Lessons From Failed Startups Business of Fashion
From lack of product-market fit to disharmony on the team, we break downward the top 12 reasons for startup failure by analyzing 110+ startup failure post-mortems.
After we compiled our listing of startup failure post-mortems , one of the almost frequent requests we got was to use these posts to figure out the main reasons why startups failed.
Startups, corporations, investors, economic development folks, academics, and journalists all wanted some insight into the question:
"Why do startups fail?"
Then we gave those post-mortems the CB Insights data treatment to encounter if we could answer this question.
After reading through 111 post-mortems since 2018, we've learned in that location is rarely one reason for a single startup's failure. However, we did brainstorm to run into a blueprint to these stories.
And so after sifting through the post-mortems, nosotros identified the elevation 12 reasons startups fail.
Since many startups offered multiple reasons for their failure, you'll see that the nautical chart highlighting the top reasons doesn't add up to 100% (it far exceeds information technology).
Post-obit the nautical chart is an caption of each reason and relevant examples from the post-mortems.
the tiptop 12 reasons startups fail
From lack of production-market place fit to disharmony on the team, we break downward the superlative 12 reasons for startup failure by analyzing 110+ startup failure post-mortems.
At that place is certainly no survivorship bias here. But many very relevant lessons for anyone in the entrepreneurial ecosystem.
Information technology's worth noting that this blazon of data-driven assay would not be possible without a number of founders existence mettlesome enough to share stories of their startup's demise with the world. And then a big thank you to them.
12. Burned out/lacked passion
Work-life balance is not something that startup founders often get, so the risk of burning out is high. Burnout was given as a reason for failure 5% of the time. The power to cut your losses where necessary and redirect your efforts when you see a expressionless cease — or lack passion for a domain — was deemed important to succeeding and avoiding burnout, as was having a solid, various, and driven team and so that responsibilities can be shared.
What can make conversations nearly burnout difficult, especially in Silicon Valley, is the widespread belief that building a successful company volition always involve some caste of mayhap chancy overwork. As former Uber board member and CEO of Thrive Global Arianna Huffington puts it:
"The prevalent view of startup founders in Silicon Valley is a delusion that in guild to succeed, in order to build a high-growth company, you lot need to fire out."
Among the pandemic, burnout became even more prevalent among tech workers: 68% of tech employees said they felt more burned out working from home, according to a survey past Blind.
Various founders have spoken up about how dissentious exhaustion can be. Former Zenefits CEO Parker Conrad said,
"I think people are unprepared for how hard and atrocious it is going to exist to start a company. I certainly was."
At DaWanda, stagnation in both growth and team involvement led to the visitor's eventual closure. Founder and CEO Claudia Helming shared this message on the company'southward website:
"In the last quarter of 2017 nosotros reached profitability and have since been working to encompass our costs. At the same fourth dimension, we had to admit that our growth is stagnating and that we can hardly manage by our ain efforts to grow the number of sales on our platform to the desired extent – fifty-fifty our restructuring terminal twelvemonth could not modify this … Additionally, nosotros oasis't managed to implement plenty innovative new ideas over the by few years.
DaWanda is not insolvent. Yet, we have realised that the risk of no longer being able to keep upward is merely also big."
Doughbies , which raised $670,000 for an on-need cookie delivery service in 2013, also cited a lack of passion from its founders and team as one of the reasons for its failure. The company appeared to be doing well, with 36% gross margins and 12% net profit at the fourth dimension information technology close downwards . The trouble, as CEO Daniel Conway put it, was that there wasn't massive growth or enough interest in running the business organisation:
"Ultimately nosotros shut down because our team is ready to motility on to something new."
11. Pivot gone bad
Pivots similar Burbn to Instagram or ThePoint to Groupon can go extraordinarily well. Or they can start you downwardly the incorrect road.
As The Verge reported on Inboard Engineering science's failed pivot:
"The startup was one of the highest-profile competitors to pinnacle electrical skateboard company Additional, and terminal year appear plans to enter the electric scooter market — a push that seems to have doomed Inboard.
