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Why startups succeed – or not?

Replying to the question “why do startups succeed?” is a complicated task. There are so many different factors that affect their success, and most often they are unique to each individual startup.

On the other hand, the reasons for startup failures are often similar to each other, and the characteristics of successful startups prove that they all managed to overcome these reasons.

At Startup Drill, we have so far worked with 200+ different startups in different stages of development, and we have seen plenty of examples of entrepreneurs starting a business for all the wrong reasons.

The first thing that we need to make clear is that, when we talk about a startup, is that it is not easy. Too often, people consider founding a startup as a “plan B”, not knowing what else to do with their life. Without the proper forethought and dedication, this is more than likely to end badly.  

Many people, encouraged by stories of self-made millionaires and garage beginnings, want to give entrepreneurship a try.

It’s not a lottery, though.

Starting a startup is not an easy job and, if you believe in statistics, the odds of you succeeding in building a successful startup are not on your side. The rough estimation, according to many, is that only 1 out 10 startups make it as a business.

This exact ratio depends on the definition of startup success as well as the region (country) where the in question startup was founded, but in general it creates strong point. From our experience at Startup Drill, this number is not far from the truth, and I see it as a good piece of advice for everyone who wants to start their startup journey – that they should be ready for heavy road conditions.

I’m not putting this statistic here to discourage you, but to encourage you to approach the entrepreneurial world more diligently, fully aware of the facts and challenges.

So, startups are not easy work. Most of them fail.

 

Why startups don’t succeed?

However, have you ever wondered what was the main reason for their failure? What would be the first thing to pop to mind?  

Bad product? Bad idea? … Something else?

At the beginning of 2018, CB Insights published an interesting report on top 20 reasons why startups fail.

Turns out, the main reason for startup failure is that there is “no market need” for startup’s product or service. That means that startups tend to build products or provide services that customers don’t really want or need. And if you take even closer look to the report you will notice that, surprisingly, “user unfriendly product” only appeared on the sixth place.

If you are experiencing your first time working in startup, this might come as surprise to you. However, experienced entrepreneurs will know the feeling of when your idea, incarnated in the form of a product, faces the desired customer and they do not respond. You feel your dreams crash and burn in the face of reality, and it isn’t easy to get back from that.

Startup founders usually start with an assumption that it is possible to figure out almost all the parts of their business model in advance, before they actually start working on their idea. They  sit down, make a business plan, and then work hard to execute it. They focus on product creation, and then they go to market.

The first serious problems arise at this point. They are forced to face a reality which is usually far beyond what they had imagined at the very beginning, far from their original assumptions.

For startup to succeed it has to succeed in all the segments of its business model (Customer segment, Value proposition, Customer Relationship, Channels, Revenue streams, Key Activities, Key resources, Partners, Costs). To fail, it only needs to fail in one of them.

There is one segment of business model that others are strongly linked to, and that one is the Customer segment. That basically means that, if you miss your customer segment and don’t know if you are solving people’s problems or fulfilling their needs, all other assumptions that you have come up with regarding the other segments of business model are worthless. They rely on the assumption that there is a customer with a certain problem or need, willing to pay for the solution of that particular problem.

“Life’s too short to build something nobody wants. “- Ash Maurya

One way to avoid this type of failure is to first focus on your customers and their problem or need.

Once you have that down at the beginning of your startup journey, you can generate all other assumptions and iteratively test those which you find the riskiest. In fact, in Startup Drill we believe that this is the most promising way of starting a startup journey.

For all other potential sources of failures – well, you just need to do your best to think ahead and work hard.

What do you think about this?

Do you want to hear more about this topic?

Reply with a comment or write us directly.

Want to learn more on this topic:

  1. The Top 4 Reasons Startups Fail, According to 14 International Accelerators: https://www.entrepreneur.com/article/311064
  2. Why Do Most Startups Fail? Because Founders Get Stuck Making This 1 Shameful Mistake: https://www.inc.com/nicolas-cole/the-majority-of-startups-fail-heres-why-thats-a-founder-problem-not-a-startup-problem.html
  3. Why 90% of Startups Fail, and What to Do About It: https://medium.com/swlh/why-90-of-startups-fail-and-what-to-do-about-it-b0af17b65059
  4. The Top 20 Reasons Startups Fail: https://www.cbinsights.com/research/startup-failure-reasons-top/
  5. The Top Reasons Startups Fail [Infographic]: https://www.forbes.com/sites/niallmccarthy/2017/11/03/the-top-reasons-startups-fail-infographic/#6c8c991e4b0d
  6. 90% Of Startups Fail: Here’s What You Need To Know About The 10%: https://www.forbes.com/sites/neilpatel/2015/01/16/90-of-startups-will-fail-heres-what-you-need-to-know-about-the-10/#37211d146679

2 Comments

  • Thanks Primož! I like the TED talk that you have shared here and I agree with this because it goes well along with the Technology Adoption Life Cycle Model from Clayton M. Christensen where he describes that adoption or acceptance of a new product or innovation, depends on the demographic and psychological characteristics of defined adopter groups. Therefore I think sometimes companies do not get it right at which stage of the Technology Adoption Life Cycle is their market.

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