocultural trend.

Let us first define a startup, and discuss why it is important to talk and write about it.
A startup is typically construed to be a new venture in a hi-tech area. Again this
might be a very restricted definition and clearly does not encompass new ventures in
very traditional areas. However, let me stick to this definition in this article. Typically
most startups are founded by students right after college or young professionals. The
sad part of startups in India is that most founders typically sacrifice their career,
earnings, personal life, and professional aspirations to create something that in an
overwhelming majority of cases fails (for the statistics, read the last paragraph).
My aim in this article is to highlight some of my thoughts on why I think most Indian
startups fail, and look at possible solutions to this problem. Note that these are my
personal views, and do not reflect the views of my employer, IIT Delhi. Additionally,
whatever I am writing is from my personal experience that I have gathered from many
of my friends, friend's friends, ex-students, and newspaper reports. Nevertheless, I feel
that in the broader interest of society, I should summarize what I have learnt from
people who have founded startups.
The first building block of a startup is the idea. Note that in this sense a startup is
different from a traditional business. If I setup a shop that sells chocolates outside a
school, I am guaranteed to make some money. I might not make enough money, or I
might be chased away by the civic authorities, nevertheless, I can still find a way to
stay above the poverty line. However, the idea of a startup is very different. It is a new
business model, or a new product that needs to be sold to an upwardly mobile middle
class. They might not like the idea, might not be enthusiastic about it, or there might
be many other competitors with better offerings. Since most startups are internet
based, the chances of competition are very very high because the internet nullifies
geographical distances.
Clearly the idea has to be new, fresh, innovative, technically sound, free of legal
issues, socially acceptable, and needs to have the potential to make a lot of money.
There are many adjectives in the previous sentence, and we are assuming that the
group of founders will have technical geeks, legal experts, business honchos, and
sociologists. This is hardly the case. Most founders of startups in India are typically
young professionals. Note that these people typically have good pedigrees, are
confident, articulate, and have an appetite for taking risks. However, this is not
sufficient.
Let us wind the clock 10 years backward. Most students in India start losing touch of
real life once they are 15-16 years old. The pressure of getting into a premier
institution (IIT/NIT) is overwhelming. Students from small towns typically move to

coaching hubs such as Kota in droves and spend the next 2-3 years preparing for
different entrance exams. They have hardly any time for anything other than studies.
Once they get admitted to a premier institution, the situation does not change
significantly. Most of the time, the first year is typically the most strenuous in terms of
studies primarily because students are new to the system, and a lot of them want to
change their branch of study.
The subsequent years are no better in terms of developing a world view. Since most
students stay in hostels and have limited access to television, they are mostly unaware
of events of national and international importance. Since reading newspapers or
anything for that matter seems to be out of fashion these days, students are bereft of
the benefit of traditional channels of information that are otherwise available.
Secondly, most campuses of premier universities are like ``virtual worlds'' -- fairly
cut-off from the rest of the society. As a result, students do not develop a world view
and do not develop an understanding of society. The situation does not grossly change
in the first few years after joining a job. A typical job in a multi-national company in
India involves very long hours and leaves little time for professionals to interact with
the society at large. The weekends are often spent sleeping, partying or traveling. As a
result most of the people that I have talked to in this bracket have a little
understanding of the needs and requirements of a typical middle class family. They
are mostly aware of the requirements of their friends but not of somebody who has
young children and aged parents to take care of. Note that India has a very large
middle class with a fair amount of spending power. Unless we understand their needs
and aspirations, our products might not be what they are looking for. This dissonance
in perceptions and actual requirements is a big reason for startups not getting enough
customers.
Let me consider some examples by suggesting some ideas.
1. Use the phone as a remote control to open a car.
2. Use the phone as a remote control to turn ACs on, turn the geyser off, or change

channels on a TV.
3. An online portal to connect music lovers.
4. An online portal to sell groceries.
5. A service to connect senior citizens with similar interests.

