Co-working spaces decked out with fancy coffee machines and cushions, a conglomeration of fervent young minds, some on the precipice of launching the next Youtube or next Uber, or at least that is what they choose to believe – these vivid descriptions of the startup environment are what the mass media has conditioned us to believe (no thanks to shows like Silicon Valley) to be a fair and accurate depiction of ‘the scene’.
But beneath this facade, lies a sobering reality; that every Solyent-drinking startup founder has to sail through treacherous and often murky waters in order to reach the land of abundance; filled with eager VCs and users. Some make it far enough to drop anchor, but many others sink before they can even say “land ho!”.
It is estimated that around nine out of 10 startups fail, so why are the figures so high? What can we learn from their failures?
In 2014, venture capital database, CB Insights, compiled 101 post-mortem stories of startup failures and generated a statistical breakdown of the top 20 causes of failure. While some of the reasons such as getting out-competed and running out of cash might have only become apparent during the scaling phases of a startup’s life, there are some that could have been dealt with at the ideation stage.
Also Read: 5 leadership lessons from a startup failure
There isn’t a market for the product
42 per cent of the failed startups cited “no market need” as a cause of failure, which is the highest on the list. One of the failed startups, zillionears.com, marketed itself as a flash sale platform that offered musicians dynamic pricing to release their music. While the founders had experience with the music industry, their product failed to land a hit with music fans and musicians and alike.
“People really didn’t really LIKE anything about our product. No one that used the service thought it was that cool. In fact, some people that participated in the sale didn’t even like our ‘dynamic pricing’ system,” Co-founder Jordan Nemrow said on his tumblr page.
Despite reaching out to 1,700 artists, only about 10 responded positively, and none actually went ahead with any form of partnership. Naturally, the startup folded soon after.
So, why did they press on with such foolhardy persistence even when signs that the product was going to fail were staring them square in the face?
Nemrow’s post indicates that pride was one of the factors. Another one, assumption, was a key factor in its failure. The co-founders negated to do comprehensive market research for their product. They assumed that because they had experience in the music industry, and some artists thought it was a ‘cool’ idea, their product was a going to be a surefire success.
Location, location, location
Co-founder of Golden Gate Ventures and director of Founder Institute Singapore Jeffrey Paine has extensive experience coaching and speaking with startups and entrepreneurs. In a chat with e27, he said that sometimes the new startups could simply be based in the wrong location.
“In some markets, consumers are cautious of new products, for startups who are first-movers, that would be difficult.” he said.
A spokesman from Lithan Academy, an educational institution for aspiring entrepreneurs told e27, “It is important for startups to identify their correct go-to-market strategies prior to starting. Startups can use lean canvas validation, a method that helps companies evaluate and assess their business mode.”
“We moved faster than our consumers could move”
Calxeda was a data centre startup that aimed to provide server computers powered by ARM technology. This had potential to significantly reduce costs, power consumption, yet at the same time exponentially increase performance.
A startup with a promising product that could have disrupted the server industry, so what went afoul?
In an interview with The Register, former vice-president of marketing, Karl Freund said “In high tech, we are all trained by the years of the dot-com boom to think that being first to market is critical.”
This mentality turned out to be fatal to the company.
“We moved faster than our customers could move. We moved with tech that wasn’t really ready for the world. We moved when the operating-system environment was still being fleshed out,” he added in the same interview.
Failing to put together an A-Team
Life on board the metaphorical startup ship is never going to be plain sailing. A captain needs the right crew to work in tandem with each other if the ship is going to survive the elements and make it to its destination. Likewise, a crew needs an effective captain.
“Finding the right team is very important, it doesn’t matter if the founder has a good idea. If there isn’t a good team in place, you can’t put your idea into execution,” Paine stressed.
Thomas Prisot, former CTO of Dijiwan, a failed digital marketing startup, cited terrible hiring and management practices, as one of the causes of its downfall. He neglected to hire enough staff responsible for bringing in more customers, which would generate more revenue and instead too much on research and development. The teams were also not proactive in resolving problems and securing deals, unfulfilled promises went unchecked.
To top it off, there was a disconnect between the CEO and the product development team. While he could manage the company, he knew too little about the product and thus could not convince people to buy it.
In Thomas’s own words – “the credibility of the company is its people, their individuality and their experiences.”
Lack of experience and vision
Greg Linden, the founder of now defunct Findory, a personalised news service launched in 2004, made the mistake of not even hiring a team. Instead, he chose to go completely solo. Without the support of any teammates, advisors or angel investors, he missed out not only on valuable funding, but also the expertise, advice and connections from people more experienced in the industry.
Paine opined that many founders lack experience and proper vision.
“Some, they think they know how to run a B2C startup because they have worked in a bank for example. But you find out that they don’t really know what B2C means. After they have built an app, they don’t know what to with it. They lack digital marketing and sales expertise and skim on hiring the right kind of talent,” he said.
“Before they even think of building their own startup, they should really think carefully on what kind of product and company they want to build, which industry they wish to target,” he concluded.
Disclaimer: This article has been written in collaboration with Lithan Academy. Lithan Academy provides aspiring and new entrepreneurs with the practical know how to validate their ideas, mentors to help scale their businesses and a platform to pitch for funding. Sign up for its Startup Insights event held on 30th July at 7pm and discover why growth is more important than profits for startups. Successful startups entrepreneurs will also be sharing their own growth war stories. Register your seat now.