Startup companies seem to have all the fun. They create new markets, disrupt old ones, get ridiculous amounts of money from venture capital firms, throw wild launch parties, have the best-looking offices — the list goes on. But is it really that easy to reach startup stardom, or do these idyllic stereotypes hide a harsher truth?
As it appears, the reality is harsh indeed, because 90% of all startups fail. That sounds horrible, doesn’t it? Well, let that sink in. Oh, and the VC money I mentioned earlier? It counts for just 1% of total startup funding, as 82% of startups are self-funded and 24% of entrepreneurs rely on friends and family to keep their business dreams afloat. As for wild parties and lavish offices, the more extravagant they are, the more money is being thrown away, reducing the chance of success and abusing the trust of investors.
Another common reason for failure, Furr argues, is that startups “are doing good things but doing them out of order. In other words, they are doing things that seem to make sense, like investing to build the product, hiring good people to help them sell it, developing marketing materials, and essentially doing all the kinds of things that big companies with lots of resources do when they are executing on a known opportunity.”
The issue here, however, is that these investments make sense only when there is extensive pre-existing market research supporting them, or years of sales data that justify the risk. In the majority of documented cases, instead of assessing the risks and opportunities objectively and scaling those investments accordingly, startups rely on guesswork, giving more credit to their vision of what the future may hold, rather than examining real facts. This is understandable, as many startups bring new and never-before-seen products to the market, but this is also why they need to manage the process of coming to the market differently.
Here’s the list of top 20 most common reasons by CB Insights: