Why 90% of Startups Fail

Written by:
Dan Parry
November 26, 2019

In order to find – and stay at – Product Market Fit, a few key things need to align: market forces, founder alignment and lucky stars. According to CB Insights, the top 20 reasons startups fail include:

  • Running out of capital
  • Not having the right ream
  • Competition

 

However, the number one reason most startups fail is that there is no market need for their product or service. It’s important to identify and mitigate this particular risk as early as possible to build something that your market understands and needs.

Building digital products for your business is easier than it has ever been. There are talented developers all around the world who can build exactly what you want if you build something.

You could build something that your customers understand, love and will pay for. This is obviously the ideal situation. But as we saw from the stats, most of the time this doesn’t happen.

You could build something that nobody understands and wants. This happens to most businesses. It’s bad. However, depending on how much capital, time and emotional effort you've invested, it might not be the worst thing that happens.

The worst thing is that you end up building something people kinda want. We’ve seen this before. You may recognise some of these symptoms:

  • When you tell people about the idea, they seem excited, but nobody signs up
  • People hit your sales page, but nobody converts
  • People sign up, and never come back to the product
  • Some really engaged people use your product but eventually churn
  • If it’s a SAAS product, some people pay for a couple of months, but cancel their subscription
  • Customers use your product in dribs and drabs, which leads you to believe that you’re just a few sign ups away from that big swell of paying customers...but it never comes.

Obviously, there are products that have been wildly successful that have flown in the face of customer needs (or wants) but these are rare. An often-cited case example of a product not needing validation is AirBnB. However, people in the US were already offering their homes to rent for holidays on Craig’s List. It's how their infamous growth hack worked. Their potential customers were already exhibiting the behaviour of inviting strangers to stay in their homes for a fee –  AirBnB just formalised it through their app.

Is there a market need?

There are a number of questions you can ask to understand how valid your business idea is:

  • How much does your market want this specific problem solved?
  • How much competition do you have?
  • How are your potential customers crudely trying to solve this problem?
  • Are your potential customers currently paying for a solution?
  • Are your potential customers unhappy with the current offerings?

Answering these questions with as much evidence as possible will help de-risk your idea. It may not help you with some of the other circumstances that kill most startups, but it will certainly help with building something that the market needs. And that’s a good business to be in.


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