Reason 1: Market Problems
A major reason why startup companies fail, is that they run into the problem of their being little or no market for the product that they have built. Here are some common symptoms:
- There is not a compelling enough value proposition, or compelling event, to cause the buyer to actually commit to purchasing.
- The market timing is wrong. You could be ahead of your market by a few years, and they are not ready for your particular solution at this stage.
- The market size of people that have pain, and have funds is simply not large enough
Reason 2: Failure Business Model
I realized that one of the most common causes of failure in the startup is that entrepreneurs are too optimistic about how easy it will be to acquire customers. They assume that because they will build an interesting web site, product, or service, that customers will beat a path to their door. That may happen with the first few customers, but after that, it rapidly becomes an expensive task to attract and win customers.
Reason 3: Poor Management Team
An incredibly common problem that causes startups to fail is a weak management team. A good management team will be smart enough to avoid Reasons 2, 4, and 5. Weak management teams make mistakes in multiple areas:
- They are often weak on strategy, building a product that no-one wants to buy as they failed to do enough work to validate the ideas before and during development. This can carry through to poorly thought through go-to-market strategies.
- They are usually poor at execution, which leads to issues with the product not getting built correctly or on time, and the go-to market execution will be poorly implemented.
Reason 4: Running out of Cash
A fourth major reason that startups fail is because they ran out of cash. A key job of the CEO is to understand how much cash is left and whether that will carry the company to a milestone that can lead to a successful financing, or to cash flow positive.
Reason 5: Product Problems
Another reason that companies fail is because they fail to develop a product that meets the market need. This can either be due to simple execution. Or it can be a far more strategic problem, which is a failure to achieve Product fit to the changing market.