Why Startups Fail, and How You Can Avoid the Same Fate

Founding a startup can be risky, and even some of the most successful entrepreneurs have a few failures under their belt. Let’s learn from their mistakes.

The figure that’s often bandied about the web is that nine out of ten startups fail. Although there’s some contention on the accuracy of that statistic (some have placed it closer to 75%), founding a startup is a difficult venture no matter how you look at things. Fact is, in the early days of an entrepreneurial venture, there’s a ton of stuff that can go wrong, and a ton of business-ending mistakes you can easily make—especially if you’re new at the whole startup thing.

There’s a reason even some of the world’s most successful entrepreneurs have at least a failure or two under their belt.

Don’t worry too much. There’s a silver lining to all of this, and it’s that if you know what you’re doing going in – if you know where you might run into trouble – then you’ve a much better chance of success.

Understand the Market You’re Going Into

According to research carried out by CB insights, the #1 reason behind a startup’s failure is that the market simply doesn’t have any need for their products or services. Either they’re low-grade enough that no one wants to buy them, or else a market shift has caused what was originally a great startup idea to become effectively obsolete (assuming it wasn’t obsolete in the first place).

Unfortunately, you can only protect yourself against this sort of failure to a small extent. There’s always a small chance you’ll end up being outcompeted or punished by an unexpected change in the market. At the same time, however, a little bit of research goes a very long way.

Related Article: 4 Pitfalls Successful Startups Must Avoid

“Once we understand the basic building blocks and the meaning of all three development phases, it’s also easier to understand the fact that start-up companies mostly fail because they don’t understand the market and the problems of their clients,” explained Kristjan Pečanac at a recent lecture. “There are four key questions each entrepreneur must answer by learning about the market:

1. Who is your ideal client and what is their problem?
2. What’s the solution that solves the client’s problem?
3. How will the company generate income or what’s the business model like?
4. What’s the company’s scale-up strategy?”

Only by answering those questions can you safely say a startup is the right idea – otherwise, you might just end up wasting both time and money.

Ensure You’re Capable of Putting in the Hours

Being the founder of a startup is difficult, involved work. It’s fast-paced, hectic, and stressful. It’s not the sort of lifestyle in which anyone can thrive—so you’d best be certain you’ve the necessary passion to do so. Because if you don’t, you’re bound to end up suffering burnout, a breakdown, or both.

“We were due to raise more money right after the markets crashed,” explains serial entrepreneur Penelope Trunk, recounting her experience with social network Brazen Careerist. “So of course we couldn’t raise money. And of course I did what all startup founders do when they run out of money: I had a fit. And then I had a nervous breakdown.”

“But the thing is, in a startup, everything moves at warp speed, even a nervous breakdown,” Trunk continues. “So I recovered fast, convinced investors to put in more money. And we kept going.

That cycle happened twice. Which is normal.”

“Startups are hell, and a startup is the perfect convergence of a brilliant idea and a founder just crazy enough to stick with it through anything,” she concludes.

Be Careful Who You Hire

It’s been said on many occasions before, but it bears repeating here: in a startup, the people you hire matter almost as much as the products and services you produce. Your team influences everything about your organization, from how productive it is to what sort of culture it promotes, to whether or not investors will express interest. It’s imperative that you hire the right people to work with you.

Mashable’s got a few tips to that effect:

• Don’t confuse experience with skills.
• Only hire people who are at the point in their career that they can work for a startup—they need to be willing to take risks and face adversity, otherwise they won’t be a good fit.
• Skip the telephone interview.
• Don’t test people.
• Train yourself to recognize real drive and passion.
• In job listings, make sure your job description’s clear.

Closing Thoughts

There are a lot of ways your startup can fail—hiring the wrong people, tapping into the wrong market, or founder burnout. At the end of the day, however, dealing with all of these challenges is more than worth it. After all, what’s a roadblock or two when you’re pursuing your dream?

Author: Tim Mullahy is the general manager of Liberty Center One, an enterprise class, tier 3 data center located in Royal Oak, MI. Liberty offers a full range of technology solutions, including fully managed, co-located, virtual, dedicated and shared hosting services.