Why startups fail seems to be a perennially popular subject both on the web and judging by page views, on my blog. And with good reason – most startups do fail. But the reasons vary, and not everyone agrees.
If you are in an accelerator or planning on entering one you might want to pay particular attention to the article The Top 4 Reasons Startups Fail, According to 14 International Accelerators,The only mystery about startup failure is why founders keep making the same mistakes. This article by Michael Houlihan & Bonnie Harvey is based on Entrepreneur magazine’s December, 2017 study of 14 international accelerators.
While I’m impressed with the results of the study, I wish they had not introduced two separate variables: being in an accelerator and being in multiple countries. Why not just being in a U.S. accelerator instead of confusing the data by adding foreign accelerators to the survey, there certainly are more than 14 accelerators even in just the Boston area. Well that being said, the results are worth reviewing, so I recommend you read the full article, even if you aren’t in an accelerator.
Here are their top four reasons, which per my usual practice have my comments appended in place of their commentary.
Testing of what you may say? At least I did. But when you read it you’ll see that what is meant is testing of hypotheses about the business. Too many startups don’t practice the scientific method, but rather proceed on assumptions. Failure to test and validate hypotheses and assumptions and it’s corollary premature scaling, ramping up the company before achieving product market fit.
I’ve certainly been guilty of this and it can happen when you have too much venture capital money rather than too little. But I would be more specific as some respondents were, and say poor customer discovery is the major reason for failure. Which is another way of saying the company’s hypothesis about who their customer was and why they would buy the product were just plain wrong.
I’m starting to see more and more of this at MIT where teams are built in an academic setting then attempt to commercialize their product while skipping the all important step of writing a founder’s agreement and making sure the intentions of the founders are aligned. I remember founder alignment being something that
Bill Warner, founder of Avid Technology, was very much focused on, and for good reason. He openly stated that while some people might consider his second startup, Wildfire, to be a success based on its significant sales price, he did not. Lack of alignment amongst the founders resulted in his founding vision becoming lost along the way. If this can happen to a wildly successful founder on his second try it can certainly happen to you!
Lack of Persistence
This is a tricky one, as is pointed out by one of the survey’s respondents. You can give up too early on a viable idea or you can persist too long with a failing one. Perhaps this is why I’m perturbed by the constant use of the term pivot in today’s startup culture. I’d like to hear the word persist at least as often. Again it’s back to running your company by the scientific method: constantly running experiments to test your hypotheses, gathering and analyzing data. But you have to be careful, just as any scientist has to be, to gather enough of the right kind of data. Otherwise your results will not be valid. The other scientific parameter you must achieve is reliability, meaning if you run the same experiment multiple times you will come to the same conclusion. Experimental results must both be valid and reliable.
I’d say it’s cheating to consider this as a fourth top reason. And frankly I don’t find the hodgepodge of other respondent reasons very compelling. The one I do find common amongst engineer-driven companies is lack of respect for sales and marketing. Too much of a build it and they will come ethos. And far too little respect for the suits who actually go out and convince customers to buy their product. There’s even a form for entrepreneurs, and won’t embarrass the institution by naming them, that asks all the right questions except the most important one: how will you acquire customers?
And, of course the one that should be obvious, building something that not enough people want to build a business. I’ve been guilty of that one myself. I was so enamored of the theory that the best product was built by an entrepreneur building a product to solve his own problem that I assumed that lots of people had the same problem I did: keeping track of new releases from the hundreds of musicians, actors, directors, authors, and other creatives. Nope, there were a few, but far from a sufficient number to make us feel justified in persisting.