Why Do 90% of Startups Fail?

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It’s a staggering number. 90% of startups fail, with over 10% in the first year and 70% in the next 2-5 years.

In this blog post, I listed some of the most common reasons, based on observation and personal experience.

Those reasons are:

  • Lack of funding or personal runway
  • Terrible PMF (Product-market-fit)
  • Lack of market research
  • Failing to adapt or being resilient
  • Poor management & leadership
  • Not educated or skilled enough in marketing

For the record, I made some of the listed mistakes, and that caused setbacks.

Lack of Funding or Personal Runway

Before you quit your day job, don’t put yourself into a corner where a lack of money or runway can lead to poor decisions. Those decisions can force you to throw in the towel (too early).

That “going all-in” dream sounds great on paper, and some of them on social media might have succeeded. But the majority won’t. Ever.

Lack of personal runway or external funding is a major catalyst in startup failures. Over 40% of them fail because of that.

  • Create a robust financial plan and prepare yourself for unexpected costs, such as extra development, subscriptions, or external help
  • Weigh in on the option of angel investing or fundraising. Bootstrapping a business is not always the most reasonable path. Both come with pros and cons.
  • Find a co-founder if you lack certain critical skills. Giving up equity is hard, but a business that makes no money or never goes to market is worse than owning a part of it.

Read also: How to find a co-founder for your startup?

Terrible PMF (Product-Market-Fit)

A big mistake small startups make is that they fail to understand what potential customers or their audience need.

Doing proper and adequate research can provide you with an edge.

  • Understand what your customer is after
  • React to potential shifts in their behavior
  • Focus on features that are in high demand

If there’s a lack of interest or a low sales conversion, that implies end-users don’t resonate with the product or service.

If it’s not providing clarity, you’ve lost your customer.

When you burn through resources and marketing budgets with no traction, then there’s a misalignment between the offering and the needs.

  • Take your time to conduct proper research
  • Define your target audience
  • Don’t build an-everything-app
  • Learn to identify gaps in blue ocean markets
  • Don’t shy away from market surveys, interviews, or focus groups

Don’t try to be something you can’t be in an early stage.

Wanting too much in the beginning often leads to the self-destruction of the product.

Failing to Adapt, or Being Resilient

There are two main categories. Those who know when to pivot or to adapt, and those who are stubborn, unwilling to make changes.

Being resilient as a founder is a skill.

Markets shift, and customer sentiment is fickle. Your original business plan is most likely invalid in 12 months from now.

  • Be open to feedback from customers. If there is a recurring pattern in complaints or requests, act on it. (Notion and offline mode is an example)
  • Embrace change, whether you like it or not
  • Learn to be resilient, so you’re ready to adapt or recover quickly from difficult situations

Poor Management & Leadership

Everyone can start a business, but very few can lead a business. 

Over 20% of startups fail because of poor leadership and mismanagement.

Most new founders do not have the effective leadership skills and are unable to:

  • Build a strong, cohesive team
  • Nurture relationships with people
  • Make correct, but sometimes harsh decisions during a crisis (resilience)
  • Create a company culture that fits with the DNA of the product or service

Lack of Marketing Skills

I came across great startup ideas, with unique features that could change the course in their verticals or industry forever.

Except, they didn’t know how to market their brand and product, and were terrible at storytelling to educate their target audience.

Without the proper branding, understanding how brand equity works, and a lack of marketing strategy, they kept failing.

Customers aren’t just flocking to your business.

Your job is to market it so profoundly and tell the audience (or world) a compelling and convincing story that would spark their curiosity, which could lead to conversion.

Final Word

Building a startup is a marathon and not a sprint. Early-stage founders often wear many hats, and that’s okay.

But be educated enough in different fields, and understand what is possibly coming.

Don’t rush into any opportunity, and certainly don’t just quit your 9-5 job yet before having 12-24 months of runway.

Once you’re maturing, assemble the right team that can complement the business.

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