6. Home delivery service for diapers, tissues, and other baby products.

These are some random ideas, and I could come out with more. The only thing that I
can guarantee you is that these will not work! Let us see what is the problem with the
first 2 ideas. Most people do not have a problem with having an extra remote (for TV
or AC) around. Secondly, most smart phones have very low battery lives, and there is
no reason to not be able to run the TV when the phone is discharged. What happens if
the owner of a phone with this app goes out for a walk? For idea #3, there are hardly
enough music lovers in an area to justify a startup. For idea #4, most middle class
families will want to touch and feel a vegetable before buying it. They will not trust an
online delivery guy. Idea #5 will bomb for sure because senior citizens are not very
tech. savvy, and idea #6 will not work because already pharmacy stores do home
delivery for large orders.
As you see, all of these ideas might look okay, but are simply impractical because the
society will not accept them for a variety of reasons. There can be many legal issues
also. While making a matrimonial site, one needs to be very careful about revealing
identities, and ensuring that no obscene content is exchanged. Otherwise, the legal
consequence can be very severe. As you see, it is very hard to figure out so many
things unless a person has the experience of actually living in a society and interacting
with people across all age groups and social strata. Most founders of startups do not
have this experience, nor do they try to conduct in-depth surveys to gauge customer
perception; as a result the outcomes are not very favorable.
Lastly, I would also like to add that we have an enough number of startups that focus
on online retailing, analytics, and social media. Why not have high technology
startups that focus on the defense, aerospace, and high end manufacturing industries?
Any startup that is based on technology rather than on an apparently ``good''
marketing idea has a far higher chance of success. Let us take a look at the math. If a
social media startup earns 10 paisa per click (high in my opinion) it will take 10
million clicks to earn 10 lakh (1 million) rupees per year. This is a very high number,
and we clearly need to operate at a very large scale. In comparison, a well made piece
of technical software or service can fetch upwards of 1 crore (10 million) rupees in a
single deal. However, to produce such software it is necessary to be highly trained (at
least a Ph.D), have loads of R&D experience, and have very good contacts in the
industry. We have a massive dearth of such people and this leads to extremely low
tech. startups.
Let us now come to the next important ingredient -- money. Money is an important
ingredient for almost everything including a startup. Here again, Indian startups are
very different from their western counterparts. This morning I was watching a

documentary on TV. They showed statistics, which showed that an overwhelming

number of western startups begin with funding from friends and family, whereas
Indian startups get money from angel investors. Angel investors are venture capital
companies that provide funding to early stage startups. There is a reason for this trend.
In the west, there is a lot of competition among entrepreneurs to get their hands on
venture capital money. As a result, venture capitalists are extremely cautious in
disbursing funds. Consequently, most startups start in a garage with borrowed money,
which often has to be returned irrespective of the final outcome.
However, the situation in India is very different. Especially for students from premier
institutes, a lot of funding is available. There are many kinds of angel investors in the
market. There are some who genuinely believe in the ``India Story'', there are some
who believe in the creative potential of our youngsters, and then there are some who
want to use the VC route to bring in money parked in tax havens such as Mauritius
and Singapore. Irrespective of the source of funds, angel investors are out there, and
are willing to provide a lot of money. This is not necessarily a good trend. Taking
money from friends and family puts a lot of pressure on young entrepreneurs to
actually deliver, and return the money. In this case, relationships are at stake.
However, taking money from a third party, which is pretty much coming with no
strings attached, does not put any real pressure on entrepreneurs to deliver. Founders
often leave startups midway, go abroad for higher studies, or simply get bored.
To make Indian startups actually work, it is necessary to add more constraints to the
money supply. An unbridled supply of money is not exactly the best way to go
forward. Founders should know that the purpose of a business is to earn profit, and
provide value to customers. Hoping that one day somebody will buy the startup for
millions of dollars is not all that reasonable. It is true that some startups get sold for
massive sums, and even some Indian startups are on that list. However, this is not the
norm, and nobody should explicitly strive to be the exception. Additionally, startups
from India have low visibility, and getting sold to Silicon Valley biggies is not as easy
as American startups.
I would like to make another important point here. A lot of founders of businesses do
not approach formal banking channels, and do not take advantage of government
schemes. In this year's budget (2015-16) a thousand crores (200 million dollars) have
been allocated to funding startups. It is true that to get government funding the
proposal has to be above a certain bar because most of such proposals are reviewed by
a team of experts often consisting of academics. This is a good thing, not a bad thing.
Writing a good, well studied, and technically consistent business plan is not just
desirable, it is also essential. If a group of founders think that they have a document

