There’s no magic formula for startup success, but there are several reasons why startups fail that you have control over. Here’s 10 tips on how to maximise your chances of success.

 The simple truth is that most startups fail. Here are some key stats:

  • 75% of venture capital backed startups fail.
  • 50% of companies have failed before they hit their 5th year of operation.
  • Even at one of the world’s leading startup accelerator programs, around 30% of their funded startups dissolve.

In simple terms the reasons boil down to what you build – your product or service – and how you run the business – execution. Sure, timing (the ‘when’) and location (the ‘where’) are relevant but they often trace back to product and execution issues also.

The good news is that many of the product and execution problems you could face are completely within your control, as long as you’re prepared to give them some serious attention in your decision making.


Lack of customer demand

This is by far and away the largest reason for startup failure, affecting nearly half of all startups.

“Most startups fail because they don’t make something people want, and the reason most don’t is that they don’t try hard enough.”
Paul Graham

Your job is to build something that people love. It’s not much good to have hundreds of prospective customers who say they would buy your product, but none that actually do. This is why it’s important to have a really close connection to your early customers. It’s so common for startups to spend weeks and months building features you think are great, but customers simply aren’t interested in.

“Get out of the building!”
Steve Blank

Proceed with caution if you’ve got a ‘me too’ idea. Concepts which are not entirely new face stiff competition – like if you’re trying to build a better search engine or social network – so in those cases you should be aiming to build an experience 10x better than what already exists. Anything less and customers will have a hard time justifying a switch.

Tip #1: Find people that have the problem you are solving – understand them and use them to inform your product.

There’s nothing like momentum to motivate you to keep going. Rapidly getting a working product out to customers says a great deal about your ability to get things done – a critical trait for startup founders and a hallmark of successful entrepreneurs. But it’s so important to get regular feedback and continuously improve.

A great example is Slack, which has an extreme focus on customer feedback. Their growth was fueled by rapidly making product improvements based on feedback, and leveraging the network effects of testing the product with increasingly larger customer teams with more complex needs.

On the flip side there is definitely danger in launching your product too early – you need to at least have a product that works and is useful on its own – and not so faulty that customers walk away!

Tip #2: Quickly build your minimum viable product and get feedback from customers.

Startups often find they need to pivot – a significant change of direction in their product in order to find product-market fit. Pinterest is a good example.  It started out as Tote – an app that tried to simplify the online shopping experience. However payments were difficult and so growth stalled. When it became clear that users were more interested in creating collections of their favourite items to share with friends, the Pinterest we know was born. Like this example however, many pivots are not completely out of left field. They represent an evolution or narrowing of the original concept.

“No business plan survives first contact with a customer.”
Steve Blank

While founders are necessarily passionate about what they’re doing, it’s easy to be too wedded to how you’re solving the problem for customers. There’s more than one way to achieve your mission.

Tip #3: Iterate and continuously improve based on customer feedback.

I’ve encountered many startups who aspire to be the “best <insert product or service> in our city”. That can be a good approach to keep you focused when starting out. After all there’s no rule in the book that says your business has to change the entire world, but it’s worth reflecting on what you think the end game might look like. How big is your vision? It’s a natural tendency to apply artificial constraints on our thinking out of fear and a sense of the unknown. Unnecessarily limiting your company to a niche can impact your motivation, constrain the ability to attract talent and cause investors to shy away.

Tip #4: Think big – don’t put unnecessary constraints on your vision.


Scaling too quickly

It’s so common for startups to find a little traction in the market and then scale before they’re ready. This is absolutely one of the hardest things to get right in a startup. Sustainable growth requires good unit economics – for many businesses this means making sure that the revenue your customers ultimately bring in is greater than the cost of acquiring those customers.

One of the common traps is getting a bit of traction and taking it as a signal to hire, hire, hire! Spending big might feel like the right thing to do if you’re cashed up with investor funding, however if your early customers are only lukewarm on the product, they could disappear as quickly as they arrived. You need to understand whether they love it or merely like it, and a good sense of how to acquire them.

Tip #5: Resist scaling until you’ve got real evidence of product-market fit and how to acquire customers. Pay attention to your unit economics.


