Startups · Failure

Your reasons behind failure?

Jaudat Ali Co-Founder GiFsports

July 9th, 2015

We all know the reasons (or supposed) behind successes but what we don't really know or have insight into are the exact reasons of failing startups.

From your experience in the startup culture/landscape, share a failure and the (possible) reason(s) behind it.

Dimitry Rotstein Founder at Miranor

July 9th, 2015

Actually, we know a great deal about reasons for failure, arguably more than the reasons for success. When you fail, you usually know exactly why, but if you succeed, then it was caused by a combination of many reasons, and you can only guess which of them were instrumental, which were detrimental, and which had nothing to do with it.

As for the reasons for failure, it is widely believed that the most common one is making a product that no one wants, and no matter how long and hard you try to market it, nothing happens. That's exactly what happened in my first big startup.

The second most common reason is that the team disintegrates - founders leave because of internal quarrels or some other conflicts, or to pursue other projects, or because they simply gave up. Happened to me so many times I actually believe this is the most common reason. It certainly is in the pre-seed stage, before the product goes to market, because the previous reason doesn't apply in such a case.

The third most common reasons for failure is when the investment runs out, and you can't find another investor. Paradoxically, this seems to happen more often if the investment was TOO LARGE, rather than too small, and came around too soon in the life of a startup. This is because if the investment came too soon, you didn't know what to do with it, and, if it was too large, it went to your head and resulted in a spending spree: renting luxury offices, hiring a bunch of unnecessary people (e.g. secretaries to sit on the phones for some reason), but most often trying to solve a much larger problem than you initially planned (simply because now you can). In many such cases, one day you suddenly realize that the money is about to run out, you're still not profitable, and the expenses are crippling. And you don't even have time to scale things down because you're over-committed. For example, you can't just fire people on the spot and be done with it (there are laws against it), you can't go back on existing contracts and lease agreements, and so on. Luckily or unluckily, this has never happened to me (and I don't intend it to happen in the future), but there are plenty of examples. A most famous recent example is the startup called "Better Place" that tried to introduce electric cars with replaceable batteries. They got a $1B (!) investment and used it all up building heavy infrastructure that completely covered three countries on three different continents (!). Took them 5 years before going to market, and the money ran out a few months after that, not because there weren't customers, but because the expenses were crippling and the revenues couldn't rise fast enough. They declared bankruptcy shortly afterward.

Those are the three main reasons.

Minor reasons include not being able to create the product because it turned out to be unfeasible, being trampled by competition, suffer crippling litigation or government crackdown, and more, but all these reasons are very rare. Certainly never happened to me.

Ron Immink

July 9th, 2015

You might like this book; http://www.bookbuzz.biz/need-failure-brilliant-mistakes/

John Fitch Systems Engineering & Decision Management Consultant, ESEP

July 9th, 2015

A great majority of entrepreneurial start-ups fail.  These failures have many “presenting symptoms” but one root cause - decisions (overlooked, poorly made, poorly executed).  Ultimately “all faults are decision faults”   If you do a root cause analysis on any failure by asking “Why?” or “What caused the cause?” you will ultimately reach a decision failure as root cause.  More at https://decisiondriven.wordpress.com/2015/04/22/diagnosing-start-up-failures-and-learning-from-them/
Dimitry hit 3 such decisions: Value Proposition, Start-up Team/Roles and Funding Strategy.  There are lots more.

Willem Muller

July 9th, 2015

Agree with Dimitri - I think the most common reason is lack of product/market fit. 

Rachel Scherl Speaker on Entrepreneurship, Business Builder, Growth Strategist and Vagipreneur

July 9th, 2015

Failure results from offering a product or service that noone wants to buy.  Failure often results if the core team (leadership, board, investors) are not aligned on strategy.  That can result in endless discussion and lack of progress against objectives and ultimately failure.

Douglas Karr CEO, DK New Media and CMO, CircuPress

July 9th, 2015

What's wrong with failure? 

K.Lakshmi Davey Senior Business Executive at Zoho Corporation

July 9th, 2015

An early success. Something that has not stood the test of time can be a failure.
Familiarity among the partners breeds contempt.
A [secret] agenda that one or more of the partners have, that is outside the purview of the current business, but is closely related to the current business.