that clearly elucidates their business idea, value to the society and the nation, then
they should approach the government, and ask for help and guidance. Most students
feel that the government is out of reach, and you need connections. Trust me, in this
day and age, the government is far more honest and approachable, and ordinary
citizens should at least make an effort to leverage government schemes to the fullest
possible extent.
We have talked about the idea, and money. What next? Well, it is talent, which is by
far the most important factor once the founders have a decent idea, and have the
financial resources. Who is going to do the work? Here, again Indian startups are very
different. Let us look at Bill Gates, Steve Jobs, and Larry Ellison. These three
distinguished gentlemen are the founders of Microsoft, Apple, and Oracle
respectively. The commonality between all three of them is that they are all technical
people, and spent a good part of their early life writing computer code, making
circuits, testing and debugging their designs. The same is true for others such as Mark
Zuckerberg, Sergey Brin, and Larry Page.
However, this is not the typical profile of an Indian startup boss. Most of the time, the
founders of Indian startups are business school graduates who might have worked in
top finance/consulting companies, or are technical people without any interest in
technical work. They are the ones that carry fancy titles such as a CEO, CTO, or
COO, and there are others who often do the technical work. A lot of such CEO types
that I have met were often very ignorant of the technical work happening in their
organizations. This particular trend leads to a disconnect between the employer and
the employee. The employee is typically not from an extremely privileged background
yet spends 60-70 hour weeks tirelessly writing computer code. The employer is the
one who often looks at the sales/marketing aspects and often places unreasonable
demands on the employee. There is no formula for kinship even in startups that have
less than 10 or 20 members.
The important take home point here is as follows. In a 5 or 10 member startup we
cannot afford a dedicated CEO or CTO. This places an unnecessary financial burden,
and creates a disconnect between team members. Moreover, often CEOs and CTOs
who are not technically inclined promise the world to the customer. They later on
discover to their chagrin that their promises failed to hold water because they were
extremely unrealistic.
Let us now come to the employees. In today's market finding a good computer
programmer is very hard. This might sound ironical given the number of top colleges
that India has; however, this is true. Most of the students in top institutes are hired by

very well paying multinational firms. It is very hard for a fledgling startup to match an
MNC salary. As a result startups often have to go to other non-premier colleges to
scout for talent. There is a big divide in India between different classes of institutes,
and startups would often find otherwise sincere students that lack sufficient practical
skills. It is not wise to invest a lot of money in training employees for an early stage
startup. They need employees who are all set to begin coding, and thus being
productive. This is seldom the case. It is even harder to find mid-level professionals
who can lead teams. Their salaries are either obnoxiously high, or they have shifted to
people management in their companies. In both cases, such people are not suitable for
startups in their early stage.
Also note that in the Indian educational system, the emphasis on practical skills is
somewhat low. This might be not very relevant in premier institutes where students
have other avenues for exploring their creativity, but for the rest of the educational
institutes this is a very important issue. It is paramount that we produce students who
companies can hire immediately after graduation. Spending lakhs of rupees on
training students to write even the simplest of programs or create the simplest of
designs is not the job of companies. Only big companies like Infosys can afford it.
Small startups cannot afford this luxury, nor should they be in the business of training.
The responsibility of training engineers lies fair and square with schools and colleges.
We are not just talking about technical skills here. A lot of the graduates in this
country are severely deficient in liberal arts skills. Ideally speaking, we want an
engineering student to write flawless English (or a vernacular language, if the need
arises), be articulate, and be able to present to a technically literate audience. We will
find very few graduated students with these qualities if we start looking. A lot of
students pick up these traits later in life; however, a broad majority of them do not.
This has resulted in a very low level of language proficiency in adults. Unless the
Indian educational system starts putting a greater emphasis on humanities skills and
focuses on all round personality development, we will never find people who can run
modern internationally competitive businesses.
Let us now look at a different class of people who are very competent, and want to
join a startup. Such people might want to do something really innovative, or they
might want to see what it feels like working for a small company. Some of my friends
joined startups because they wanted to work in a company that sells products tagged
with the line, ``Made in India.'' However, such examples are very rare. Let us see why.
In the US, and other western nations, a company is a company. If anybody is
employed then they are employed with a contract, which is legally enforceable. There
are strict rules regarding payment, conduct, rights and responsibilities. The owners

