7 min reading
Opinions expressed by LikendisLike contributors are their own.
As speakers, advisors and trainers in the entrepreneurial space, we were particularly excited by our December survey on the principles of 14 international accelerators. We wanted to know, from their point of view, what were the key factors in the success of startups… and failure. As far as we know, this is the most recent study on this subject. Although these people are from all over the world, it’s amazing how much they agree when it comes to why startups fail.
Related: New study reveals 20 factors that predict start-up failure: Do everything apply to you?
Inadequate testing was by far the most cited reason for the start-up failure. This factor is identified by several other terms such as not starting, not understanding how to access the market, and not understanding barriers to entry. But Greg Wright, founder of HATCH pitch, put it quite succinctly: “Failure to test and validate hypotheses and hypotheses,” and its corollary, “Premature scaling (research/obtaining funding too early, production, team/advertising before reaching product market adjustment).”
Keith Hopper, CEO of Danger Fort Labs, adds, “Not meeting a need large enough for customers to be willing to pay.” Ben Hsieh, Program Director of Nest and Jason Cole, CEO of Da Primus Consulting, both agree that “not finding the right product market” is a major cause of failure.
Eric Mathews, founder and CEO of Start Co, says that a great cause of failure is “building something that no one wants. This represents about 50 per cent of failures. (This) is mitigated by making in-depth market and customer discovery. Before we build anything, we tell our founders to go talk to 50 of their real customers.
Ashish Bhatia, founder/MD of India Accelerator, points out: “Delaying the (is) launch is one of the cardinal sins. (Success is achieved) only by bouncing your idea off users. Excessive perfectionism never works. Go out and meet the customer. Get your hands dirty.
Alyse Daunis, Launch Alaska Program Manager, adds: “Bad customer discovery. Start-ups that do not go out and talk to potential customers often fail. It is essential that founders test their value propositions and customer segments early on to answer questions such as: “Targeting the right customers? Is our product or service a must have?
Or, as Christian Busch, CEO of German Accelerator Tech NY, sums up, “Lack of attention to solving a specific problem/need, (bad) timing (too early/too late) and scaling too fast.”
Related: Why some startups succeed (and why most fail)
Team incompatibility was the second most mentioned cause of start-up failure. We were surprised at how many times this barrier to success was mentioned. The question is how the founding team members work together and whether they have the skills to overcome the challenges ahead.
Elza Seregelyi, director of L-SPARK, points out that a “fatal flaw in (a) founding team (that is when) founders who are self-aware can succeed in getting help to overcome a gap or conflict in a certain area, but those who are blindly one-way (for example, too technical or lack of field expertise) or dysfunctional if it is not able to perform a team.
Keith Hopper, CEO of Danger Fort Labs, says startups can fail because of a “lack of a basic vision that aligns with the values and purpose of the founders.”
Joseph Bush, executive director of Worcester CleanTech Incubator, believes that “the inability to recruit, build and manage a team of people who are smarter than yourself – is an important factor in the failure of start-ups.
Lauren Tiffan, director of Ocean Accelerator, adds: “Lack of business acumen.” Or like Ben Hsieh, Nest’s program manager, results, startups fail when ” (the team) lacked the skills to execute.”
Eric Mathews, founder and CEO of Start Co, develops this common theme. “It is important that the founding team has complementary skills, that they are not too great, that they also sacrifice themselves to build the dream, that they are flexible and coachable, and that they finally have prejudices towards action.” But he warns: “The misalignment of stakeholders … accounts for 20 per cent of failures and occurs after the product is launched. When investors, founders, employees, board members and other stakeholders do not slit in the same direction, the company is torn apart as the different parties try to pull the company in different directions.
Alyse Daunis, Launch Alaska’s program manager, adds: “Many founders quickly come together around an idea and don’t take the time to discuss the dynamics of the founders from the beginning. Lack of trust and differences in engagement levels, financial expectations, goals and culture are often the reason startups fail. These elements should be discussed among the founders from the first step to limit surprises and ensure that the founders are aligned.
Related: 5 ways to recover from start-up failure
Lack of persistence
Lack of persistence was the third most frequently cited reason for boot failure. As Jason Cole, CEO of Da Primus Consulting, puts it, “Leaders are unable to establish a clear strategy for the company and stick to it long enough to succeed, resulting in a lot of money and energy wasted by constant management changes.”
Or as Keith Hopper, CEO of Danger Fort Labs, puts it: “A lack of creativity and perseverance in meeting the inevitable challenges of starting a new business.”
Alyse Daunis, Launch Alaska Program Manager, adds: “Lack of courage. We all know that startups are difficult. They take a lot of time and often require sacrifices. Founders need courage to overcome obstacles and burnout.
But as Elza Seregelyi, director of L-SPARK, warns, “the inability or reluctance to adapt or rotate quickly when there is no adjustment in the product market. Some founders cannot take a clue, or choose to ignore the data outright. There is a fine line between persistence and stubbornness and sticking to a product or business model that is not gaining popularity is simply wasting resources.
Related: Do you recognize the 8 early warning signs of a failed start?
Other reasons for the start-up failure are included in the thoughtful comments of:
Nobu Kumagai, founder and managing partner of Wildcard Incubator, who points out that Greed can be a cause of failure. “It is the opposite of compassion, (which is) the key element of success. Internal greed will end up with a break from talented co-founders. External greed will force you to lose customers and the community (price, additional services, economic impact, etc.). It was a Wall Street standard, and nowadays it seems to be the norm for Silicon Valley techphiles.
Jim Bowie, site director/associate director of the University of Central Florida’s business incubation program, cautioned against the lack of appropriate tools and reports. According to him, startups fail because of “the lack of a sales plan with a CRM tool to track prospects, proposals and sales tracking.” And “No accountability to ensure that milestones and processes work.”
Susan Langdon, ceo of Toronto Fashion Incubator, believes startups fail when they “don’t understand the ongoing need to generate sales, set sales goals and how to achieve those goals. (When they don’t develop) a product or service that is more innovative and desirable than what your competitors offer, and (when they don’t) keep an eye on the money that comes in and out so that you’re not in deficit, or if you are, coming up with a recovery plan and having the discipline to stay with it.
Thank you to all international accelerators for participating in this survey in a timely manner. Don’t forget to check their answers to why startups are successful, published last month on LikendisLike.com. And stay tuned for more ideas from those people whose company is Know why startups succeed and fail.