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We've analyzed why +80 startups have failed and identified some of their common mistakes. Here're our findings!
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When I got invited to do a “failed startup” interview at Failory, naturally, I went over their website to check out what they’re all about. As I was between projects and in the process of going over the lessons of my own ventures, the opportunity to read about the first-hand experience of other failed founders, my peers, came just at the right time.
So, I did what any other person totally irresponsible with their time would do: I spent the next three to four days reading every single one of the 80+ failed startup interviews and taking notes in a spreadsheet. When I did this I tried to see if some of the mistakes and lessons are mentioned over and over again, and in this article, I’ll present my findings.
Disclaimer: the interviews are qualitative, even though the founders were asked similar questions, they weren’t asked to fill out a survey, so to gather the “data” I had to interpret their words and put them into boxes. This means mistakes and oversights on my part are likely and you shouldn’t take the data, as presented, too seriously. Nonetheless, I still think the takeaways ought to be useful for anyone embarking on a startup journey.
In the interviews, all startups are asked to mention the major reason the project failed. Of course, over the length of the interview, the founders also talk about all other kinds of mistakes they made and problems they ran into which contributed to the failure.
This allowed me to take all of the mentioned mistakes, put them into their respective box (marketing, team, tech, etc.), and divide them into fatal and non-fatal. This lead to a couple of interesting findings:
As mentioned, marketing problems were both the most abundant and the most deadly. 46 out of 83 startups mentioned a marketing problem as the main reason for the failure of the project.
Product-market fit: 29 out of these 46 were talking about what boils down to lack of product-market fit. 29 out of the 83 projects essentially created something that they later found out no one needed. Unsurprisingly, the most commonly mentioned lesson by far was that you need to validate if the market actually needs what you are offering. Ideally, you need to do it before you invest any considerable amount of effort, time, or capital into the project.
Competition was the second most common marketing problem, but while it was mentioned by 8 startups, it was singled out as the reason for failure only twice (25% fatality rate). 2 out of 83 is quite low, but this doesn’t come as a big surprise. Startup projects are by definition at least partially innovative, and this innovation serves as a form of differentiation. Competition becomes a factor much later in the startup journey, and some form of competition early on is even a good sign: third-party validation that there is demand for something close to what you are offering.
Value-added: this was a rare mention (two times mentioned, both fatal), but it relates to competition. A common “competitor” of an innovative startup is the current most popular solution to the problem the project is trying to address. This doesn’t even have to be another company – it could be whatever people are currently doing to solve it. If your product/service doesn’t add enough value, people will simply stick to their current solution.
User retention: again, related to the point above. If your product/service is something cool and shiny, it is likely to attract visitors. But unless it provides real value (solves a problem), you will lose your audience right away – your marketing efforts are simply wasted.
Market size: even though startup investors very commonly talk about market size, this is because they are chasing Unicorns, not lifestyle businesses. As a founder, however, a working lifestyle business is not a bad thing to have. A small market was mentioned only once as the reason for failure. In reality, even small niche markets are usually enough to sustain at least a single company (thanks to the internet).
Lack of focus is the last marketing mistake worth mentioning. Often startups have a vision of some grand platform with amazing capabilities and features addressing multiple problems at once. In reality, however, as a startup you simply don’t have the resources to build so much complexity. Even if you do, it’s very likely to turn out most of the features you are envisioning aren’t needed in the first place. A startup is much more likely to succeed if it’s hyper-focused in as many ways as possible. First of all, focused on solving very well a single, well-defined problem for a single, well-defined market. Second, focused in terms of technology (one simple, lean solution) and third - marketing (a single channel that works).
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An early-stage startup doesn’t need money, it needs time and effort.
Of course, this is an exaggeration, but it’s closer to the truth than you’d think.
The typical expensive thing in most startups is the dev time. Yet, expensive technology is only important to scale something up and automate it, not to test it. To validate a concept, you can often use no-code (or low code) solutions combined with some manual effort (e.g. a no-code/low-code website and a dude with an excel sheet and an email).
This, of course, is applicable only early on in the life of the startup when you have few clients/users. But going this route will protect you from losing time and money on the wrong thing.
Funding: That’s the main reason that even though 77% of the interviewee projects were bootstrapped and around 50% didn’t have any funding, only 2 out of 83 projects pointed at “lack of sufficient funding” as the reason for the failure of the project. In many cases, the founders understood that if they had a bigger budget, they’d simply lose more money. Funding is only important when the startup starts graduating into a real business and needs to grow, and even then only when it’s going the rapping growth rather than sustainable growth (lifestyle business) route. (The disclaimer here is that you shouldn’t mistake a startup with a new but traditional business, which usually requires initial funding.)
Monetization: the most common financial problem is monetization, and arguably monetization is more of a marketing/business plan issue rather than a financial one. Figuring out how you’re going to make money from the thing you have is a good idea. If no one is willing to pay, you have a problem. That’s one of the reasons why B2B projects are often less risky than B2C projects.
Profit margins were also mentioned as a problem from 5 businesses, 3 of which pointed at it as fatal. This is very dependent on the type of business and the market saturation. E.g. in food startups you are competing with a lot of traditional solutions, where profit margins are razor-thin, which is an unfavorable environment for a non-optimized innovative solution.
Overspending and cashflow are the two most important problems you need to keep in mind when it comes to finances for startups, especially once you start making money. Over-hiring too early is generally speaking a big mistake and could easily ruin an otherwise very promising business. Early in the life of the company, it’s important to keep the overheads as low as possible (founder living expenses + servers). You can outsource anything else you need (freelancers, agencies). This gives you the flexibility to cut back on spending almost instantly if you suddenly hit a bump and keep the business alive, giving you more time to iterate and solve the problems.