can go to jail if they violate terms of the contract.

In India, on paper we have a lot of laws, which are not bad at all. Some people argue
that for companies with less than 20 employees, the laws are fairly lax. Well, I am not
a legal expert, and thus I am not the most competent person to comment on such
issues. However, the laws that I have seen on the face of it are not all that bad. The
issue lies with the implementation. There is a wide spread belief among people that if
they join a small company, hardly any rules and policies are followed. I do not want to
lend credence to these rumors. However, I have heard a good number of anecdotal
reports from friends and ex-colleagues who are complaining about irregular payments,
obnoxiously long work hours, and improper standards for hiring-and-firing. Not all of
these reports are false. My basic question is how many founders of startups have
actually been penalized for not following proper procedures in running their
companies? How active has our society been in pointing out such offenders, and how
active have the authorities (including NGOs) been in ensuring that proper
employment practices are followed? The answers are not very encouraging, and this
particular public perception leads many technically competent people to avoid
working in startup ventures. I would appeal to the government to ensure that
irrespective of the size of the organization, all employment laws and procedures
should be followed to the last letter. The message should be loud and clear: Laws are
for everybody, no exceptions.
Let me now summarize this article. I have talked about ideas, funding, and talent. I
feel that we fall short on all of these counts, and thus our hi-tech ventures do not
work. What is the evidence that I have? Please visit iSpirt's website, which is the
umbrella body of Indian IT/ITES product companies. Here is what it says. Let us
assume that a VC (investor) firm puts in 100 Rs. into startups. Let us see what
happens after a couple of years. In Israel, the investor will get 700 Rs, in the US he
will 500 Rs, and in India he will get 110 Rs. The website says that even the figure of
110 Rs is wrongly calculated because it includes service companies as well.
Additionally, if we adjust the numbers for inflation, there is a net loss. From these
statistics, we can clearly see my reason for writing this blog. There is a big difference
in the success rate between an Israeli or American startup and an Indian startup.

Copyright (c) 2010. Smruti R. Sarangi. All rights reserved.

Founders blame investors, investors blame CEOs, CEOs blame research and development
(R&D), R&D say the product is fine, the market just doesn't get it, and marketing people blame
it all on the recession.
Some startups succeed, yet so many fail, and its failure that teaches us the best lessons. What are
the main reasons why startups fail? In a survey carried out by tech blog ArcticStartup and
CoFounder magazine, more than 100 startup entrepreneurs share their experiences and lessons
learned.
1. The Team Doesnt Have What It Takes To Succeed

A startups biggest challenge is getting the team right, according to 37% of the founders
surveyed. Having enough diversity for a variety of skills that are needed to succeed from day one
is essential. Not less important is trusting your team and giving them control over their
responsibility areas.
There's a reason why all the top investors and incubators place such heavy emphasis on the team.
Ideas change, products pivot, markets can take unexpected turns, but people are what hold
everything together. A great team is not just about selecting a group of smart people; its about
complementing each other's strengths and mitigating each other's weaknesses.
As a founder, you must attract and retain the right people to build the technology, understand
your industry, and scale your company.
2. The Idea Is Not Serving The Market Need

