Why do startups generally fail?

Startups Fail
Forbes reports that 90% or 9 out of 10 startups fail. That’s a very high chance of failure and yet millions of entrepreneurs all over the world take the risk daily, thinking they will be part of the 10% that succeeds. One way to increase your chances of being part of that 10% is to study reasons why other businesses failed in order to educate yourself on what to look out for when trying to get your company off the ground. One of the most recent “high profile” examples is that of Vine. The social media site that specialized in 6 second video clips took off and was eventually purchased by Twitter before ultimately failing. YouTube personality, DeStorm gives his reason on why Vine failed in the following video:

Although Vine may be a unique case, there are more fundamental reasons why businesses don’t succeed and several of the most common reasons may appear to be quite obvious.

No Market Need

Based on a study of 101 failed startups, no market need ranked at the top of the list with 42% of startups failing as a direct result. Perceived market need is not the same as actual market need and many times, despite adequate research and investigation, a product simply does not gain any interest. The difficult thing to understand here is that even if all the market research points to “yes” there is still a probability of it being a “no.” Sometimes products just lack that “x-factor” which is often times required to get things going.

Ran Out of Cash

Often believed to be the most common reason, running out of cash came in as the second most common reason startups failed with 29% of businesses listing it. Even with a strict budget and business plan, it almost always becomes impossible to factor in unexpected costs. The ironic thing about starting a business is you generally don’t have a good idea as to how much it’s going to cost until you actually start it and by that time it’s too late.

Not the Right Team

Not having the right team was the third most popular reason for business failure according to this survey. 23% of businesses felt they didn’t have the right team in place. The book Good to Great talks about this extensively. How no matter what type of business you have, that business can never be great unless you have the right people involved in running it.

Vine had some more specific reasons for its failure. The product failed to adapt quickly enough to a changing market. When Instagram and Snapchat arrived on the scene Vine was still only offering 6 second videos. Whereas these other platforms showed there was a definite appetite for slightly longer videos.

Management was also very unstable at Vine, which made it difficult to get the right team in place with a common goal. There were also users with massive followings who left Vine as a direct result of their dislike over its monetization setup. Instead of listening to these users and adapting/changing, they lost them to similar platforms along with their millions of followers.

Although Vine, or any business can essentially fail for a plethora of reasons, there are usually some core issues that are the onset of the problem. Once that problem becomes realized, 9 out of 10 times, it’s too late.