Important Reasons Why Startups Fail
- Destructive Co-founder/Management Interpersonal Disputes and Struggles
- Destructive Team Dynamics
- The Business Numbers Just Don’t Work
- CEO / Founder(s) Unable to Make Decisions
- Out of Control Growth
- Poor Accounting Controls
- Not Enough Cash Cushion
- Operational Ineptitude
- Operational Inefficiencies (Spending too much)
- Declining Market
- Obscure or Marginal Niche
- Lack of Succession and/or Exit Planning
- Single Founder
- Bad Location
- Inability to Change Direction Quickly
- Making Bad Hires
- Slowness To Launch
- Launching Too Early
- Lack of Effort by Key Players
Failure in Startups (Definitions)
- Closing the business due to not receiving enough money to cover expenses.
- Everyone in the business, including the founder(s), loses their equity and the assets are used to pay off the creditors.
- Unable to make an exit via acquisition, IPO, etc… that was enough to pay back all of the investors money.
- Not realizing a projected return on investment, revenue growth, or break-even date.
Nearly two-thirds of business failures in high potential startups are due to interpersonal complexities, problems, and issues between people (Kirsner/Wasserman). In two studies among startup investors, respondents revealed that 65% and 61% of business failures are directly attributable to problems within the management team (Wasserman).
“I've seen too many startups flounder and fail because of co-founder conflict. Everyone starts off with the best intentions -- and then things start unraveling. In many of these cases, the conflict could have been avoided -- or at least surfaced sooner, if the founders had confronted some of the potential issues and asked each other the hard questions early-on” (Shah).
Sources:Batson Baril, Mark. 2012 Interviews.
Goltz, Jay. “Top 10 Reasons Small Businesses Fail.” Business Day Small Business: The New York Times. Jan. 5, 2011.
Graham, Paul. “The 18 Mistakes That Kill Startups.” Y Combinator. October 2006.
Kirsner, Scott. “Interview with Noam Wasserman.” Innovation Economy. March 27, 2012.
Shah, Dharmesh. “Avoiding Founder Failure”. Web log post. OnStartups.com. March 26, 2012.
Unreasonable Institute. Web page post. http://unreasonableinstitute.org/failures/
Wasserman, Noam. The Founder’s Dilemmas. New Jersey: Princeton University Press, 2012.