Top 20 Reasons Why Startups Fail [Infographic]

Category: Industry News, Startups
Published: Mar 10, 2016
Why Startups Fail [Infographic]

Are you a start-up owner? Or are you thinking about starting your own business, but worried that you might fail?

The fact is, for every startup entrepreneur who succeeds, there are plenty who don’t. Many startups collapse despite great ideas, excellent workers, or even strong investor support. If you’re a budding entrepreneur, it’s just as crucial to study the failed startups as it is to learn from the success stories. At Lance Surety Bonds, we work closely with startups across many industries, so we’re in tune with the challenges you might face. For our recent infographic, featured in Forbes, we dove deep into a recent study by CB Insights, to illustrate The Top 20 Reason Why Startups Fail.

CB Insights’ findings come from their analysis of 156 failed startups. To determine what went wrong, they primarily relied on testimonies from the business owners themselves. In some cases they also interviewed clients, competitors, or investors. Since each startup failed for a number of reasons, the sum percentage of these top 20 reasons is well over 100%.

Taken individually, some of these reasons might sound minor. But even these small factors can compound into much bigger problems, unless your startup is proactive about improvement. Usually, multiple missteps can be traced back to the same major root causes. For instance, team conflicts might seem quite different from poor marketing, but both can be traced back to lack of communication, either within your company, or with your potential customers. Many startup owners simply didn’t adapt fast enough, and their businesses lost traction when they failed to change with their market, or didn’t act fast enough to fix a flawed strategy. Others failed to adapt when competition out-performed them. Plenty of businesses struggled with capital, hitting a wall when their capital ran out faster than they anticipated, or when they failed to present a scalable business model to entice investors.

Let’s take a closer look at the five biggest contributors to startup failure:

  1. No market need (42%): Of course, a startup should offer a great product. But no matter how great your product, or how fresh your idea, it won’t gain traction unless it can solve a specific problem for your customers. Listen carefully to what your customer wants, and make sure from the beginning that there’s a clear market need for what your startup can offer.
  2. Running out of cash (29%): Every entrepreneur is familiar with this phenomenon. A serious cash-flow problem can stop a startup in its tracks, even a promising one. Some businesses might be underfunded from the start, but even more go broke when they receive unsustainably large investments, and spend too much and too fast. Whether you have a small amount of capital, or a fortune, make sure you’re not spending it faster than you can sustain.
  3. The wrong team (23%): Plenty of startups shut down when they don’t find the right people to make their business run the way it should. Whether it’s mismatched skill sets, interpersonal conflict, or just lack of a common vision, a poorly-chosen team of workers could be the final straw for your startup. Make sure that your team has not only the talent, but the vision and motivation to make your startup succeed.
  4. Being out-competed (19%): This is a tough one, because, as an entrepreneur, it may be one of the hardest factors for you to address. Some startups simply don’t perform as well as their competitors, or miss out on a key pain point that their competitors have zeroed in on. The best thing you can do is pay close attention to your competition, and maintain the humility to learn from your rivals. Ultimately, one business will succeed over another because they do a better job of listening to their customers, and addressing the market’s needs.
  5. Pricing/Cost Issues (18%): Your customers will pay what your product is worth to them, not what it cost you to bring them the product. This means your startup must be able to clearly demonstrate your product’s worth, so your customers know they’re getting added value from their investment. Remember, charging too little for your product or service can be just as fatal to your business as charging too much.

By avoiding these five common mistakes, you might just save your startup. Want to know all 20 of the top reasons for startup failure? Scroll down for the entire infographic. If you have tips for startup owners, or just want to give your opinion, leave us a comment below.

Why Startups Fail - Infographic

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Victor Lance is the founder and president of Lance Surety Bond Associates, Inc. He began his career as an officer in the U.S. Marine Corps, serving two combat tours. As president of Lance Surety, he now focuses on educating and assisting small businesses throughout the country with various license and bond requirements. Victor graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan's Ross School of Business.