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6 Most Common Reasons Why Startups Fail in 2017

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Jan 06, 2017

Applikey Editorial Team

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#1. Building a solution looking that doesn’t meet a REAL need

History is littered with examples of startups with great teams, great technology, fantastic funding that still failed. In research from CB Insights that analysed 101 failed startups, it was cited as the number one reason for failure in a notable 42% of cases.

Applikey’s Tip* Go LEAN. Lean Start-up really focusses on understanding your business model starting with understanding your customer. These will be the most important experiments you will do. Obsess in the problem you are trying to solve (and the people that have the problem) before you even think about let alone start to build the solution.

#2. Choose a market that will allow you to scale

The next most common reason why startups fail is that they run out of cash before they become sustainable. As Tom Schryver, executive director of the Entrepreneurship and Innovation Institute at the Johnson Graduate School of Management at Cornell University puts it, “Startups fail when they run out of money — they can’t invest in things required for their future success, or, more directly, they can’t make payroll”.

Applikey’s Tip* This goes back to doing the work on your business model AND being honest about what your startup needs to succeed. If your strategy is to put Google out of business you’re going to need a LOT of cash. Period. Rather than planning to take over the World and retire as a billionaire, plan in milestones: what do you need in order to scale to a point at which you can get funding or have enough revenue that you can quit your job and work on it full time or make your first hiring decision, and then how much would you need (and be prepared to give away) to get to the next milestone.

6 Most Common Reasons Why Startups Fail in 2017

#3. Failure to pivot early enough

A pivot means that, during your experiments and market testing you realise your solution needs to be something different. There are some spectacular examples of pivots; did you know that Instagram started out as a restaurant review app? They added a small feature that allowed users to share photos of their meals and realised that this small feature became the more compelling thing about the app. Pinterest was a shopping site. Twitter was actually a double-pivot. Originally it was a side project of a company called Odeo which, against all odds, gained traction but as a mass SMS broadcast tool which then pivoted again to turn into what we now know as micro-blogging. Indeed it seems they are moving towards their third significant pivot right now.

#4 Understanding how long sales take

To succeed, you have to love what you’re doing, to live it and breathe it. It’s therefore sometimes disappointing when other people don’t seem to love it as much as you do. But that’s life. You have to accept that most people won’t buy it simply because they love what you’ve built - they may need to prove the business case. They may justify the expense to their superiors. They may need to be able to prove they’ve looked at and evaluated the alternatives. It takes time to sell.

Applikey’s Tip* We generally think a lot about our sales process, but in reality, it’s more important that you understand the customer’s buying process. What do they need for their business case? Who’s got the final decision and what matters to them? And ask the question, “how long is it likely to take and are there any ways of speeding it up”? You’ll be surprised how often a blunt (but polite) question get’s a straightforward answer.

#5. Slowness in Launching

Building and more importantly, finishing stuff is hard. Companies of all sizes find it difficult. As the brilliant Paul Graham, serial-investor and startup Guru having funded over 1000 startups as co-founder of the Y Combinator incubator puts it, “It's intrinsic to the medium; software is always 85% done. It takes an effort of will to push through this and get something released to users”.

Applikey’s Tip* Think, as we do, about your development in blocks of two week sprints and focus on shipping something new every two weeks. As well as speeding up the work process it also guards against excessive perfectionism, it reduces the fear of being judged - if there’s any negative feedback, fine, you can ship something better in the next two week sprint.

6 Most Common Reasons Why Startups Fail in 2017 (2)

#6. Failing to focus on sustainable and consistent growth

We all aspire to making the next Flappy Birds - OK, perhaps no-one should ever EVER make another Flappy Birds, but we’d certainly like to make something that goes viral in a matter of weeks.

The reality is, your idea probably won’t. That’s not a judgement on your idea (how can it be, I don’t know what your idea is), but simply a matter of fact. Another fact therefore is that you will need to spend more time and money finding users than you would like to admit.

Applikey’s Tip* Back to Paul Graham of Y Combinator who proposes setting a target of 5% growth per week. Depending on the maturity of your startup that might mean growing your website visits by 5%, subscribers by 5%, active users, customers and ultimately revenue. Everything you do, every feature you build, every line of code, every $ spent on marketing then boils down to a simple question: will this contribute towards our 5% growth target?

The final Applikey Tip is this: seek help. It can be a lonely, exhausting journey - a wonderfully rewarding one, but setting out on that journey with people and partners that understand the pitfalls and paths to take massively increases your chance of beating the odds.

At Applikey, we’ve been working with startups from day one so have a wealth of rich experience and a proven track record of many successful projects and we would be honoured to accompany you on your journey. Call or email us at welcome@applikeysolutions.com.

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