The Top Reasons Why Most Tech Startups Fail

For every new company that surges onto the scene and turns into a multi-million dollar company, there are dozens of startups that fail to make it out of the starting gates. The question is, what do these failed startups have in common? And is there a way to significantly improve your odds of succeeding within the first few months of launching?

90 Percent of Startups Fail…Here’s Why

Research shows that 9 out of 10 startups will eventually fail. That’s a sobering 90 percent failure rate for those who flunked out of first grade math class. Yet for every nine that flop, there’s one that’s successful. Sometimes the one startup is lucky. Most of the time, however, the founding team makes conscious decisions that put them on top.

As you think about your own entrepreneurial pursuits, here are some of the major mistakes you’ll want to avoid:

  • No Market Need

Believe it or not, 42 percent of these failed startups blame a lack of market need for their collapse. In other words, nobody wanted the product in the first place.

This sounds like basic advice, but apparently it needs to be said: Don’t launch a business if you haven’t performed meticulous due diligence and determined that there’s a need for the product in the marketplace. If you’re going to shell out money for anything, market research is a worthy investment.  

  • Lack of Vision

Many failed startups meet an early demise because of a lack of vision and clarity. The assumption is that focus will suddenly emerge after some progress is made, but unfortunately, this never happens. Vision is integral to the direction of any business – particularly a fledgling startup – and can’t be ignored.

“A vision is a ‘why’ statement. It lets outsiders know the meaning behind an action, decision, or effort and can help them connect on a deeper emotional level with the cause,” PinnacleART explains. “It helps insiders coordinate and validate their goals, risks, and opportunities.”

If you don’t have a vision for your startup, it’s time to hit the pause button and figure out a plan. Until then, your venture is destined to fail.

  • Money Problems

Money issues are often at the root of startup failure – but it’s probably not what you think. It’s not necessarily that startups don’t have access to cash. In many cases, it’s the result of poor cash management – i.e., running out of money.

“One of the problems with raising money is it teaches you bad habits from the start,” says Jason Fried, cofounder of Basecamp. “If you’re an entrepreneur and you have a bunch of money in the bank, you get good at spending money.”

The key is to manage things like customer acquisition costs, inefficient hiring, unnecessary product iterations, and other expenses that bleed funds dry. Even if you have a bunch of funding, operating like a cash-strapped venture will serve you better.

  • Wrong Team

Having the wrong team of people in place will limit your ability to accomplish specific goals. This can happen in a couple of different ways. Either you try to operate as a one-person team, which isn’t a sustainable approach, or you hire the wrong people and end up with a bloated payroll and no cohesiveness.

You need more than one person to run a successful startup; however, don’t go on an irresponsible hiring spree. Take the time to hire the right people, and you’ll be rewarded with new opportunities.

  • Issues Scaling

Scaling is always a challenge for tech startups. It’s easy to fall for the notion that rapid growth is necessary in order to be successful. However, the reality is that scaling too rapidly typically produces a hollow framework that will eventually collapse under the pressures of real-world problems

On the flip side of things, you don’t want to scale too slowly. This can result in stunted growth and an inability to attract outside support and funding.

Getting Started On the Right Foot

Successful businesses aren’t born overnight. They are, however, always built on strong foundations. If you want to give your tech startup the best chance of being successful in the years to come, remember that the decisions you make now will have an impact on the long-term outcome of your company. Avoid making the debilitating mistakes discussed in this article and do everything within your power to get ahead by making proactive decisions that bode well for future growth.

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