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5 Reasons Your Startup Might Fail (And What To Do About It)

5 Reasons Your Startup Might Fail (And What To Do About It)

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While the startup boom may be slowing down, I don’t think it shows any signs of stopping completely.

The appeal of owning your own business and redefining the way you work is too irresistible. It’s a very maverick lifestyle.

Maybe that’s why everybody I know who’s part of a startup seems to have an optimistic streak. I guess they have to because the stats are certainly not on their side. It’s been well publicized that 90% of startups fail.

This is a very scary statistic. And so, while some ill-advised startups merrily blow their first round of funding on an exposed brick office with great light and a ping pong table, I want to have a conversation with the realists among you who are serious about making your business work.

Here are the five key reasons why your startup may fail, and how you can turn them around.

1. Bad product

The most widely reported reason for why startups fail is that the product is no good. Many entrepreneurs (or want-repreneurs, as Mark Cuban calls them) get so caught up in their image as ‘innovators’ that they forget to actually innovate anything. There needs to be a market for the product a startup revolves around – it can’t get by on image alone.

Knowing that you hold the solution to a market problem takes either a solid bulk of research or an uncanny sense of intuition. For the most successful startups, it’s often a combination of both, but I strongly advise that you rely on the former more than the latter. If a startup founder’s idea has empirical grounding, they can move forward with confidence – there is already proof or intimation that the idea is solid.

A product can also be responsive, adapting to the needs of the market as they change. For example, the startup Kira Talent began as a cloud-based tool for employers to review candidates. It then evolved into a college admissions tool as that proved to be a more viable market.

The bottom line: don’t install the ping pong table until you are 100% sure you are addressing a previously unsolved pain point for your market. Otherwise, you’re going down.

2. Bad values

 The above point highlights a fatal flaw in many startups – an unhealthy sense of ‘innovation’ that threatens to obscure the most important thing: a businesses relationship with its customers. This flaw is often brought to bear on another aspect of doomed startups: core values.

When looking at the first draft of many startups’ core values, a major deficiency often sticks out. All the values are internally focused, articulating how the company sees itself or its relationship with its employees.

Before I critique this way of doing things, let me just say: I get it. It’s exciting to challenge traditional and restrictive workplace approaches, and this opportunity should absolutely be exploited.

The problem arises when values are exclusively internal. Having an idyllic work environment won’t mean squat if your staff’s priority and focus are not on customer care. This needs to be reflected in a startup’s core values, which shape the behavior of a company and its employees.

3. Bad budget

 Another popular way for a startup to fail is to misuse its funding. While my comment about blowing the first round of funding on interior decor and ping pong tables was slightly facetious, the message behind it is very real. Burning through cash is a problem many startups face and it also accounts for why many shut down.

In the early stages of any business, it’s very important for the purse strings to be kept drawn tight. Obviously, there are going to be expenses. But many of these are unnecessary. For example, it’s understandable to want to cultivate an image of success, but does it really make sense to invest in a formal office space at this stage of the company? Why not stay in the garage until there’s sufficient proof of concept to scale up?

Premature or inefficient onboarding is a major culprit here. Which leads me to the next point…

4. Bad team

 While human capital is indisputably among a startup’s greatest assets, it is also the greatest expense. Staff can literally make or break your business, and it’s crucial to get the onboarding process right if a startup wants to succeed.

Particularly in the early days of a startup’s life, a business cannot afford to have any dead weight. As a company establishes itself, it can afford to be a little more lax and experimental with who it brings into the team. In the early days of a startup, though, you need people who are already skilled and seasoned, and don’t need much training.

Not only that, but they need to identify with the company’s vision and show so much promise that you can’t afford not to have them. This is another reason why strong core values are so essential, along with good leadership. Entrepreneurs need to have a strong ability to lead others and channel the talent of those they bring aboard. Having a successful team relies as much on an entrepreneur’s ability to lead and delegate as it does on the talent and skills of the staff. Without the right balance, it’s only a matter of time before a startup will tank.

5. Bad customer care

This last point stems from the second point I made regarding core values. Often a company is so busy being ‘innovative’ that it forgets to be customer or user-friendly. The failed startup Devver, for example, pointed to its lack of customer care as central to its eventual closing up shop.

It’s amazing to have developed a truly revolutionary product or service. But if your priorities don’t include explaining that product and making it readily available to your customer segments, you may as well shut up shop now.

As a positive example, one of the reasons mattress startup Casper has been able to scale so successfully is because it developed an innovative product while not forgetting the essential garnish of customer care. While their mattresses are a high quality, one-size-fits-all innovation, they also ship them in a manageable package and offer a 100-day return policy – which is unusual for that industry. This specific attention to detail has helped Casper double its sales over the last year.

Good customer care will help take your startup into full scale-up mode. Ignoring it will almost certainly sink it.

Wrapping up

No matter who you are and what your vision is, startups remain a risky business. But, all the same, a true entrepreneur or founder is stubborn and dedicated to achieving success.

I hope that this article will help you avoid some of the more obvious pitfalls in running a startup and that you carve a solid place for yourself in the competitive business landscape. Good luck.

Guest Author: Kenny Kline is a serial entrepreneur. His ventures are primarily focused on digital media and marketing. When he’s not in front of his computer, Kline can be found beekeeping, knitting and being as Brooklyn as humanly possible.

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