Failure is not something start-ups, entrepreneurs or VCs talk much about. Using the “F” word is like tempting fate within an industry that thrives on believing the glass is half full.
But the reality is only a minority of startups become viable businesses, let alone acquisition targets. The rest quietly disappear, let go their employees, sell their office equipment at bargain-basement prices, and close the doors.
So why do startups fail? There are plenty of reasons but here’s a few:
1. What they’re developing is more of a feature than a product. It’s a nice-to-have that meets a need but not enough to make it a compelling or big enough to become a business.
2. A failure to execute. You can have a great idea, a strong team and enough capital but it’s all for naught if management fails to execute from a sales, marketing and communications perspective. It could be a lack of experience, strategic mistakes or timing.
3. After raising capital, a startup loses its drive and hunger because it has lots of cash in the bank and seemingly all the time in the world to grow the business. This is one of the worst things that could happen because being fat and happy is an evil combination.
4. The founders can’t or won’t see their limitations and, as a result, don’t attract executives and managers who have different or better skills to take the business forward. While there are founders who can remain at the helm, many startups reach a point where they need someone to take them to the next level. If a founder can’t let go, the business can’t grow.
5. The ability to get and maintain a strong grasp on target audiences – something I talk about last week. From the beginning, a startup needs to know how to meet the needs of its existing and potential customers want. And as the business moves forward, it must continue to get as much insight into target audiences because their needs will change over time.
6. Spending money on the wrong things. This includes fancy offices, expensive trips to conferences, perks, new computers, parties and dinners. These the kind of expenses that are discretionary but many startups think having cash means they have to spend it.
7. Hiring too many employees or the wrong employees. As much as a startup wants to structure itself for growth, staffing up without having a strong handle on when and how growth is going to happen can be a huge mistake. At the same time, hiring the wrong people can be a waste of time, energy and momentum.
8. Buying into the hype and media/blog coverage. You’d be surprised by how many startups equate success to media/blog coverage. One story on TechCrunch makes them think the world is their oyster. Truth be told, it’s the cherry on the sundae.
9. Bad messaging that fails to clearly articulate what your product does, the benefits and why anyone would be interested in using it. You’d be surprised by how often a startup blows the opportunity to win over a consumer with confusing or incomprehensible messaging. Rule of thumb: If your mother fails to quickly get what you do, there’s a big problem.
10. Believing that marketing can be done by exclusively using social media.