It is a daunting thought. Ninety percent of all startups fail. The list of reasons as to why a startup fails is long and the road to hell is lined with the tombstones of failed companies.
We are going to touch the surface with four of the most common reasons:
- Market fit
- Leadership challenges
- Flawed GTM plan
- Lack of funding
Any one of these reasons could lead to death, but most often it is a combination of factors.
Understanding your market is a fundamental requirement. The “if we build it, they will come.” wishful thinking almost always leads you down the wrong road. Start by understanding what problems(s) you can solve because of your deep understanding of your target market. Every great idea will have competition. When an experienced investor hears someone say “we have no competition” they get put into the naive founder bucket, the investor would rather hear about how you plan to a get a first mover advantage in what is going to be a huge market. After developing the product or service concept, it should be presented and discussed with dozens of customers to validate and tweak the offering. Ninety percent or more of startups will have one or more course corrections, unless you’re developing something like the next wonder drug, where the bulk of the risk is in research and the ability to deliver. Do not underestimate the voice of potential customers and how closely it will be connected to your success or failure.
Dysfunctional leadership teams ultimately become the walking dead. If you hire a team member who is under-performing or is undermining your leadership, do them and yourself a favor and fire them immediately. Delaying only exacerbates the damage they can do. They will be happier in a better fitting position somewhere else, and you can’t afford the distraction. You are going to be spending more time with your co-founders and employees than you will be with your family. So, your team better be people you can trust and depend on. It has been my experience that these people become personal friends that stick together through thick and thin.
Flawed GTM (Go-To-Market) plans can be caused by upstream and downstream issues. Often the GTM issues have nothing to do with downstream sales. Underestimating the time needed to develop a product or service is going to delay market entry and burn more cash. Managing the development cycle is critical to success or failure. If you took the time to do thorough and exhaustive customer research, you should already understand your customer’s profile and the minimum viable product that would lead to sales. From the customer research you should have several potential beta prospects that can be used to fine-tune downstream sales and marketing.
Lack of funding is usually the biproduct of multiple of the forementioned dysfunctions. Getting funded by experienced professional investors significantly increases your chances of success. Smart money has a network of contacts that can open doors that would otherwise be closed. Be less concerned about dissolution and focus on getting investors who can make every dollar you raise with them have the impact of 10x the money raised. You will need a great market fit, a strong team, and realistic GTM expectations to get the smart money, but it will dramatically increase your chances of success.