Sometimes the market simply isnt there yet. Of the surveyed entrepreneurs, 20% said their
startup failed most likely because of the product market fit. The biggest mistakes startups make
are not talking to enough prospects before diving in and not understanding the target market,
which might result in focusing on multiple ideas rather than one main idea.
Consumers are highly resistant to change and biased against trying a new product. Founders tend
to believe their product is great since theyre always the first to try new products themselves. But
mainstream consumers might not always understand why or how to use the new products. In this
instance, startup entrepreneurs might think the market should change to fit their vision, but this
thinking ignores the market realities.
3. Running Out Of Cash Too Fast

Cash isnt everything when it comes to starting a business, but when you run out of it, theres not
much that can help, according to 13% of the surveyed startup founders. Google and Facebook
can afford taking risks on their cash by dedicating a fraction of it to crazy ideas, but small
startups can rarely afford this.
Many businesses that fail aren't insolvent or even unprofitable, they just run out of cash. Once
you have a viable business model, managing your cash flow is the single most important thing
you can do. It doesnt matter how much cash you raise, without revenue generation you will

eventually run dry. The biggest mistake to be made is carelessly spending money on features that
are not needed or spending your marketing budget with no control on measuring what you are
getting back.
4. Not Being Able To Support Growth

Things could go smoothly for a while, that is until you decide to scale up. Ten percent of
respondents said their startup failed because of the growth problems.
When youve built a business model that works only up to a certain size, your model cant
sustain growth. Sometimes you must change your model sooner than expected. The founders
who are not flexible, who are stuck in their own stubbornness, and who dont think ahead, will
end up being their own downfall even if the startup was successful.
5. Poor Allocation Of Resources And Money

Where startups often fail is not having a proper plan in place about how many people they need
to hire, when is the right time, and which teams should be invested in at the first stage.
Startups that run out of resources also usually do so because the founders dont want to give up a
piece of the pie, the budgets were not planned properly, the burn rate was too high, or it just took
longer to raise the first round than initially expected.
6. Not Realizing The Competition In The Market

How often have we heard, focus on your own thing instead of getting distracted by the
competition? This does not mean, though, that you should ignore the competition.
Where startups go wrong is believing they are the only ones with the great idea and going out
there without proper competitor research. Ignoring the competition is a recipe for disaster in 19%
of startup failures.
As Peter Thiel suggests, ask yourself what youre doing that no one else is doing. Or if someone
is not doing it well enough, what are you doing differently to win the market?
7. Ignoring Customers

The tricky question has always been whether entrepreneurs should open up shop for testing or
spend a few more months making it perfect. First talk to your customers and then develop your
product according to your market need. Thats where many startups go wrong.
When you don't validate your market aggressively enough, you cant build a good product.
Without measuring, trusting the numbers, tracking, validating, and optimizing the data you get
from your clients, its not possible to create a viable product in high demand.
There are many other reasons startups fail, but these seven came up as most common when
questioning the founders and team members involved with the startup ecosystem. Should your

startup fail, its worth spending some time to understand what went wrong and learn from your
mistakes to make it next time.
Founders blame investors, investors blame CEOs, CEOs blame research and development
(R&D), R&D say the product is fine, the market just doesn't get it, and marketing people blame
it all on the recession.
Some startups succeed, yet so many fail, and its failure that teaches us the best lessons. What are
the main reasons why startups fail? In a survey carried out by tech blog ArcticStartup and
CoFounder magazine, more than 100 startup entrepreneurs share their experiences and lessons
learned.
1. The Team Doesnt Have What It Takes To Succeed

