Why do startups fail?

Updated: Jul 22

About 70% of entrepreneurs will face possible business failure based on our survey of more than 150 founders. Nearly 66% will face this potential failure in 25 months of launching their company.



Based on a new analysis of data, we identified the reasons that founders cite for failure.

More than 33% of founders believe that running out of money led to failure. Second, founders attribute their failure to a shortage in financing or investor interest. In other words, if they managed to generate more revenue, spend less money and raise capital through alternative channels, their startups might have survived.



Running out of money appears related to the third most common reason for failure: no business plan or model. Perhaps founders wrongly believe that a business plan will slow them down or limit their agility. Or, maybe they expect to exit before there’s pressure to be profitable. Such founders are likely to bank on their next funding round, an acquisition, or a major enterprise deal for survival. If those don’t materialize, there’s no plan B.



Although startups mostly cannot expect to generate profits immediately, they should have a break-even point and a plan to reach it. As Eric Schmidt, former Google CEO often says, “Revenue solves all known problems.”

Revenue generation also proves that a startup is sustainably solving a significant problem. If no one pays for the solution, more financing won’t necessarily change that. There is simply no better measure of product-market fit than revenue.

Based on the data, strong business planning with an eye towards profitability is the most assured way to avoid failure.



Nearly 30% of them urged founders to do more research before launch, while roughly 22% recommended building a stronger business plan. Even though running out of funds is the leading cause of failure, relatively few (13.5%) founders recommend financing as a way to prevent that.


Startup Founders and Pivot Strategies

In our survey of about 150 founders, 55% reported pivoting to avoid failure. Less than half felt confident in their likelihood of success when the pivot took place. Even so, nearly 75% of the founders who pivoted said it was victorious.


During a pivot, founders should build the aircraft as they fly it. The team must learn from mistakes, iterate, and adapt quickly. Probably, founders who invest in identifying and mitigating future risks have better odds of not only pivoting but surviving the process.


Advice From Other Founders

The odds are accumulated against startups. But by studying other founders’ mistakes, aspiring entrepreneurs can predict and manage preventable failures. With this in mind, Wilbur Labs asked startup founders to indicate the help they would give to other entrepreneurs.


The leading suggestions are basic rules of startup survival: learn from mistakes, listen to customers, and ensure that there is a market for your product.

Less common but noteworthy is how many founders suggest looking for outside help in the form of legal advice (29%), networking (28%), consultants (28%), and a team with diversified skills (22%).


Conclusion

Although failure is disappointing, 67% of the founders who faced potential failure would be willing to launch another venture.

Having examined why startups fail, how founders pivot, and what they advise in remembering, what conclusion can we draw for aspiring entrepreneurs?


1. Research, plan, and prepare excellently. In retrospect, 52% of the surveyed founders thought they were well prepared when they launched their startup. No wonder so many suggested better planning. “Research, research, research. Research your market,”.



2. Do not leave revenue to chance. Founders often run out of money, struggle to generate revenue, spend on the wrong things, and/or fail to attract investors. Businesses are well-equipped to solve big difficulties because they are (supposed to be) self-sustaining.

Revenue from solving problems enables the business to operate long-term without outside support. The most certain way to avoid financial failure is to develop a business model with a predictable path to revenue and profitability.



3. Pivots increase the odds of success. At the moment, less than half of the founders who pivoted felt good about their odds of success. They persevered, but, and a stunning 75% of founders who pivoted did so successfully. Perhaps their eagerness to pivot is more telling than the exact strategy they used.


4. Learn from others' mistakes. The objective of this study was to learn from other founders’ mistakes. Coincidentally, the most popular piece of advice from founders to aspiring entrepreneurs was to learn from mistakes. As a founder advised, “Mistakes are not the problem; the problem is not correcting them.”

Although your answer to a problem may blaze new trails, remember that other founders have taken the same route of launching a startup.



All founders share usual challenges. By studying past successes and failures, aspiring entrepreneurs can improve their odds of success and avoid missteps that usually lead to failure. Founders who heed this collective knowledge can reserve their focus for obstacles unique to their market and product.

Entrepreneurs are made, not born. Hard work, drive, and absolute determination can make up for gaps in skills. The rest is learned by doing, making mistakes, and adjusting along the way.


By:

Hadi Abdi

Social Media Specialist

Adicator Digital Marketing Agency


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