Why Do StartUps Fail?

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Why Do StartUps Fail?

The statistics suggest that more than 90% of the startups fail. Your reference can be the founder of Y Combinator, one of the most prestigious startup accelerators in Silicon Valley, or Shikhar Ghosh’s study of Harvard Business School.

Although the contributing factors might be structurally different between those based in the U.S., India and other countries compared to Iran, for the sake of learning we discuss a breakdown of the reasons here for U.S based ones.

 

What are the main reasons for startups to fail?

A study by Statistic Brain, Startup Business Failure Rate by Industry, demonstrated that leadership is one of the major reasons for startup failures. I shortlisted the Statistic Brain finding into seven key reasons for that entrepreneurs experienced business failure:

  • Lack of focus
  • Lack of motivation, commitment, and passion
  • Too much pride, resulting in an unwillingness to see or listen
  • Taking advice from the wrong people
  • Lacking good mentorship
  • Lack of general and domain-specific business knowledge: finance, operations, and marketing
  • Raising too much money too soon

 

All of these focus on the decision-making of the entrepreneur and general business knowledge. Another study by CB Insights looked at 101 startup failures and reported the top contributors to their failure as:

  • No market need
  • Ran out of cash
  • Not the right team
  • Got outcompeted
  • Pricing/cost issue
  • Poor product development
  • Poor/lack business model
  • Poor marketing plan
  • Ignored customers

Again this list shows how poor leadership in different functional levels has been identified as the root cause of the startup failures.

 

Business model, finance

·       Ran out of cash

·       Pricing cost issues

·       Poor business model

·       Lack of mentorship

·       Lack of business domain expertise

Product

·       No market need

·       Poor customer input in product development

·       Poor product definition

·       Lack of business domain expertise

Leadership

·       Lack of focus

·       Lack of motivation

·       Lack of mentorship

·       Too proud

·       Poor people management

·       Poor team composition

Marketing

·       Got outcompeted

·       Pricing cost issues

·       Poor marketing

·       Ignore customers

·       Lack of business domain expertise

 

 

Notice that all of these are business- and team-related issues, even the ones that relate to the product. Issues like there are always tied to leadership and the leader’s ability to build a strong team and craft a business model and process and disciplines. Also, keep in mind, if running out of money is the ultimate reason for failure, there are always other factors that cause this result.

 

How to address leadership gaps?

Amazon offers you more than 4 million books on leadership. But there are leadership qualities that you could develop very easily. Short lists of those that are easy to adopt are:

  • Learn about leadership models and your leadership style.
  • Listen to people around, a 360 approach, employees, advisors, customers, influencers
  • Build the team; only the A Teams Win. The A Team is more than the technical expertise you need to build the App. Connect with people and show them real you. Trust them with tasks, and support them when they fail. Be fair and just. Make sure that your team has a right composition for the vision you aim for i.e. tech, strategy, marketing, operations, …

 

After all Iranian culture has a lot of proverbs that define a leader. Read history.

 

What are the root causes of failures you have seen in Iranian startups?

 

 

Extras: Download our investor’s deck here.

Tags: #IranStartups #WhyIranStartupsFail #InvestIranStartups

 

 

Koorosh started up his first venture in 1999, an online flower shop. He is an angel investor and a startup mentor in London. Koorosh helps founders build the A-Team, refine their business model and excel in their sector.

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