A startups biggest challenge is getting the team right, according to 37% of the founders
surveyed. Having enough diversity for a variety of skills that are needed to succeed from day one
is essential. Not less important is trusting your team and giving them control over their
responsibility areas.
There's a reason why all the top investors and incubators place such heavy emphasis on the team.
Ideas change, products pivot, markets can take unexpected turns, but people are what hold
everything together. A great team is not just about selecting a group of smart people; its about
complementing each other's strengths and mitigating each other's weaknesses.
As a founder, you must attract and retain the right people to build the technology, understand
your industry, and scale your company.
2. The Idea Is Not Serving The Market Need

Sometimes the market simply isnt there yet. Of the surveyed entrepreneurs, 20% said their
startup failed most likely because of the product market fit. The biggest mistakes startups make
are not talking to enough prospects before diving in and not understanding the target market,
which might result in focusing on multiple ideas rather than one main idea.
Consumers are highly resistant to change and biased against trying a new product. Founders tend
to believe their product is great since theyre always the first to try new products themselves. But
mainstream consumers might not always understand why or how to use the new products. In this
instance, startup entrepreneurs might think the market should change to fit their vision, but this
thinking ignores the market realities.
3. Running Out Of Cash Too Fast

Cash isnt everything when it comes to starting a business, but when you run out of it, theres not
much that can help, according to 13% of the surveyed startup founders. Google and Facebook
can afford taking risks on their cash by dedicating a fraction of it to crazy ideas, but small
startups can rarely afford this.

Many businesses that fail aren't insolvent or even unprofitable, they just run out of cash. Once
you have a viable business model, managing your cash flow is the single most important thing
you can do. It doesnt matter how much cash you raise, without revenue generation you will
eventually run dry. The biggest mistake to be made is carelessly spending money on features that
are not needed or spending your marketing budget with no control on measuring what you are
getting back.
4. Not Being Able To Support Growth

Things could go smoothly for a while, that is until you decide to scale up. Ten percent of
respondents said their startup failed because of the growth problems.
When youve built a business model that works only up to a certain size, your model cant
sustain growth. Sometimes you must change your model sooner than expected. The founders
who are not flexible, who are stuck in their own stubbornness, and who dont think ahead, will
end up being their own downfall even if the startup was successful.
5. Poor Allocation Of Resources And Money

Where startups often fail is not having a proper plan in place about how many people they need
to hire, when is the right time, and which teams should be invested in at the first stage.
Startups that run out of resources also usually do so because the founders dont want to give up a
piece of the pie, the budgets were not planned properly, the burn rate was too high, or it just took
longer to raise the first round than initially expected.
6. Not Realizing The Competition In The Market

How often have we heard, focus on your own thing instead of getting distracted by the
competition? This does not mean, though, that you should ignore the competition.
Where startups go wrong is believing they are the only ones with the great idea and going out
there without proper competitor research. Ignoring the competition is a recipe for disaster in 19%
of startup failures.
As Peter Thiel suggests, ask yourself what youre doing that no one else is doing. Or if someone
is not doing it well enough, what are you doing differently to win the market?
7. Ignoring Customers

The tricky question has always been whether entrepreneurs should open up shop for testing or
spend a few more months making it perfect. First talk to your customers and then develop your
product according to your market need. Thats where many startups go wrong.
When you don't validate your market aggressively enough, you cant build a good product.
Without measuring, trusting the numbers, tracking, validating, and optimizing the data you get
from your clients, its not possible to create a viable product in high demand.