Founder (and now-former CEO) Ryan Evans told The Verge his team had locked down 'a very large social club' from 'one of the largest European scooter operators,' which explains why the company quickly pivoted away from trying to sell its first e-scooter directly to consumers earlier this year. Merely Evans said the development timeline for Inboard's e-scooter 'outstretched' its financial runway."
After investors refused to inject more funds, the company was forced to close down.
For Frances Dewing, the founder of Rubica, a last-ditch attempt to save her cybersecurity startup from failure amid Covid-19 led her to pivot from focusing on consumers and small businesses to larger companies.
In the end, the new direction didn't ring truthful with investors:
"We were all really surprised given how relevant and needed this is correct now," Dewing said. "Investors didn't agree with that or see information technology in the aforementioned way."
ten. Disharmony among team/investors
Discord with a co-founder was a fatal upshot for startup post-mortem companies. Only anger isn't limited to the founding team, and when things become bad with a board or investor, it tin get ugly pretty speedily, as evidenced in the case of Hubba.
Douglas Soltys writes for BetaKit:
"Considered for most of the decade ane of Toronto'south hottest startups, Hubba hit choppy waves in 2018, every bit the company lost its principal technology officeholder and primary marketing officer in an three-month span, in improver to two rounds of layoffs which saw headcount reduced by almost one-half.
It is unclear to what extent the COVID-nineteen pandemic had hampered Hubba'southward growth and customer base. However, 1 source BetaKit spoke with claimed a months-long boxing between [Hubba CEO and founder Ben] Zifkin and Hubba's lath of directors regarding the ongoing viability of the visitor."
At Pellion Technologies , the end came more than quietly, as its major backer Khosla Ventures lost faith in the company's power to execute :
"According to former employees, all of whom requested anonymity, Khosla Ventures lost confidence that Pellion could make plenty coin serving a niche market. The lithium-metal technology worked for products like drones, but the large money in the battery world is in the automotive sector. Investors weren't willing to sink the money needed to develop the battery for electrical vehicles."
In March 2019, Khosla decided the company would exist shut down and removed Pellion'southward name from its online firm portfolio.
9. Poor production
Sometimes, it all comes downwardly to the product — and a flawed i was enough to sink companies in viii% of cases.
According to a Forbes investigation into finance and bookkeeping platform ScaleFactor,
"ScaleFactor used ambitious sales tactics and prioritized chasing capital instead of building software that ultimately fell far short of what it promised, according to interviews with fifteen former employees and executives. When customers fled, executives tried to obscure the real damage."
Bad things likewise happen when you ignore what users want and demand, whether consciously or accidentally.
Here'southward what Shoes of Prey wrote about its vision to enable consumers to personalize their ain shoes:
"We learnt the hard way that mass market customers don't want to create, they want to exist inspired and shown what to wear. They desire to run into the latest trends, what celebrities and Instagram influencers are wearing and they want to vesture exactly that — both the style and the brand."
the pinnacle 12 reasons startups fail
From lack of product-market fit to disharmony on the team, we intermission downwards the peak 12 reasons for startup failure by analyzing 110+ startup failure post-mortems.
eight. Product mistimed
If you release your product besides early, users may write information technology off equally not good enough, and getting them back may exist difficult if their first impression of you is negative. And if you release your product too late, y'all may have missed your window of opportunity in the market.
As Stefan Seltz-Axmacher, CEO of autonomous trucking tech startup Starsky Robotics said,
"Timing, more than anything else, is what I think is to blame for our unfortunate fate. Our arroyo, I all the same believe, was the right one but the space was as well overwhelmed with the unmet promise of AI to focus on a practical solution. As those breakthroughs failed to announced, the downpour of investor interest became a drizzle."
VR platform Vreal intended to build a virtual reality space for video game streamers to hang out with their viewers and raised almost $12M in its 2018 Serial A. Notwithstanding, the bachelor hardware and bandwidth capabilities didn't evolve as fast every bit the company had expected, and though it delivered on its promise, Vreal struggled to concenter any meaning usage:
"Unfortunately, the VR market never developed as quickly as we all had hoped, and we were definitely alee of our time. Every bit a result, Vreal is shutting down operations and our wonderful team members are moving on to other opportunities."
