Why Do Startups Fail?

Premise:

There has been enough written about startups and reasons why almost all of them fail. So, why write another post about this? Even though there is no dearth of resources (blogs, videos, books, stories, etc) on reasons why startups fail and how to avoid them, I don’t see any reduction in the failure rates of startups; I don’t see them learning from the mistakes of other failed startups; I don’t see them focus on the right things that can help them avoid failure.

It is crucial that we understand that building a startup is not like a chemical reaction à add the right resources, under the right environment and you are certain of the results you will get. Starting and running a startup is a complex system with too many moving parts and any change in any of them could trigger a flow of events that could end in a catastrophe for the startup. Given this understanding, there are still some things that the startup founders could control, things that can significantly improve the probability of success.

Solving the wrong problem:

The reason to go out and start a business is to find a good problem to solve. It need not be a totally new problem that needs solving (while having something like that could have its own benefits and challenges).

Most startups fail by not solving a pressing enough problem, pressing for a specific kind of audience

• themselves and people like them or
• someone specific and people like them

So, before going off and start building something, startup founders must define clearly, with no ambiguity, the following questions:

• What problem are we trying to solve and for whom?
• Why is this a pressing problem for them?
• Do they know about this problem?
• Are they actively looking to solve this? Or are they content with the workarounds?
• How strong is their propensity for change?
• What do they do to address this problem as of now?
• Who else is trying to solve this problem for these people as of now?
• Are there any constraints that the solution needs to be built under? What are they? Why are they a constraint? Are these constraints self-imposed or real? What is the ecosystem within which your solution needs to work in?
• How will you reach and talk to this audience? Do you have their ears?

In order to find answers to some of these questions, one needs to be able to access the potential customers for whom the product or the solution is built under. In my experience this is the biggest variable that could potentially determine the fate of the startups. Most startups don’t have access to the potential customer’s nor do they ask these tough questions at the start of their journey.

Solution is not compelling enough:

Once we have answers to these questions, the next step is to come up with ideas to solve the problem. In my experience, it is not easy to come up with ideas that not only solve the problem in an interesting way but also make it compelling enough for the audience to explore and adopt.

This requires multiple iterations. The mistake that most startups do is that they fall in love with their own ideas. They fail to test these ideas on three parameters:

1. Does it solve the problem for the audience within the constraints that were identified earlier?
2. Is it compelling enough for the audience to take action and change?
3. Does the solution make it easy for the audience to make the change?

The answers to these questions require that the startups go back to their target audience and ask them these questions.

Another mistake that most startups do is to take their customer’s feedback on their face value. Behavioural psychologists have now proved beyond any doubt that in such scenario (when asked for feedback), most people share feedback that they think is expected off them and not their true thinking/feeling. So, we need to be able to figure out a way to avoid this bias while seeking feedback. Some startups ask their customers to sign-up for the product or service by paying an advance fee, some give cash to their audience and ask them to allocate it to one of their ideas or keep the cash and some other could find a different way to negotiate around this bias.

Failing to find enough customers:

One of the last major hurdle to cross, is the ability to find and engage enough prospects. The mistake that almost all startups do is to mistake that marketing of the product or solution comes at the end of the process. I strongly believe that one should thinking about how to market the product (or solution) right through the solutions phase.

If done well, this could lead to having hooks within the product or solution itself to make it attractive for any existing customer to become an advocate. If done well, this could also lead for the solution being easily found by the right audience.

Having a good solution to a compelling problem by itself is not enough for it to succeed. One needs to be able to get this solution in front of the right audience at the right time in order to get considered. One needs to have a good team of sales professionals, who not only understand the solution but have the full picture of what problem does it solve for whom and why is it compelling for the audience.

Most startups get this step wrong. Good PR is not enough. Reviews on a tech site is not enough. Being featured in prominent blogs is not enough. You need to be in front of the right kind of audience, at the right time. It is not enough to solve the problem in an interesting and compelling way, one also needs to sell this compelling solution to the audience as well.

There are a lot of other reasons, why startups could fail. Here is a list of 20 reasons why startups fail.

In conclusion:

Corporate accelerators like SAP.iO offer a glimpse of hope to address the challenge of access to potential customers – to validate the problem that a start-up is trying to solve and to test the potential solution with the target audience.

These corporate accelerators serve these startups by providing them access to their customers, technology, experts and capital. If the incubators are able to provide these to their startups, the probability of success increases significantly. While this still doesn’t guarantee success, but it at least gives the startups a decent chance to fight it out and not lose even before they start.

The next level of challenge for a startup founder is to pick the right accelerator for themselves. This depends on the target audience whose problem that the startup is trying to solve. So, it is critical to pick the right accelerator, one that offers the access to their customers, technology, experts and capital (preferably, in that order).

Disclosure: I am an SAP employee but am not directly involved with SAP.iO. BTW, if someone wants to apply to be a part of the accelerator, you can find about the same here and apply here.