There are many other reasons startups fail, but these seven came up as most common when
questioning the founders and team members involved with the startup ecosystem. Should your
startup fail, its worth spending some time to understand what went wrong and learn from your
mistakes to make it next time.
Founders blame investors, investors blame CEOs, CEOs blame research and development
(R&D), R&D say the product is fine, the market just doesn't get it, and marketing people blame
it all on the recession.
Some startups succeed, yet so many fail, and its failure that teaches us the best lessons. What are
the main reasons why startups fail? In a survey carried out by tech blog ArcticStartup and
CoFounder magazine, more than 100 startup entrepreneurs share their experiences and lessons
learned.
1. The Team Doesnt Have What It Takes To Succeed

A startups biggest challenge is getting the team right, according to 37% of the founders
surveyed. Having enough diversity for a variety of skills that are needed to succeed from day one
is essential. Not less important is trusting your team and giving them control over their
responsibility areas.
There's a reason why all the top investors and incubators place such heavy emphasis on the team.
Ideas change, products pivot, markets can take unexpected turns, but people are what hold
everything together. A great team is not just about selecting a group of smart people; its about
complementing each other's strengths and mitigating each other's weaknesses.
As a founder, you must attract and retain the right people to build the technology, understand
your industry, and scale your company.
2. The Idea Is Not Serving The Market Need

Sometimes the market simply isnt there yet. Of the surveyed entrepreneurs, 20% said their
startup failed most likely because of the product market fit. The biggest mistakes startups make
are not talking to enough prospects before diving in and not understanding the target market,
which might result in focusing on multiple ideas rather than one main idea.
Consumers are highly resistant to change and biased against trying a new product. Founders tend
to believe their product is great since theyre always the first to try new products themselves. But
mainstream consumers might not always understand why or how to use the new products. In this
instance, startup entrepreneurs might think the market should change to fit their vision, but this
thinking ignores the market realities.
3. Running Out Of Cash Too Fast

Cash isnt everything when it comes to starting a business, but when you run out of it, theres not
much that can help, according to 13% of the surveyed startup founders. Google and Facebook

can afford taking risks on their cash by dedicating a fraction of it to crazy ideas, but small
startups can rarely afford this.
Many businesses that fail aren't insolvent or even unprofitable, they just run out of cash. Once
you have a viable business model, managing your cash flow is the single most important thing
you can do. It doesnt matter how much cash you raise, without revenue generation you will
eventually run dry. The biggest mistake to be made is carelessly spending money on features that
are not needed or spending your marketing budget with no control on measuring what you are
getting back.
4. Not Being Able To Support Growth

Things could go smoothly for a while, that is until you decide to scale up. Ten percent of
respondents said their startup failed because of the growth problems.
When youve built a business model that works only up to a certain size, your model cant
sustain growth. Sometimes you must change your model sooner than expected. The founders
who are not flexible, who are stuck in their own stubbornness, and who dont think ahead, will
end up being their own downfall even if the startup was successful.
5. Poor Allocation Of Resources And Money

Where startups often fail is not having a proper plan in place about how many people they need
to hire, when is the right time, and which teams should be invested in at the first stage.
Startups that run out of resources also usually do so because the founders dont want to give up a
piece of the pie, the budgets were not planned properly, the burn rate was too high, or it just took
longer to raise the first round than initially expected.
6. Not Realizing The Competition In The Market

How often have we heard, focus on your own thing instead of getting distracted by the
competition? This does not mean, though, that you should ignore the competition.
Where startups go wrong is believing they are the only ones with the great idea and going out
there without proper competitor research. Ignoring the competition is a recipe for disaster in 19%
of startup failures.
As Peter Thiel suggests, ask yourself what youre doing that no one else is doing. Or if someone
is not doing it well enough, what are you doing differently to win the market?
7. Ignoring Customers

The tricky question has always been whether entrepreneurs should open up shop for testing or
spend a few more months making it perfect. First talk to your customers and then develop your
product according to your market need. Thats where many startups go wrong.

When you don't validate your market aggressively enough, you cant build a good product.
Without measuring, trusting the numbers, tracking, validating, and optimizing the data you get
from your clients, its not possible to create a viable product in high demand.
There are many other reasons startups fail, but these seven came up as most common when
questioning the founders and team members involved with the startup ecosystem. Should your
startup fail, its worth spending some time to understand what went wrong and learn from your
mistakes to make it next time.