For some companies on our list, an unforeseen gene like the Covid-19 pandemic contributed to product untimeliness. AI-powered vending motorcar startup Stockwell AI close downward in July 2020 as consumers stayed at home and avoided surface contact. The company'south CEO Paul McDonald wrote in an electronic mail to TechCrunch,
"Regretfully, the current landscape has created a situation in which we can no longer continue our operations and will exist winding down the company on July 1st. We are deeply grateful to our talented squad, incredible partners and investors, and our amazing shoppers that fabricated this possible. While this wasn't the fashion we wanted to end this journey, nosotros are confident that our vision of bringing the store to where people live, work and play will live on through other amazing companies, products and services."
vii. Non the correct team
A diverse team with unlike skill sets was often cited every bit being critical to the success of a company. Failure post-mortems often lamented that "I wish nosotros had a CTO from the start" or wished that the startup had "a founder that loved the business aspect of things."
At Fieldbook, which shut down afterward declining to build a sustainable business model for its database production, co-founder Jason Crawford wrote in his post-mortem blog post that the company's inability to make cardinal hires was one of the reasons for its downfall:
"I was blindsided by the difficulty of hiring. Hiring was something I'd done successfully for years, including in the early days of Fieldbook and in a previous startup. Merely at a time when every engineer wanted to work on AI, self-driving cars or cryptocurrencies, a SaaS startup with small-scale, sporadic growth wasn't very attractive. I knew that investors would need to see strong, consistent growth before our Series A, just I didn't wait that engineers would demand to see it to even join before Series A."
Lack of experience, combined with mismanagement, was one of the factors behind the downfall of Katerra, the high-flying construction startup which raised nearly $1.5B in funding. As The Information summarizes,
"The SoftBank-backed startup said information technology could slash the cost of edifice and renovating apartments, luring large-name investors. But the company, run by a tech veteran with no previous structure experience, ignored escalating problems and at one point tried to burnish revenue data shown to its board and financial backers."
For Stratolaunch, the passing of its founder meant the company wasn't able to continue on in the same way, as Failory reported:
"Despite everything looking nifty on paper and the best of minds working together on this projection, nothing could have predicted Paul Allen's passing abroad in Oct of 2018, which would soon spell out the aforementioned fate for Stratolaunch. It became articulate that Stratolaunch had been powered merely by the vision of its founder, which wasn't necessarily shared by those left in power after him."
half-dozen. Pricing/cost issues
Pricing is a dark art when it comes to startup success, and startup post-mortems highlight the difficulty in pricing a production high enough to somewhen cover costs only depression enough to bring in customers.
Hey Tiger struggled to find the right balance in its effort to produce high-quality chocolate and accost inequities in the cocoa industry, writing,
"But like any offset upwardly, there comes a time when you demand to take a hard look at the company's long term viability. Although we designed a business that customers admittedly love, it proved hard to scale into the profitability it needed to exist a sustainable social enterprise. As the scale of our chocolate production grew, so did the tensions between the very things that made Hey Tiger special. Ultimately while succeeding in one goal, we couldn't make the other."
The 2019 shutdown of genetic testing and scientific wellness startup Arivale came as a surprise to many partners and customers, but the reason behind the visitor's failure was simple: the toll of running the company was as well high compared to the revenues it brought in:
"Our decision to end the programme today comes despite the fact that client engagement and satisfaction with the plan is loftier and the clinical health markers of many customers have improved significantly. Our decision to cease operations is attributable to the simple fact that the cost of providing the program exceeds what our customers can pay for information technology. Nosotros believe the costs of collecting the genetic, blood and microbiome assays that form the foundation of the programme will eventually decline to a betoken where the program can be delivered to consumers cost-effectively. Regrettably, nosotros are unable to continue to operate at a loss until that time arrives…"
5. Regulatory/legal challenges
Sometimes a startup can evolve from a simple thought and enter a world of legal complexities that can ultimately shut it down.
