Here's Why 90% Of Startups Fail [And How To Avoid Being One]

A startup business is like holding a new science experiment.

There are just too many uncertainties and you're not sure what to do to drive the results you're looking for.

If you're looking to go from 'Zero To One' as Peter Thiel explains starting a brand new company no one has done before, then you're further in the dark than everyone else.

You will most likely be a solo founder or a group of no more than 3 people.

You're going to have to live with a no/low salary at the start and wear multiple hats simultaneously.

There will be many 'failed' experiments and iterations necessary to finally start seeing a bit of movement forward.

Although I've spoken previously about what a successful business asks from its founder(s), it is still usually much harder than just that.

At many stages of your business, you're going to want to lose faith because it gets challenging.

In fact, many businesses do, adding to the 90% failure statistic.

Yesterday, I wrote an article about creating a vision board that actually works - this should help with maintaining faith in the face of doubt.

But 'why do so many startups fail?' is what we want to uncover.

There can be tens, even hundreds of reasons for the failure of a startup.

Today, we're going to dive into the 5 main reasons why most startups end up failing and tell you exactly how to avoid being part of the statistic.

Running out of money

To many businesses, cash is the lifeblood of the business.

The amount of cash that a startup has left, dictates their 'runway' which is their cash available divided by their monthly expenses.

This metric essentially gives businesses a way to see how long they have left before their business dies.

In many instances, I agree with this statement. I think cash is very useful for a business.

However, cash is not the most important thing dictating the success of a business.

In fact, there are many sorts of businesses that can be started for a minimal investment - some even require no upfront investment.

Two that I've talked about are (for example), a clothing brand or starting a marketing agency.

Even the dropshipping store I had for a first business attempt required little to no investment to start.

There's a quote by Ash Maurya that says, "Startups run out of time, before they run out of money."

Cash should never be the forefront driver of a startup.

With low cash, business owners need to get creative.

One startup team, Slidebean, managed to start a consulting business to fund their project, later getting into different business accelerators.

Cash is important, but not as important as all these other reasons.

Not innovative enough

As an entrepreneur, you get paid to innovatively solve people's problems.

When you first start a new business, it's because you've found a unique way to solve a certain problem.

Starting Condensr - an app that condenses ideas and insights from books into the fastest, most detailed 10-minute narrations - I thought that we're innovatively solving a big problem for entrepreneurs.

As an entrepreneur, your biggest problems are either not having enough time in your day or lacking the knowledge to proceed.

I wanted to solve this by providing very detailed 10-min summaries of books so that entrepreneurs can walk away with a clear roadmap to apply the information they learnt.

I followed 'The Lean Startup' methodology by Eric Ries, and conducted over 30 customer discovery interviews.

Every interview conducted, made me realise that we were on the right track, yet uncovered more and more competition after every new person met.

I was too scared to do my research and discover the competition, so I did it half-heartedly - one of my biggest mistakes in my first year of business.

When I noticed that there is more competition than I thought, I realised many are either free alternatives, or they are doing a similar thing to what I called 'innovative.'

Without being innovative, it becomes really hard for customers to switch to your solution.

After all, if you're no better than the competition, why would someone switch?

Putting yourself in the shoes of your audience will give you a clear answer to this.

Would you use your own product if you were the customer?

But take this with a pinch of salt.

Founder of LinkedIn, Reid Hoffman, says that 'if you're not embarrassed by your first product, you've released too late.'

A delicate balance between the two would be ideal.

Build something no one wants

This is a very demoralising error to make.

Imagine you've been building away at a product for weeks, months, or sometimes even years perfecting every aspect of the project.

You want to launch with the best thing the world has ever seen.

As soon as you launch, there's nothing but crickets.

Finding out that you spent all this time building a product that no one wants can be one of the worst feelings ever.

It can also be a massive driver in making you stop and give up.

Building something that no one wants comes down to a few reasons.

