Launching a new startup, either online or offline is quite a risky journey, but more and more people are being encouraged to offer new services and products. At the same time, however, more and more startups are failing. According to Harvard Business School research, 70 to 80% of all startups fail to deliver a return on investment and a whopping 90 to 95% fall short of meeting projections. Many experts agree that 50 to 90% of all startups shut down completely within the first few years.
We conducted research to find out what entrepreneurs, venture capitalists and angel investors think are the main reasons for such failures. We could post a long list, however we will indicate what in our view the top three reasons are.
Despite being the topic of much discussion in startup communities, market failure is the number one reason. Startups tend to develop products for themselves. They think they have identified a problem and how to solve it, ignoring the fact that users are already solving that problem. A solution is often too far from what the market needs. As a result, the market doesn’t need the product, the market doesn’t understand the product, or the market doesn’t know of the product.
Not Selling Before Launching
After getting their first investment, startups want to implement too many “nice to have” features instead of focusing just on MVP. As a result, startups work too hard on the product and not enough with the market to build a user/customer base.
Startups tend to hire friends, freelancers or low-cost programmers instead of established companies. They do this because they want to implement more features for less money. As a result they offer a substandard solution in a short amount of time that, while it may solve the user’s problem, is buggy and hard to use. As a result, startups lose users right from the start.
Before launching a new business it is crucial to research the market. Determine what your audience is, the best way to reach it and tailor your communication, what the problem is, how it is being solved currently, how big the market is, whether there are any competitors, what they are offering and how, etc. The research should be comprehensive because knowing the market is the key to success.
Once the market has been defined, the next step is to test it with a high-quality MVP. It should include only features that solve users’ problems and nothing else. It should be clear and easy to navigate so everyone can understand and use it.
Development of a startup infrastructure is highly important. The technical team is the base of the whole online business. The development team should be competent, experienced, dedicated to being the best and building great products together.
Itera Research Team