Widely regarded every bit i of Kickstarter's greatest failures, Coolest Cooler finally ceased operations in December 2019 after floundering for 5 years (and failing to deliver its coolers to more than 20,000 people). In a projection update, the team blamed the trade war:
"As you lot may know, late last twelvemonth the U.South. government imposed ten% tariffs on many products imported from Red china. … However, equally of early summertime, the "merchandise war" continued, and the tariff was increased to 25% which afflicted our entire Coolest production line."
Mobile savings app Beam met its end quickly after falling afoul of the Federal Trade Commission. FTC Acting Director of Consumer Protection Daniel Kaufman stated at the time of its shut down of the company:
"The message hither is simple for mobile banking apps and similar services: Don't lie about your customers' ability to become their money when they demand information technology."
Smart luggage manufacturer Bluesmart also barbarous victim to legal challenges. The company shut down in 2018 afterwards most major US airlines enacted a policy requiring all airline travelers to remove lithium-ion batteries from their checked luggage :
"Nosotros have bittersweet news to share. The changes in policies announced by several major airlines at the stop of concluding twelvemonth—the banning of smart luggage with non-removable batteries—put our company in an irreversibly difficult financial and business situation. Afterward exploring all the possible options for pivoting and moving forward, the company was finally forced to wind downwardly its operations and explore disposition options, unable to continue operating as an independent entity."
4. Flawed business organisation model
Virtually failed founders agree that a business model is important — staying wedded to a single channel or failing to find ways to make money at scale left investors hesitant and founders unable to capitalize on any traction gained.
Equally Lumina Networks, a provider of open-source software for telecom networks, wrote,
"Essentially, revenue continued to period to proprietary vendors. The switch to open source did not take place at a pace anywhere close to the speed that would enable united states to operate and grow our business organisation, despite commitments from many to the opposite. We accept too constitute that Covid-19 has really redirected funds away from automation projects and into building-out raw infrastructure, farther delaying adoption."
"Selling Lumina to a proprietary vendor who is naturally antithetical to our mission proved an impossible task and for this reason nosotros must now close our business," it concluded.
At Aria Insights , the concept of outfitting drones with sensors to collect data from extreme environments seemed promising. But while the visitor got off the ground and constitute a few high-profile investors — including Bessemer Venture Partners — it ultimately couldn't observe a compelling use for that information, and, therefore, couldn't fairly monetize its business concern model:
"CyPhy Works rebranded as Aria Insights in January 2019 to focus more on using artificial intelligence and machine learning to assist analyze data collected by drones. 'A number of our partners were collecting and housing massive amounts of data with our drones, only there was no service in the manufacture to chop-chop and efficiently plough that data into actionable insights,' Lance Vanden Beck, quondam CyPhy and current Aria CEO said at the time of the rebranding."
Diverse music startup post-mortems too pointed to the difficulty of finding a viable business concern model in the manufacture as a reason for startup failure.
Great britain-based blockchain music startup JAAK pointed to several reasons for its undoing, including its scaling challenges, in a series of Tweets on the company'south corporate account:
"6 years is a long fourth dimension in startups, especially pre-revenue ones, and, ultimately, we failed to secure the funding required to go to market. Markets alter and we didn't alter apace plenty.
I have a Notion full of painful lessons about why nosotros failed but I'll salvage those for another mean solar day.
tl;dr: users > partners, no premature scaling."
the top 12 reasons startups neglect
From lack of product-market fit to disharmony on the team, we break down the top 12 reasons for startup failure by analyzing 110+ startup failure post-mortems.
3. Got outcompeted
Despite the platitudes that startups shouldn't pay attending to the contest, the reality is that once an thought gets hot or gets market validation, others may try to capitalize on the opportunity. And while obsessing over the competition is not salubrious, ignoring it was also a recipe for failure in xx% of the startup failures.