For example, the founder(s) may have not done sufficient research.

You need to go into a market and find out exactly what sort of problems are faced by the audience and the current alternatives available for them.

Secondly, a lot of startups follow the traditional way of building a business.

They do everything first, before talking to the people who will end up buying their products.

As a startup, you have the advantage of being nimble and iterating or testing faster than the larger competitors.

It is important to use this advantage and make sure your main focus is on building a great product that uniquely solves a problem that your audience faces.

Remember, you don't need to reinvent the wheel - just do it slightly better or in a different way.

Being 10X better is only contingent on you wanting to build a monopoly and dominating the market. 

In many instances, you don't need to be 10X better.

Bad team

When I was doing my customer discovery interviews, I had spoken to many entrepreneurs who have managed to build successful businesses.

One of the most common questions I got asked was 'what does the team look like?'

After explaining that I was the only one on the team, they lectured me on how important it is to have a strong, all-rounded team.

On top of this, a few of the entrepreneurs I had interviewed were also investors.

After sharing my pitch deck with one of them, he started asking questions about the team too.

He told me that as an investor, one of the most important things about a business is the team running it.

They need to know that the team has some sort of chemistry, experience, or expertise in what they're doing or what their roles entail.

In a tech startup, for example, having a CTO is one of the most important things.

With Condensr, I had no CTO and I was also not technical at all.

A startup's success is heavily reliant on the team that is heading it.

If the team is incompetent or doesn't work well together, it is a very massive sign that the startup will most likely fail.

When I owned a marketing agency, I started with two friends.

I've told this story before, but one left early on, and the other had to be told to leave because a few months in, we were not working well together.

It's hard to tell a friend they're not working hard or they're not doing enough.

But as a team, you should all be aligned to one clear goal.

Varying opinions are necessary because it allows ideas to flow around, but when conflict is thrown into the mix, it becomes an awkward situation to be in.

Giving up too early

Finally, this is one I can relate to the most.

The truth is, the other reasons for a startup failing will all lead back to this one.

When I first started my e-commerce store, I spent a few months getting everything ready.

When I launched, I was too scared to spend money on ads.

After losing £11 in ad spend, I gave up because I had not seen any results yet.

The sad truth is this is how most business lifespans work.

Wantrepreneurs get into business thinking they have discovered the secret to making lots of money.

They build something and start to encounter hurdles along the way.

At the first sign of pushback, a large majority give up.

Every hurdle after that, the numbers keep falling.

The few businesses left who are ready to launch will most likely not be instant success stories.

This is where a large portion of these founders ultimately give up too.

See, you can:

• Run out of money
• lack innovation
• build a product no one wants
• have a bad team

But if you give up, that is when you've truly failed.

Most businesses, especially in the early days throw in the towel.

That is why the statistic for failure is so high.

I'm going to make a guess and say that this statistic is based completely off of registered companies only.

The number of unregistered companies giving up will likely be depressing.

So how do you ensure that you don't fall into this statistic?

It's easier said than done - just don't give up.

A lot of businesses, unless you're an existing founder of a successful exit, will start with low cash available. 

This is where you can get creative and find a way to fund your project.

Cash generally just means you can make mistakes faster, and learn from them.

Many businesses start with a rough plan which drastically changes over time.

This is normal. As you go forward, the plan will slowly merge into something that is better suited to the industry you're entering.

You'll be able to talk to early adopters and learn about their needs and build accordingly. 

Having a bad team is probably a somewhat difficult thing to work around.

In a lot of cases, however, you might be the only founder on the team.

You may be able to build the business up to a certain point but this is where it becomes crucial that you hire the right people and build a strong culture.

But once again, the only real way to ensure that you don't fail is not to give up.

There will be instances when it is wise to do so, but if you're giving up too early, then it most likely is not the right time.

Do you agree with this article?

What do you think?

Let me know below.

Till next time,
Mohamad