Culture

Dead end: post-mortems demonstrate why start-ups fail

From team disharmony to cash flow issues and lack of market need, there are common reasons start-ups fail according to a new report

We are quick to praise their success and champion them as pinnacles of innovation, but what happens when start-ups don’t make it? For the most part, they are swept under the rug, never to be spoken of again, yet there is a lot to be learnt from why start-ups fail – particularly as failing start-ups are much more common than the few that thrive.

Research company CB Insights saw the value in dissecting the most common reasons start-ups fail, so it conducted post-mortems on 101 failed start-up businesses and found 20 common reasons why they didn’t achieve stability and success.

The biggest reason for failure, according to the evaluation, is lack of market need. It appears that many start-ups tackle problems that are interesting to solve, rather than those that serve a market need. This failure accounted for 42 per cent of start-ups analysed.

‘The biggest reason for failure is lack of market need…’

In second place, stands a tale as old as time – running out of cash. Start-ups are frequently faced with the conundrum of how they should spend their money. Failure to allocate money correctly initially can lead to other failures down the line – 29 per cent of cases fell into this category.

Other major reasons for failure include not assembling the right team (23 per cent), out competed in the market (19 per cent), cost issues and pricing (18 per cent), a user-unfriendly product (17 per cent), and a product without a business model (17 per cent). Other failures include: poor marketing, ignoring customers, product mistimed, lost focus, disharmony within teams, pivot gone bad, lack of passion, failed geographical expansion, no financial interest, legal challenges, didn’t use network, burn out and failure to pivot.

These failures are all explored with personal cautionary tales from the start-up companies evaluated. Most of these failures circulate around a misunderstanding of the right market for the product, cash flow and team management. It just goes to show that a cool office with comfy beanbags, flexible hours and a casual dress code doesn’t ensure the success of a start-up – it is the fabric of the team and a clear understanding of what the product offers in the right market that drives the success of start-ups.

View the full report here