why startups fail

Why do startups fail?

It’s a well known fact in the startup and investing space that most startups fail. Why does this happen? In this post, I’ll outline a few reasons why startups fail, and will propose a few ways to help ensure your startup isn’t the next casualty.

There’s been an amazing shift in the tech industry in the past 5-10 years. Platforms like WordPress democratized our ability to produce and publish web based content. Social networks hit massive scale, and enabled us to build an audience and to spread the word about our endeavors. Search platforms continued to get better both in terms of targeting and scale. But one thing didn’t really happen until more recently – the democratization of product development.

It used to be nearly impossible to get a technology product to market without having at a minimum a technical co-founder or a small team of coders helping you out. As we embark on 2020 though, we’re seeing some radical changes happening in the software development space. Namely, tools like WordPress are still getting better at supporting our content strategy and publishing needs, but new tools like Webflow and Memberstack are enabling us to build entire products from scratch with no engineering help needed. Add the fact that you can easily implement robust web tracking via Google Analytics, Mixpanel or other growth tools and you can see a potential for a ton of new products hitting the market in the next few years.

Personally – I’m really, really excited for this as I believe it’s this type of change that will enable more innovation. I don’t think that too many products hitting the market are a problem – yet (like in the way there are too many products at a grocery store – how many different ketchup brands do we really need??). But one thing I’m starting to see is both marketing channel saturation and more and more competition within each product space.

As more free resources are launched to help with marketing and customer acquisition we’re starting to see folks who wouldn’t have called themselves marketing people even 3 or 5 years ago now refer to themselves as growth people. Perhaps you’re the CEO of a 5 person startup – it’s likely you’re doing growth work. There are playbooks for referral loops, paid acquisition and endless other resources available to help you on the startup journey. While I’m optimistic about where the market is going in terms of resources and tools, I’m concerned that there is still way too much guesswork going into product development. And as it gets easier and easier to build and deploy products, there is risk that too many not-great, unvetted featured get released with ever more bloated products becoming the output.

So what do we do about this? Let’s first look at some numbers around why startups die. The numbers are sobering…let’s take a look at a couple studies on this topic.

According to a 2018 CB Insights analysis of 101 startup postmortems – companies that failed – here’s the ranked list as to why those companies failed:

Take note of which of these mention the product. Not many, right?

Here’s another take: Paul Graham, the famous founder of startup incubator Y Combinator wrote back in 2006 about why startups fail.

Here’s an infographic that Mark Vital put together to visualize the challenges Paul discusses:

Again here we see a lot of problems, but really only 1 or maybe 2 that have anything to do with the product – and even that’s a stretch! 

Look at both of these lists. How many of these reasons for failure have to do with marketing? 


28 out of 38 reasons have to do with marketing.

Put differently:

A whopping 74% of failures had something to do with growth!

This isn’t meant to scare you, but it should bring to attention just how important the marketing and market related component of startup growth is. So while it’s easier than ever to products – it’s probably harder than ever to really stand out as a brand.

If your company doesn’t get the marketing based components of running the business in order, the chances that the business will fail dramatically go up. This is why companies have started growth teams.

Let’s look at something else. How many of the challenges above speak to the actual product? Not many! It’s worth pointing out that there are terrible products that have resulted in wildly successful products (think about early Facebook or Twitter releases). But it’s rare that wildly successful startups are built without a core growth foundation.

The way we build features is often broken

Most products and features start with what seems like an amazing idea. This leads to product development (likely with UX happening first). Usually this takes a few days to few weeks. Then the feature gets launched. Expectations are generally high – you wouldn’t have built the feature in the first place if you didn’t think it’d be great, right?

The problem here is that most features are built with the right intention – to drive usage, get more revenue, increase retention. However, if you talk to most product managers and ask them why they are building the feature, they’ll tell you things like “well, we need this feature to round out our product” or “I think if we get this done, our customers will tell all their co-workers about us, and we’ll get more leads.” When you ask why this will happen because of that feature, you’ll often get a quick and compelling answer back from the PM that sounds really convincing: “Well, I know when Uber launched their give a ride, get a ride referral feature it really propelled them – we have the same network effects, so it’ll work for us too!”

Most of the time, this is entirely the wrong process!

The problem here is the team is working off of assumptions, and likely doesn’t have the data – quantitative or qualitative – to justify the time for building the feature. 

Here’s what usually happens after the feature is launched:

This turns into a never-ending feature parade. At well funded startups this is a real problem, since entire teams support the product roadmap, and justifying the build is critical for one’s job security.

Plus, if you’re not overly concerned with runway, you’re likely not feeling the burn of having to build the right thing at the right time. 

Whether this is intentional or not it doesn’t really matter – the process itself is broken.

In a future post I’ll talk about 5 Rules for Building Features and Products. Until then – thanks for reading!

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