- 23 Mar
Are Most Tech Startups Destined to Fail
by Dan Hoff
There are only two sources of wisdom. One can learn from those who applied wisdom and succeeded or from those who ignored wisdom and failed. – Plato
Depending upon who you happen to listen to, the failure rate for technology startups is anywhere between 90% and 63%. And that is typically within the first 4 years of their founding. Even on the low end, this makes you wonder. Why anyone would consider going out on their own to start their own business.
However, if you’re going to do it and you know that the odds are against you, wouldn’t you want to know what are the reasons for such a high failure rate?
And, wouldn’t it put you a bit ahead of the game if you knew what could be done to reduce the risk and improve the odds of success?
The answer to these questions are fairly simple.
Yes. You can increase the odds of success. But you need to focus on NOT making the same mistakes that led to the failures of so many great innovations that came before you.
Each year, CB Insights compiles a running survey of the post-mortem statements from the founders and leaders from technology startup failures. By looking at what those people have to say about what lead to their failure, they arrive at an easily digestible report, The Top 20 Reasons Startups Fail. Each year they update this report with fresh data and anecdotes for our education.
Out of these founder mea culpas we can gain some great insights. After all, these are the people who actually went through the experience. And if we can draw some points of “wisdom” from their experiences, hopefully we can more clearly define what can be done to succeed as a tech startup.
According to the survey results, it turns out, the most daunting of barriers to success for technology startups can be traced to some form of sales and marketing failings. For most, their failure had its roots in either the inability to gain initial sales or the inability to create market momentum to building a sustainable and scalable marketing and sales program.
The top reason on the list, “No Market Need” is a good example.
This was the number-one reason for failure, cited by 42% of polled startups. By the time they had developed a product, sought funding and began to try to sell into market, they discovered there was simply a lack of a market need for their product.
Had a market requirements evaluation and feasibility been conducted by a marketing knowledgeable individual at the point of initial product design, failure may have been avoided. That should be self-evident. But wasn’t for 42% of the failures.
Famous Words: If I Had Only Known Before
Had the founders been aware of this fact early on, the product could have been redesigned to meet an actual need in the market. Or the entire project could have been shelved and the team could have moved on to something workable in the market.
After all, if no one wants your product, your company isn’t going to succeed. But many startups build things people don’t want with the irrational hope that they’ll convince them otherwise.
In all likelihood, situations like this are not because the founders didn’t want to succeed. They simply lacked the skills and knowledge to properly find and engage their target market or to then adequately sell into that market.
With lagging sales, weak market penetration, a lack of sales capabilities, startups can and do struggle. Quite frequently, they fail.
Fortunately, those failures can be avoided. If only we learn from the mistakes of others and apply the painful lessons of their misfortune to build our success.