Top 5 Reasons Why Startups Fail

I’m no VC, but I’ve been running a company that helps startups build products for the last 12 years. We’ve worked with 100+ startups during this time – some exited through profitable acquisitions while some shut shop. But in the process, they’ve given me a few interesting insights. Some of these should be valuable to entrepreneurs starting off with their own new ventures.

So without further ado, here are the top five reasons why I have seen startups fail:

#1: Part Time Founders
EVERY startup customer whose founders worked part time in the initial stages has failed to take off. Some founders started off part time, later quitting their jobs to plunge in full time. But that did not seem to help. None of them could raise funds for their ideas (some of which were pretty good).

Perhaps VCs view part-time founders as people who lack conviction in their idea or perhaps there are other factors at play. Nevertheless, I haven’t seen an exception to this rule.

#2: Pursuit of a Perfect Product

Every once in a while, we run into startup founders who know exactly what they want. They have the product specification written down to the very last detail. They know exactly what the user wants and the best way to solve the user’s problem. We’ve even had one founder who relocated to India to spend six months developing the perfect product.

You know what – none of them took off. On the contrary, founders who put out a very basic product for customers and prospects to use and react to have always done well. My advice (nothing new, probably common sense) – put out your core product idea for users to validate as fast as possible. Forget the bells and whistles. They can always come in later.

#3: Mistiming the idea
We’ve built some really innovative, technically challenging products that failed only because they were too early. I call it the first mover disadvantage. The founders invested heavily in their idea and spent time educating buyers, but a follower product came in, took advantage of the groundwork and walked away with the cake.

Way back in 2006, we helped build an m-commerce product with a catalog of over 2 million SKUs on a feature phone platform. While I was super excited at the idea of doing something futuristic back then, the product was too early for its time and tanked at the market.

#4: Trying to setup your own offshore development team
This is a tricky one to include in this list. I run an offshore product development company, and what I’m going to advise here will definitely benefit companies like mine. But I’ve seen too many founders of Indian origin (we are based in India) waste time trying to setup a captive team in India. They feel they have executed it right, but they don’t seem to “get” the fact that the time they spent on setting up and managing the team could have been better spent acquiring customers, incorporating their feedback and making a great product.

In my opinion, founders should start off with an outsourced team and go captive once their need goes beyond 50 people offshore.

#5: Excessive focus on the exit
Yes, all startups have an exit strategy, but we’ve made some products where the founders were focused solely on the exit. Their entire attention was set on building the technology and patenting it. In the bargain, they totally ignored customer acquisition, servicing and feedback.

Net result: they had a great product, negligible number of users and no one lining up to acquire their company.


One thought on “Top 5 Reasons Why Startups Fail

  1. Love for Excel September 26, 2016 / 10:48 am

    Great points. Thanks for sharing.

    Few other points from my personal experience:
    – Not acquired Financial Intelligence before or during the Run
    – Lack of Communication within co-founders
    – Co-founders not ready for extra miles to learn new skills, important for the business


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