In the past 5 years I’ve advised over 200 early-stage startups. One topic that new founders gravitate toward is what are the pitfalls they should avoid; what causes startups to fail? So I thought I’d write some top ones down. Without further ado, here are my Top 5 reasons that startups fail:
1. Failure to Communicate
I’ve seen teams time and again that struggle with internal alignment. This often results in team members feeling under appreciated, frustrated, confused and disillusioned. Too often founders sacrifice their businesses because they want to avoid the tough conversations. Early stage businesses are not for the meek. We value strong confidence in founders because your startup demands it. Confident people communicate with purpose. Find a way to communicate with all team members at least weekly (preferably face-to-face). Ensure the forum is open and judgement free. Verify that personal goals align on a frequent basis.
2. Solving for a Problem that Few will Pay to Solve
Founders can easily be blinded by their idea, their baby. Challenge the problem before you build a solution. We spend a great deal of time on this during the UpTech program because we want our founders to consistently challenge their business model. Avoid false positives and use your MVP to get customers to put their money/actions where their mouth is. Measure all along the way and continue problem validation.
3. Wrong People on the Team
If you were an investor who would you hire to run your startup? What skills would you need to make it a success? This is the lens an investor will look through so why would you look at your startup differently? Find the right people quickly and fire people who aren’t performing. Set individual, weekly goals to measure each team member’s contribution and performance. Even if the offender is a co-founder, you need to strongly consider their role. You don’t have the time or resources, figure it out quickly.
4. Building Instead of Selling
The best tech teams are hackers (developers), designers and hustlers (sales). You need these 3 qualities across your team members, but the hustler is one I’ll bet on first every time. The hustler gets out and is not afraid to talk to anyone. They are driven to make this startup work. They feed development with customer knowledge and feed the bank account with customer and investor dollars. This can be more than one team member, but collectively a startup needs this attribute. Those that fail believe that the solution to customer and dollar woes is to just build a new feature or modify an existing one. They believe that if they build it, dollars will come. No, they won’t.
5. Run Out of Money
Seems kind of obvious, run out of money, business closes. Moral of the story here is know when you’re going to run out and spend every dollar as if it’s your last. Have a very clear reason for every expenditure. Have the ability to measure the value of the purchase because it should exceed the cost. Plan ahead and know what you need to buy. Plan ahead and know how you’re going to keep money in your bank account.
This list isn’t comprehensive, but it’s reflective of my experience. Watch out for these and your startup will thank you for it. Avoid the Startup Graveyard. If you have any others, please feel free to leave a comment or send them my way.
Don’t join the graveyard. Apply to the UpTech program.
Graveyard Photo Attribution to Vanessa Danison