Why do startups fail? A postmortem of 256 failed startups.
On 2006 startup guru Paul Graham wrote an epic post called The 18 Mistakes That Kill Startups . But the post was published 12 years ago.
What are the challenges of today’s startups? As we love startups and work with startups, we want to find out the truth.
We sit with a massive database published by CBI Insights on startup failure, trying to find out if there is any pattern behind their failure.
Understanding the data
Going through 253 startups’ failure has been a heart-wrenching experience. More we dig, we find out 5 common challenges they have come across.
- Financial Challenges
- Product-Market Fit
- Growth Challenges
- Regulatory Issues
- Internal Team Issues
So, what’s the greatest obstacle among all? Here is a chart to understand the trend…
Let’s dive deep in each category to have more understanding.
The budget constraint for startups was always there and will be. Even in the age of VCs and so many investor firms, finance has been a major hindrance.
CBI Insights report covers the startups death from 2014–2018. Startups who have succumbed to the cash challenges were promising or either had good products but failed to grow before the financial challenges.
Meet DopplerLabs who aims to make computing more immersive and human. The company focuses on “hearables,” wearable technology for the ears. A promising startup with the wearable technology but failed to cash in due to scarcity of cash. Below is their acknowledgement-
If wish, you can read their entire story here .
To suddenly stop startup operation despite having a good product, a loyal user-base, is highly painful.
Meet The Social Radio who had to stop even though their efforts of converting Twitter streams into a human-friendly audio experience had a good customer base.
This is what they have accounted,
BriefMe faced identical challenges. They had a good user-base but had to stop their operation abruptly.
It’s not only that startups need money to build or maintain their product but in most of the cases, they need money to outpace and outplace their competitors, the established institutions like Amazon, Google, Facebook and other tech giants.
In our postmortem, we have come across many startups who could not grow facing tough challenges from Google, Facebook and others alike.
Raising money for startups have never been easy. But all of these failures just underline how competitive startup world is.
Product Market Fit
Finding a potential market for a new, exciting product is still a big puzzle for all startups.
No wonder, 42% startups have to wind down failing to create demand for their product. Across all the years (from 2014 to 2018), the product-market has pushed startups to shut their stores time and again.
Let’s understand what specific product problems they have faced-
Understanding the true need:
IntroNet set out to power digital introductions through its Connector product on the web and in Gmail. But they failed having a good lesson on Product Market fit-
No more relevance:
Startups who have suffered from the product market fit has also faced the challenge of not being able to keep pace with the current trend.
Meet Raptr, a PC gaming service designed to optimize PC gaming performance while maintaining high quality and system efficiency.
Expecting too much from a customer:
This is an interesting study. Some of the startups who failed think their product was ahead of the curve too much. They had to shut down as their target audience was not ready to adapt to new technologies.
Imzy was one such startup who offered a platform for healthy communities where its members are free from harassment and abuse. Was it too much ahead of the trend? Below is their realisation-
Mobeam also faced similar challenges. Mobeam provided universal access at point of sale (POS), enabling the transmission of coupons, gift cards, tickets and other barcode data at retailers.
In quest of Sustainable Business Model:
Some products also failed as they could not find out a viable business model to continue their business.
Meet GoZoomo, a Bangalore based technology used car marketplace pioneering in peer-to-peer transactions of pre-owned cars and providing a hassle free experience.
They closed with an honest statement-
Canvas Network also tasted the bitter startup failure. They were offering users to share and play with images, explore new content created by other users, vote on favorites, and make image remixes with the in-browser editor.
Their realisation has been eye-opener-
Coinprism was another victim, who started to offer world’s first colored coins web-wallet. In their statement, they unveiled why it’s so tough for a new startup to flourish-
Customers are the king:
In the middle of so many product-market fit puzzles, there is one big revelation we acquire from our study.
Understanding the audience is a massive breakthrough to find out the Product Market fit.
VoterTide encountered the same challenge. They developed a social media monitoring and analysis app focused on politics. Identifying their failure, they said-
Is there a demand for your product?
For a new technology, customers’ don’t know what they are going to play with. They even don’t know will this product help them or not. This leads to an inertia to use the product. Creating the demand for the product is the key here, we understand from the study.
Kitchensurfing faced the challenge. They took initiative to make it easy to bring meals from idea to the table. A promising idea failed to create enough demand in the market.
How to find the “Product Market Fit”?
Now the question is what can help you to come up with viable “Product-Market Fit”.
What we are understanding from our study is that there is no alternative of “Knowing your audience.”
Delivery startup PepperTap underlines the need of extensive research to achieve the ‘Product Market Fit”. The India-based mobile centric hyperlocal grocery delivery service, PepperTap promised to provide quick on demand grocery products to the doorstep.
But they failed as they encounter new challenges frequently. Let’s hear from them-
The age-old chicken and egg problem:
Every marketplace startup have to go through this piece of puzzle earlier and our study once again highlights that the problem is still palpable for marketplace-startups.
And here are some of them-
WHY own it: WHY own it enables users to borrow products from friends and neighbors.
App.net was another victim. It was developed to allow users to access a network of social apps. App.net provided infrastructure to build social applications. And if failed resolving the “Chicken and Egg Problem”.
Selltag an online trading platform with a website and mobile apps also faced the same issue.
There are lot of startups who cracked the product-market fit puzzle and had some initial traction too. Still they had to wrap up their operation facing the growth challenges or chasing the growth.
