Lessons From Failed Startups For Every Entrepreneur

With regard to the Startup Genome Report, nine of ten startups fail within three years of their existence. The same rate is for the venture-backed startups, which can’t generate meaningful returns. Even worse rate is for startup pitches as the venture capitalists turn down 99% of them. After looking at that statistics you may feel crazy enough to think that you can cope with that. However, as Dr. Paul D. Reynolds, Director, Research Institute, Global Entrepreneurship Center emphasizes that all over the world there are about 300 million persons trying to start about 150 million businesses. About one third will be launched, so you can assume 50 million new firm births per year. Or about 137,000 per day. As firm birth and death rates are about equal, the same number of active firms, say 120,000 probably terminate trading each day (by Moya K. Mason).

Seamless to emphasize but still there are lots of people who launch the new venture every day, an enormous percent of which make the same avoidable mistakes over and over, and fail again and again. Most startups fail — everyone accepts that, but you never really hear about them. So I propose you to have a look at CBInsights or Autopsy, a website that provides us with the post-mortems or so called “Lessons from Failed Startups.”, learn from the failed startups and define the clear failure patterns for us, entrepreneurs, to avoid latter on.

Top 20 Reasons Why Startups Fail

David Feinleib, an investor, adviser, and serial entrepreneur, proposed his classification of the major traps structured in four blocks:

Market, Product & Entrepreneur

In the first block David Feinleib covers the product-market fit, bad product and the lack of leadership. As for the product-market fit, it looks obvious but building a product that satisfies the market needs is crucial but more than 42% of startups fail because of a poor product–market fit. If not, you get your startup running out of cash. It’s too easy to keep your product in the back room, iterate on it for months or years, only then to figure out that nobody wants it. Good example will be the products Why Own It and ratemyspeech. Their post mortems are:

“Unfortunately, not everyone who likes an app recommends it to friends and family. And besides that, they got stuck with the chicken-egg-problem.”

“Eventually I had to realise that our basic concept was flawed. Most people (95+%) just don’t care enough about their presentations.”

Secondly, we have the problem of the poor product. On average around 17% of startups fail because of it. As Albert Einstein said “Everything should be made as simple as possible, but not simpler”. Great products are simple, universal, and viral. Good example will be the product Kolos and UDesign. Their post mortems are:

“With Kolos, we did a lot of things right, but it was useless because we ignored the single most important aspect every startup should focus on first: the right product.”

“It turns out we underestimated the complexity of the project, and overestimated our ability to complete it on a limited budget should, closer to launch, any complications arise.”

Thirdly, the leadership issue is well connected with the right team. Lots of people have good ideas, and some even execute on that ideas. However, not everyone can take an idea, transform it into a well-defined product and sell it to employees, investors, and customers. Everything starts and ends with the leader. It’s she/he who assembles the team, inspires them, and altogether reach the heights. However, more than 23% startups fail because of it. Good example will be the product Allmyapps. It’s post mortem:

“It took us time to realize we had big on-boarding issues…”

Sales & Marketing

In the second block David Feinleib emphasizes different problems from poor marketing to long-cycle sales. Although the key one is traction. Good example will be the product Wattage. It’s post mortem:

“I suppose our failure can be summed up quite easily: An inability to show traction.”

Execution

The third block is purely about the execution. There are all kinds of reasons of execution failure — from failing to communicate effectively to never getting started, and from scaling too quickly to never scaling at all. Good example, which I have also experienced, is well presented by Lumos. Its post mortem is true for many newly graduated or non-experienced entrepreneurs:

“We had never used the existing home automation products in our homes. We were not experts in the IoT sector. When you have new at something, you give yourself the famous Dunning-Kruger Pass on your decisions.”

Capital & Liquidity

In the last block we will talk about the king of every startup — cash. More than 29% startups ran out of cash or fail to raise money either from customers or/and investors. Good examples will be products Wardrobe Wake-Up and Patterbuzz. Their post mortems are:

“Ultimately, we were unable to secure outside funding at a time of critical growth and did not have the resources to fulfill demand on our own.”

“Everything was going good. But we always had one issue. We never had enough money in our bank. and This became the cause of our death. We ran out of money.”

Summing up, I propose you to take a quick glance at CBInsights “Top 20 Reasons Startups Fail” and look forward to exploring with you my case of trying to keep the startup alive and the impact of Dunning-Kruger syndrome. See you soon!

 

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