Why do startups fail?

5 Reasons Even the Most Promising Startups Don’t Make it

Startups are risky business — in fact, the odds of failing are exponentially higher than they are of succeeding. About a 90% chance of failure, to be exact.

The good news is this: founders of failed startups are often eager to tell their failure stories, and most causes boil down to the same 5 things.

Keep reading to learn the top 5 reasons that startups fail, and keep them in mind as you consider the next steps for your startup.

No Market Need

The number one reason startups fail, according to CB Insights, is that there was no actual market need. Roughly 42% of surveyed startups attributed their failure to there being no market need.

You know the quote “If you build it, they will come?” Well, friends, throw it out. Leave it in the cinematic fantasties of baseball superstardom, and eradicate them from your entrepreneurial vernacular immediately.

If you build it, and fail to validate the market, they likely won’t come. A large part of the startup process is interviewing potential customers and adjusting the business model to their needs before the company even launches. Determine market need beforehand to avoid losing lots of money.

Ran Out of Cash

Speaking of money, you need a steady amount to keep any startup going. About 29% of startups fail for this very reason. Even if a startup isn’t exactly reeling in the big bucks right off the bat, keeping overhead costs low is a great start. Your office doesn’t need slides and pinball machines — yet.

Many startups fail because they simply don’t keep close enough track of their money. Without that organization, founders can wake up one day to realize all of their initial investments are gone.

Some founders also spend too much time inefficiently managing their money — there’s a reason accountants exist, guys. If there’s room in the budget, hiring help with finances can really pay off and even prevent a fatal blow.

Not the Right Team

We often hear about the importance of diversity in terms of race, gender, sexual orientation, etc., but what about diversity of skill sets? A team full of only engineers, or only writers, won’t create a business as successfully as a team with both of those and more.

While some work like coding and graphic design can be left up to hired freelancers (no, your doodled logo probably isn’t going to cut it), many startups say they wish they had started with a complete team rather than adding necessary people as they moved forward. They pointed out the importance of checks and balances in decision-making — a group of business-oriented people may not realize that they are banking on the creation of a totally impossible app without a programmer on the team.

Get Outcompeted

Sure, common startup advice is “don’t worry about competition too much, there are always adjustments to be made,” but that advice only goes so far. You can’t expect to create another successful ride-sharing platform while offering the same exact features, price and quality of service as Lyft or Uber.

The 19% of startups that fail due to competition do so because they ignored competition rather than strategically finding ways to outgame them. It’s important for startups to understand and promote their unique value — otherwise, they’ll be drowned out by their rivals.

Pricing / Cost Issues

Remember Juicero, the $400 juicer that made the news for its off-putting price? After that bad press, the startup was forced to lay off a quarter of its staff, and even after lowering the price it never recovered and shut down.

How much a startup charges for its product or service can make or break the business — too high and it drives customers away, too low and it fails to bring in enough revenue. If you manage to get users to pay a high price, you have to make sure you wow them with quality or you risk creating a group of highly dissatisfied (and Facebook rant ready) customers.