Long before I started pursuing my first entrepreneurial venture, ieLogic, I was drawn to the idea of filling needs, of finding solutions. Since that first venture, I have continued looking for solutions to problems I see in the world around me, leading me to become a serial entrepreneur. Some of my ventures have been successful, some less so.
Unfortunately, even though we want them to, not every new business or new idea is going to succeed. However, we can look at some of the most common reasons why startups in general and technology startups in particular tend to fail in order to minimize the likelihood of our own startups failing before they get a chance to really succeed. To that end, I’ve put together what I consider to be the top three reasons why startups fail.
We’ve all heard the old adage that it takes money to make money. Not surprisingly, venture capital is the lifeblood of a startup, and there’s no way to accurately ascertain just how many startups have run out of money before they had a chance to become profitable enough to stand on their own. The harsh reality is that a high percentage of them probably never even left the “garage stage.” It’s not just about how much money you are able to raise either. Other funding factors that can contribute to failure include inefficient allocation and distribution of funds, poor financial planning, and high burn rates. Being smart about how you raise and spend money in your startup can strongly contribute to your ability to succeed.
Poorly Implemented Strategy
In addition to securing sufficient venture capital, you need to make sure that you have developed a comprehensive strategy before you begin your startup. Great startups begin with great ideas, but great ideas seldom come to fruition without great planning. Some of the business aspects that should be included in developing your strategy include pricing models, availability and cost of materials and components, and company infrastructure. Don’t let gaps in your strategy become stumbling blocks that can stop your startup.
Failure to Provide Unique Value
The idea behind your startup needs to be unique. Here are a few questions to ask yourself in order to determine if your startup idea can provide a unique value to your potential customers:
- Does your idea solve a problem in a unique way?
- Is there a real need for your product or service?
- Are there other products or services that fill the same need?
- If so, how is your product or service better than those that currently exist?
It’s important to remember that it doesn’t matter how good your basic idea is if you can’t produce an actual product or convince people that they need it. The answers to these questions can be critical to your success or failure as a startup because they help you determine exactly how you can provide unique value to your potential customers.
It is not my purpose with this blog post to dissuade anyone from pursuing their own startup. On the contrary, it is my purpose to help you think through a few of the more common reasons for startup failure so that you can pursue your dream with your eyes wide open instead of being blinded by the brilliance of your idea. As Henry David Thoreau once wrote, “If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them.”