Experience: lack of it is one of the most common problems in startups. 20 out of the 83 interviewees mentioned it, 9 pointed at it as the major reason for failure. Usually, lack of experience means a couple of different things, however:
Friction: the second most common team problem (9 mentions), but fatal only 2 times. That said, even if it’s not fatal, it makes things much more difficult than they have to be. Some people recommend not to start a business with a person before you know them well enough and before you know you share the same vision. Otherwise, you’ll pull the project in different directions.
Motivation: the quote from Naval Ravikant from above doesn’t simply mean that the founders need to know their market and product well. It also means that they need to be excited about working on the problem, or lack of motivation could mean the slow death of the project (mentioned 6 times, fatal twice).
Availability: working on a startup requires a lot of time and effort, and if the founders don’t have it it’s very hard to make progress in good time. The big common mistake here is when the founders have different levels of availability (e.g. one founder works on the startup full-time, the other part-time). This naturally leads to friction and loss of motivation.
If the most valuable marketing concept for a startup is “validation”, the most valuable technical concept is MVP (minimal viable product). You need to create a product that allows you to find a market with the absolute bare minimum time and effort investment.
Often the right solution is to take this concept to absolute extremes. If your grand vision is about a platform with 50 features solving 5 problems, the MVP is NOT a platform with 25 features. It’s probably not even a platform, but a static website imitating the 2-3 most important features (with cheats like manual labor) and allowing you to test them and see how customers like them.
As mentioned in the findings at the top of the article, the most common and fatal tech mistake isn’t even connected to tech: it’s over-investing your time and effort into building something cool before making sure someone needs it.
Tech people love to build stuff, they don’t love to sell stuff. And initially, you usually need to do 10% building and 90% talking to customers and selling. Later on, it becomes 50% building and 50% selling. But it never, under no circumstances becomes 90% building and 10% selling, because this is when you lose your connection with reality and as a result – you waste your time and efforts.
As for real tech mistakes, the most commonly fatal ones are:
Operational problems were relatively rare (mentioned 9 times in total, only two fatal) and too case-specific to generalize. However, the disclaimer here is that most of the interviewees were running a software business, which means that operational problems are rare by definition.
Legal problems were also very rare, but when they appeared they were often deadly.
Operational and legal considerations are very industry and location-specific, so make sure not to follow general advice before doing some case-specific research.
All startups were asked “what would you do differently”, and even though there are a lot of case-specific lessons, one them was repeated over and over: lean startup as a concept was mentioned by 27 of the startups as the most important lesson learned the hard way. This means approximately one-third of all interviewed
Lean: validation – talk to customers, test your assumptions, and find a market before you invest a considerable amount of time, effort, and money into an idea. Mentioned directly 20 times.
Lean: MVP – build your prototype (the thing you’d use to test the market) as quickly and cheaply as possible. Iterate often. Mentioned directly 14 times.
It’s not a surprise that The Lean Startup book is one of the most commonly mentioned resources.
And here are a couple of other lessons that get repeated more than once:
Risk: startups are very risky. Investors diversify by investing in multiple startups, but as a founder you don’t have that luxury. This means that you are very, very likely to fail. Make sure you can bear that failure financially, psychologically, etc. E.g. financing a startup idea with a loan is generally speaking a terrible idea.
Personal wellbeing: a business is not a good cause for martyrdom. Being a startup founder by definition means things would be very rough professionally for a long time period. Make sure that outside of the professional realm you are doing OK.
Team and experience: make sure your team ticks the right boxes. If you are a builder, not a marketer, make sure there is a co-founder who will do the marketing tasks well and the other way around. The cliché is that a successful startup team needs a hustler (marketer), a hacker (builder), and a hipster. I don’t know about the hipster, but you will certainly fail without the hustler or hacker, and it’s very hard to be both. A startup team also needs at least some experience running a risky project. If you don’t have any, getting a mentor is a great idea.
Failure is not the end: you’d be surprised how much of the interviewed failed startup founders are currently running another at least somewhat successful venture. Another chunk found a good job because of the skills acquired in the project. With every failed attempt, your competence and chances of success increase.
The projects are all failed startups Failory were able to get their hands on, so they are reasonably random. Yet, this doesn’t mean all types of startups have a good representation in the data:
More than 75% of the 84 startups are self-funded (or at least don’t mention outside investors). Moreover, over 50% of the interviewed startups invested only the time of the founders in the venture and if possible reinvested revenue (which in a few rare occasions was quite considerable). Only 46% had a budget to work with from the start, ranging from $3-4k to $4.4 million in the highest VC example.
That said, those conditions are very common for projects in the idea-validation-traction phases, which is where most projects die and where the lessons from above are most applicable.
It’s important to mention yet again, that most interviewees were developing software products or services. Physical products are much rarer in the data. This means that the mistakes and lessons of physical product projects are underrepresented. For example, even though supplier problems are very common for physical product projects, they are not common at all in this dataset simply because software projects generally don’t have suppliers. This shouldn’t lead you to believe that supplier problems aren’t important if you’re selling anything physical. Use your common sense and learn from the experience of the projects closest to your own, don’t trust the data and my interpretations blindly!
Thanks for reading! Hopefully, the failures of the 80+ projects thanks to whom we were able to define these common mistakes were not in vain and would be used to prevent further failures by entrepreneurs like yourself!
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