Written by Charmaine de Lazo
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After analyzing startup postmortem stories, CB Insights recentlythe top 20 reasons why startups fail. The topmost reason is that founders realized there is no market need for their product/service. This is followed by funding problems and team problems, respectively.
We reached out to VCs to get their take on this and to share some insights from their extensive experience working with startups.
Editor’s note: Answers have been edited for clarity.
Nikhil Kapur, principal at Gree Ventures
Caveat: I think the research is highly theoretical. And based on my own experience working with a handful of startups, I doubt you can call it statistics.
The usual reason why startups fail is simple: team. The founders are either not the right team to execute on the problem/solution or could not hire the right people to add to their strengths.
Markets, problems, business models, and almost everything usually changes from what the startup set out to do/solve on day one. It’s rare to see the startup crack the problem on the first day, let alone the solution. The only thing that stays put is the right team that can execute well together and has the courage plus passion to stick through the rough patches.
Failure to solve a real problem
It doesn’t matter whether there is an initial market need or not. The entrepreneur’s role is to build based on what he/she feels should be built to solve a problem, and then test the MVP. If it works, double down. If it doesn’t, pivot. It sounds simple, but you’ll be surprised by how many people get stuck on their own ideas, fall in love, and become unwilling to iterate.
If there’s no market need and the startup shuts down, that’s a team problem, not a market problem. Successful founders have a different DNA, and they’ll succeed regardless. The only other thing that plays a huge role in a startup’s success/failure is luck.
Advice for founders
Figure out first whether you are even founder material, as not everyone is meant to be a leader. Some people are just better at executing what they are told to execute on, and they do a brilliant job at it.
So, ask yourself: Do you have what it takes to go through the grind? Can you attract great people toward you without having anything to give them in return in the short run? Do you have any competitive advantage over anyone else who might tackle this problem? If the answer is yes or maybe, then just build it and iterate.
Donald Wihardja, partner at Convergence Ventures
A startup that has successfully raised money in seed and series A may find that it did not develop enough traction, transaction volume, and/or unit economics to attract series B investors. Hence, the number one cause of failure at this stage is the inability to anticipate investors’ success criteria for the next fundraising round.
For seed/series A, that matrix is market fit. Is there a demand for your product? For pre-seed/angel round, maybe a startup can get funding based on its founding team profile or MVP demo. But if it cannot find the right customer base and demonstrate that there is really a need for the product, the startup will not be successful to attract series A investors.
So, founders should be aware of what is expected of them in each fundraising milestone (i.e. the key KPI for each stage and the valuation multiple for their type of business) and optimize their company’s growth accordingly.
- From your experience as an investor/advisor, what are the usual reasons why startups fail?
- Why do you think so many startups still fail to solve a real problem?
- What’s the most important thing founders should remember in growing a startup?
Original articleby Tech in Asia.