We will start with Shyp, a delivery startups which was launched to take the stress out of shipping everyday item for consumers and small businesses alike.
Markafoni also closed after failing to scale up. The online shopping destination for Turkish consumers, specialising in clothing and fashion accessories, Markafoni could not grow their business. In their statement they underlined the growth challenge as numero uno hindrance-
Prismatic, a media startup also had to wind down due to their slow growth.
As we keep digging in, we found out more similar confessions.
Brawker, a BitCoin startup
Melotic, a cryptocurrency technology provider
For startups, growth is a big KPI. If there is no growth, earning secure funding is a big task.
Meet Wantful. As an online gift-giving service Wantful offered users to curate a set of gifts based on occasions. They had a good product at hand, and also great traction. But the growth was not there-
Many startups believe that had they focused on growth along with “Product”, or the technology, they would be sustainable.
Everpix is one such startup who failed to scale up as they desired. Everpix offered a cloud solution to upload, organize and curate photos.
The Pain of Marketing
Lot of startups have recognised marketing as one of their core challenge behind their failure to grow.
Travel startups Travelllll.com felt the pain and they blamed lack of marketing as their reason to shut down.
The new menace of all the disruptive startups.
This is one of the major challenges of new-age startups like cryptocurrency.
Let’s know more of them-
Coinprism, world’s first colored coins web-wallet. Colored coins allow people and organizations to securely issue and trade real-world assets like commodities, stocks and bonds on the Bitcoin network had to shut down facing the same issue.
BTCJam is another startup who had to eat the dust facing strong regulatory challenges. Global peer to peer bitcoin lending platform-
Of late, lot of startups have faced regulatory challenges and decided to close.
Guvera (a music startup) , Loyal3 (a web and social media platform,) LoanBase (BitLending Club), Bitphone (an encrypted, Bitcoin-accepting online video calling service) had to shut down facing the regulatory issues.
Scarf, a startup providing skilled home-cooks to turn their kitchens into a source of income while increasing the availability of healthy affordable local meals.
Internal Team Issues
Startup team is always a myth, a nice story to read and remember. But most startups don’t have the fate as Airbnb or Apple and very often they struggled to find or build good team to continue their journey.
Shoes.com Technologies, faced the same issue. Shoes.com brought the best selection and customer service to every Canadian, from quality brands to free express shipping anywhere in Canada. But they had to close failing to find a viable team-
Wikimart, an eCommerce platform based in Russia which integrated payment and fulfillment functions had a tragic story behind their closure.
SideCar was another startup who faced the stiff challenge of nurturing a good team to shape up their idea. SideCar is a delivery and logistics company serving the on-demand economy. After investigating, SideCar came up with a report which stated-
Besides all the given reasons, we have also identified few other challenges which are playing vital role in changing the fate of startups.
UI-UX holds the key of success:
In today’s crowded marketplace UI-UX is the decider. Product without good UI-UX has no life and opportunities in them. We have found startups who have acknowledged the fact.
College Inside View kicked off with great ambition, helping people to find out the best of colleges with their application. As they failed, the founder highlighted-
ComboCats Studio was another startup who identified they had to make their UI-UX better. The founder confessed-
Social Media Startups are dead!
This is a big revelation. Lot of new social media startups tried to be Facebook, Instagram and Twitter but failed miserably. Israeli-based music tech startup Serendip was one of them. Serendip pulled music recommendations from a users friends on Facebook and Twitter to create playlists that could then be customized.
Analytics Startups are the new trend
On the debris of social media startups, the analytics startups are emerging. But not everyone is embracing the success though. One who can crack the “Product Market” fit, they will have the success.
We have already mentioned about VoterTide, an app for a social media monitoring and analysis focused on politics. But they failed to understand the pulse of their customers and could not deliver what they are looking for.
Despite the failure, startups who are emerging with product ideas around “Digital Marketing Analytics”, “Social Media Analytics” are here to make ruckus.
It’s tough for CryptoCurrency startups:
Blockchain, CryptoCurrency and Bitcoin might have made headlines but are all startups succeeding who bank upon CryptoCurrency.
We have got plenty of startups who have struggled to continue their show even with an in-trend product. They have faced two major issues-
- Regulatory Challenges
- Product-Market Fit
Few of their confessions are given below-
“Regulators are starting to pay attention to the [cryptocurrency] space, and activities around blockchain assets (tokens exchanges, ICO tools and services, etc.) are likely to become heavily regulated in the next 5 years. That means some of these services will have to shut down or restrict their activities, some might go to prison, and only a small number of well capitalized companies will successfully adapt to the regulator’s demands.”
“However, in regard to the adoption of bitcoin for consumer payments, Dunworth stated, “We kind of bet on that, and it didn’t work.”
Finding success for startups has never been easy.
Before the massive competition of tech giants and emerging competition, it’s getting tougher for new startups to win their audience and rule the market.
From our study, we understand ideas are abundant in the world of startups but for reasons like product-market fit and financial challenges they are not being able to crack the entire startup game.
What’s your thoughts on startup failure? We would love to know from you. Share your comments and insights with us.
Thanks to CBI Insights for an extensive research on startup failure. Without their work, we would not be able to dive deep into so many startup failure and come up with our report.
We have been working with startups for over a decade and it was a great experience to make our understanding better and enriching.
You can know more about us and our experience of working with startups here.