Reasons for Failure
Product Market Fit
- Aggressive expansion outside of your core target market. The success rate, and capital efficiency, is much higher when you continue innovating for your core target market than expanding into new ones that other competitors already serve well.
- Inability to persuade a critical mass of consumers to change behavior.
- Scaling go-to-market before having repeatable success with your product and/or initial geography.
- Building a product that is a nice-to-have rather than a must-have.
- Low product engagement leads to lower retention and lower willingness to pay.
- Targeting a market that doesn’t have enough companies with adequate budget.
- Building a product that should be a feature of a larger company.
- Inability to pivot if the initial focus wasn’t successful.
- Inability to create enough network effects for a category that needs it.
- Not pricing the product appropriately to generate enough sales or profit and/or to disincentivize usage.
- Dramatic and rapid technology shifts can surprise companies who don’t get ahead of them (i.e. large language models and AI if you aren’t ready to adopt and competitors are).
- Product designers are out of touch with the customer needs.
- Assuming early adopters have the same needs than mainstream customers.
- Unforeseen changes in regulation, tax, tariffs, or the supply chain can significantly hurt a business that relies on them.
- Economic and market shocks can decrease the need for your product.
- Building a product that is too early since there isn’t enough infrastructure to support its use in the marketplace.
- While being too early can be a problem, entering a market too late can also set a startup up for failure as they miss the growth curve.
Operating in a sector that had been hot but investor sentiment cools making it difficult to raise capital.
- Not surrounding yourself with a strong, experienced, and engaged board and team.
- Not getting results from your sales organization or distribution channels either by not having the right team in place, having unachievable quotas, or not incentivizing the right behavior.
- Not giving key stakeholders, such as venture capitalists, key talent, and partners, a piece of your upside to create a much bigger outcome.
- Inability to attract and retain key talent.
- Not being resilient to battle through tough times.
Failure to leverage data to make important decisions.
Not having sufficient domain expertise across the team to navigate industry challenges.
Over reliance on a single platform provider.
Not having a diversity of backgrounds and experiences on the team.
Many CEO changes don’t work and can lead to the demise of the company.
Internal disputes amongst founders can incapacitate a startup if not managed carefully.
- Not listening to your customers to garner feedback and iterate on the product and/or not providing good enough customer service. This can lead to higher than expected churn.
- Not picking the right early customers well. They should be representative of your broader market and willing to provide critical product feedback.
- Inability to build more products beyond the initial product as it’s hard to build a big company with only one product. It’s seven times easier to sell a new product to an existing customer than get a new customer.
- Building a product with quality issues.
- Selling to customers who are too small, which are often more expensive to support and hard to retain.
- Selling to customers who are too big, which often require more human resources and infrastructure to support the needs of complex enterprises.
- Inadequate security or misuse of data can lead to loss of customer trust and legal repercussions.
- Over reliance on debt, which can encourage too high of a burn and delays making tough decisions.
Over reliance on acquisitions for innovation or growth as most acquisitions fail. Acquisitions distract focus while integration is often challenging and often key talent leaves.
Fraud can severely damage or kill a company quickly.
- High burn rate, setting unrealistic projections, and/or poor financial planning resulting in the company eventually running out of money.
- Product components are still too expensive to allow you to have good unit economics.
High cost to acquire a customer relative to the lifetime value kills unit economics and
can derail the business model.
Over-dependence on a single revenue stream or customer that dries up.
- Trying to disrupt competitors who are well-entrenched since their product is sticky, customers have a strong passion for the product, and/or the company has great distribution.
- New competitor that offers a better or cheaper way to solve the same problem.
- Entering a crowded market space with an undifferentiated product.
- Competitors successfully moving up or down market, or cross industry to disrupt your segment of the market.
- Going up against a litigious company that is well-funded that drains your resources.
- Not doing your homework in an IP-dependent industry such as medical devices, biotech, materials science or semiconductors.