I swear I’ve heard the statement, “The number one reason startups fail is…” about a million times. Every expert seems to have their own opinion on that one singular cause of startup failure.
It’s time to stack them up side by side. I can’t guarantee whether this analysis will leave you enlightened or confused as hell — but you will pick up some useful tips along the way. And hey, this just might save your (startup’s) life.
The following are the 6 “number one” reasons why startups fail, as claimed by startup pros.
1. Scaling Too Fast
“...the number one thing that kills a startup is trying to grow something that’s not ready to be grown yet.” — Sean Ellis
Based on his Startup Pyramid theory, Sean believes startups can burn themselves to the ground by pouring resources into growth before having product/market fit. The litmus test? A survey of your customers should indicate that 40% would be "very disappointed" if your product disappeared tomorrow.
2. Running Out of Money
“When startups die, the official cause of death is always either running out of money…” — Paul Graham
Being a founder of Y Combinator, Paul Graham has seen his fair share of startups, and a whole lot of failure. In fact, roughly 90% of the elite startups accepted into the program eventually fail.
YC pushes you to grow really fast (5-7% a week) — and it’s no wonder. With cash burning fast, it’s a race against time to get traction so you can attract more investment and bring in more revenue.
3. Giving Up
“...or a critical founder bailing.” — Paul Graham
And of course, it’s not just the money well that can dry up — patience and willpower are limited resources too. Paul refers to a particularly challenging period in the life of a startup — the Trough of Sorrow — as something that wears many founders down.
Seen on his "Startup Curve" (below), this is the bleak time period after the excitement of the initial launch and before things (hopefully) pick up again.
(Source)
4. Product
“You know what the single worst marketing decision you can make is? Starting with a product nobody wants or nobody needs.” — Ryan Holiday
Formerly the Director of Marketing at American Apparel, Ryan had a wakeup call when he realized one of the major flaws of old school, traditional marketing: marketing and product are entirely separate functions. With no influence on the product itself, marketing dollars were often wasted promoting a crappy product.
Pour as much money as you want into marketing, but very few people will buy something they don’t want. Those that do will be pissed. Sounds like a fast-track to failure to me.
5. Not Product
“Poor distribution — not product — is the number one cause of failure.” — Peter Thiel
Okay, so apparently Ryan was wrong. Peter claims that it’s not about your product — poor distribution is what will kill you. Confused yet?
Peter’s theory is that you really have to nail one distribution channel in order to be successful. Few businesses will have a bunch of equally good distribution strategies. Find your optimal channel, perfect it, and don’t get distracted by the rest.
6. Lack of Focus
“If there’s any secret to success for a startup, it’s focus.” — Alistair Croll & Ben Yoskovitz
Speaking of distractions, don’t underestimate the importance of focus. In their book, Lean Analytics, Alistair and Ben even go so far as to say, “You may succeed if you’re unfocused, but it’ll be by accident.” They advocate choosing a single "one metric that matters" for your business. By focusing on the improvement of this one metric, you avoid getting distracted by useless vanity metrics and bogged down by too much data. Focus wins.
(Source)
What’s the number one reason why startups fail? I have no idea. But you’re bound to screw up a lot regardless. Luckily, according to Dave McClure, that’s the whole point:
“The alternate name we came up with for 500 Startups was 'fail factory’. We're here trying to 'manufacture fail' on a regular basis, and we think that's how you learn. Getting used to that, bouncing back from that, being able to figure out what people hate and turn that into what people love… if you're not willing to take the risk of failing and not experience failure, you're never going to figure out what the right path is to success.”