Wrong team

It’s really important to have the right mix of  technical and business skills. This requires understanding your own strengths and weaknesses as a founder. If you’re great on the technical side but aren’t great with people, you’ll most likely need a co-founder with solid business and customer-facing skills. However, just finding any old co-founder off the street doesn’t work. You need to be able to work really well together, trust each other and be equally committed the cause.

Think about the skills you have on your team…. Do you have someone that can talk to customers? Pitch to investors? Hire and retain great talent? Market your product? Manage your company’s finances? Yes, new skills will be learned along the way, but remember this comes at the opportunity cost of doing something else, so may not be the most effective use of your time.

In the early stages, you’ll want to avoid hiring staff until you absolutely need them, and for those you do hire, they’ll likely be focused on either building your product or helping you acquire new customers.

Tip #6: Build a team with complementary skills as early as possible. Know everyone’s strengths and weaknesses.


Burning through capital too quickly

We’ve all heard the stories of startups with lavish offices, great perks and the general sense of being a playground more so than a place of business. They’re generally trying to emulate successful established companies, who can afford to sacrifice some capital. I tend to think that if your employees really need those things to stay motivated and engaged, you’re probably hiring the wrong people, particularly for your very early employees who are also receiving equity. It goes without saying that you should be spending wisely, irrespective of whether you’re bootstrapping or have just closed a $1m seed round.

A less obvious consideration though, is how you seek out funding. There is an ever increasing range of federal and state government grants available to encourage innovation and entrepreneurship. Compared to the usual angel investor and venture capital funding sources however, they tend to be quite small. Taking the grant approach can be attractive to some founders, as grants may not require you to give up equity (side note: founders are often more worried about this than they should be), but if the grants are small you may find yourself in a constant capital raising cycle – distracting you from what you need to be doing.

It takes a lot of time and effort to get funded – so you want to be doing it as infrequently as possible and in such a way that it instills good spending discipline. The typical advice is that you need to give yourself six months’ runway to close a funding round from start to finish.

Tip #7: Spend little and raise funds infrequently, but attract enough to make it to the next stage.


Lack of focus

Meetups, conferences, fundraising, travel, study, paid work…. there’s lots of things which can distract a founder and take the focus of what you need to be doing. When you’re just getting off the ground the focus needs to be on building a product that customers love and then scaling efficiently.

It’s amazing how easily you can keep yourself accountable just by telling people what you’re doing and what your ambitions truly are. This doesn’t mean getting heaps of PR, rather that you have people supporting you who you don’t want to let down. The silent startup working away without anyone knowing about them can disappear just as quietly…

“Founders are more motivated by the fear of looking bad than by the hope of getting millions of dollars.”
Paul Graham

Tip #8: Don’t perform an activity unless it’s going to effectively contribute to the survival or growth of the company. Learn to say ‘No’.


Lack of commitment and passion

The best startups are often those started by founders who are trying to solve a problem they face themselves. They understand the needs of the customer better, can empathise with their customers and are more driven to solve the problem. It becomes their personal mission.

As a founder you must be prepared to be in it for the long haul. This is so important when it comes to finding co-founders – do you know one or two other people who you can work amazingly well with that have the same level of commitment?  I feel this issue is the cause of many founder break-ups.

Tip #9: Before you start a startup, really think about whether this is a problem you and your co-founders are willing to spend the next 10 years on. If you are, then go ‘all in’.


Not reaching out for help and advice

I regularly meet founders who would rather learn the hard way than consider tried and tested advice. Why waste your time and effort? Whether you’re starting a startup fresh out of school or have been built multiple successful businesses, you simply can’t be expected to know everything or make the right decisions 100% of the time. Even an experienced entrepreneur can be influenced by cognitive biases learned from previous ventures, but which don’t apply the same way every time.

The chances are that someone’s already tried what you’re attempting and their lessons learned can help you avoid the same mistakes. There’s a huge support network out there, if you’re willing to reach out.

Tip #10: Find mentors you can trust. Even if you choose not to follow their advice, a fresh or unique perspective can save you a lot of wasted time and effort.


Have you experienced an unsuccessful startup? What went wrong? What advice would you give to other founders?


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Our services span growth advisory, fractional growth roles and strategic coaching using the globally renowned Scaling Up methodology as a certified practice.

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