Silas Adekunle of Reach Robotics talked about shutting down after existence unable to brand it in the hypercompetitive consumer hardware industry in his post-mortem message, stating:
"The consumer robotics sector is an inherently challenging space – specially for a start-up. Over the by 6 years, we have taken on this challenge with consistent passion and ingenuity. From the offset trials of development to accelerators and funding rounds, nosotros have fought to bring MekaMon to life and into the hands of the next generation of tech pioneers. Unfortunately, for Accomplish Robotics, in its current class at least, today marks the end of that journey."
Co-founder John Rees besides weighed in:
"I'g withal taking stock of it all but the short version is that it is truthful what they say – that 'hardware is difficult' and consumer hardware is even harder due to the reliance on the Christmas sales menstruation."
Children'south apparel delivery service Mac & Mia plant itself in a tough spot, facing competition from highly successful companies like Run up Set, and close downwardly only a year subsequently its 2018 launch:
"Mac & Mia faced a host of competitors in the children'southward commitment box infinite, including the same Stitch Fix, which launched its kids article of clothing service in 2018. Stitch Fix went public in 2017 and has a market cap around $2.7 billion. At least 20 other upstarts have launched like delivery services for children's apparel."
ii. No market need
Tackling problems that are interesting to solve rather than those that serve a market need was cited every bit the No. 2 reason for failure, noted in 35% of cases.
Mobile-focused streaming service Quibi, which shut downward in October 2020 just vi months after launching and raising a mammoth $i.8B, constitute itself in this position. As reported in the Wall Street Periodical, founder Jeffrey Katzenberg and main executive Meg Whitman said in a letter to employees at the time of the shutdown:
"…[T]here were 'one or 2 reasons' for Quibi'south failure: The thought behind Quibi either 'wasn't stiff enough to justify a stand-lonely streaming service' or the service'due south launch in the middle of a pandemic was particularly ill-timed. 'Unfortunately, we volition never know, but we suspect it's been a combination of the two.'"
CEO Justin Kan of Atrium was direct about the difficulty of disrupting law firms, telling TechCrunch in an interview,
"If you await at our original business model with the verticalized law firm, a lot of these companies that have this kind of total stack model are not going to survive," Kan explained. "A lot of these companies, Atrium included, did non figure out how to make a dent in operational efficiency."
For a company like wedding apparel retailer Brideside, Covid-nineteen obviated the need for its offerings:
"With two-thirds of weddings cancelled in 2020 and an uncertain year ahead, our chapter has come to an stop."
A month after Paul Graham, Jessica Livingston, Trevor Blackwell, and Robert Morris started the Y Combinator seed accelerator in 2005, they picked "brand something people want" as their motto.
Our study shows that failing to practise this is one of the easiest means to guarantee startup failure.
1. Ran out of cash/failed to heighten new capital
Money and time are finite and need to be allocated judiciously. For the startups on our list, running out of cash — tied with the inability to secure financing/investor interest — was the top reason startups cited for their failure.
In September 2019, augmented reality startup Daqri shut downward after burning through more than than $250M in funding and failing to raise a new round from investors:
"Daqri faced substantial challenges from competing headset makers, including Magic Spring and Microsoft, which were backed past more than expansive war chests and institutional partnerships. While the headset company struggled to compete for enterprise customers, Daqri benefited from investor excitement surrounding the broader space. That is, until the investment climate for AR startups cooled."
Despite fostering partnerships with Boeing, General Electric, and NetJets, aeronautical engineering startup Aerion Corporation was unable to convince investors of its potential:
"The AS2 supersonic business jet program meets all market, technical, regulatory and sustainability requirements, and the marketplace for a new supersonic segment of general aviation has been validated with $11.2 billion in sales backlog for the AS2.
Nonetheless, in the current financial environment, it has proven hugely challenging to close on the scheduled and necessary large new capital requirements to finalize the transition of the AS2 into product.
Given these conditions, the Aerion Corporation is at present taking the advisable steps in consideration of this ongoing fiscal environment."
European budget airline Wow Air met a similar fate; Chairman Skuli Mogensen wrote to employees:
"We have run out of time and have unfortunately non been able to secure funding for the visitor… I will never be able to forgive myself for not taking activity sooner."
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