Why Most Startups Fail

The reasons for running out of funding are not exclusive to the current market downturn

You might think your idea is great. Before testing on real markets you’re probably wrong.
You might think your idea is excellent. Before testing on real markets, you really can’t tell.

Why do most startups fail?

If you regularly read TechCrunch, Forbes, or Business Insider, you probably know by heart all the success stories of audacious entrepreneurs who started cutting-edge companies.

1. Are fancy offices vital?

Especially in times of crisis, working remotely continues to prove to be useful for a lot of companies. However, I have to admit that I think getting together in an office or, old school, a “garage” is much better. It creates that special battlefield atmosphere and a very strong “WE-feeling”. In any case, let’s face it: Having a fancy office located on a Japanese-designed skyscraper on Madison Avenue can’t be entirely classified as a need. You are not Don Draper. Keep it simple.

2. Don’t massively increase burn before you have found product-market fit

Remember the first reason why startups fail: Don’t love your ideas too much. Test, test, and test again. Best case scenario means receiving a big boost from investors.

  1. Build an MVP
  2. Identify key metrics
  3. Measure
  4. Evaluate success
  5. Make changes where necessary

3. Take a long-term approach toward operations

Once companies have found their product-market fit, one of the most significant issues I also see very often is fast expansion without the right economics. Step number one is to know what your customer is worth. There are literally thousands of examples, and I see them every week. Take US-based startup Homejoy, for instance. Their growth strategy focused on short-term goals (user acquisition, expansion) and ignored long-term issues (user retention, diminishing funds). After five years, they shut down and had burned through 40 million U.S. dollars by then.

  1. Unit economics are not proven
  2. The home territory still bears enormous opportunities and is only penetrated insignificantly

4. Go easy on hiring

Hiring staff prematurely is always a problem. Consider the roles that are absolutely necessary right now but also in the future. We see it every year on football signings. When a team hires new players in winter for just six months, they almost always end up with a player no longer needed with a big contract. Startups always feel like there is too much work to be handled. But days only have 24 hours, and you can only multi-task to a certain extent. Prioritize, and remember that tasks, roles, and responsibilities become more evident with time. In contrast to football clubs, a company should ideally not have much HR turnover.

5. The six months challenge

Take into account that anything less than six months' worth of cash should trigger an immediate alert. This is Investing 101. Always save six months of money for emergencies in case of failure.

Cover your bases

After all, the points mentioned above are almost ‘eternal truths’ that have been valid in the tech world already in the past and will continue to do so.

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The RMS Queen Elizabeth returning home to New York with American troops after World War II in 1945.



Investor @mangrovevc #EarlyStage #VC | former founder & operator | Passion for tech and backing great European founders with big visions

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Nikolas Krawinkel

Investor @mangrovevc #EarlyStage #VC | former founder & operator | Passion for tech and backing great European founders with big visions