Most business owners believe that they’re building the next big thing. But in reality, over 90% of them fail. While research puts the failure rate of not seeing the projected return on investment (ROI) at 75%, you can still view failure as a potential for improvement and eventually learn how to build a company that will succeed.
It’s true that very few companies achieve their initial projections. Here are the top reasons why startups fail:
Poor product-market fit
With the initial excitement of watching ideas turn to gold, most entrepreneurs miss an important aspect of product development: they don’t understand who they’re building the product for, what problems it solves, and if it’s sustainable at all.
Poor market research results in misunderstanding the target audience and the product ends up something that no one wants.
Challenges with the development team
Here are the most common challenges business owners may face with their development team:
- Lack of technical expertise – Founders may be unwilling to invest too much money onin product development in the initial phase. Consequently, they look for cheap solutions and don’t hire professionals with proper qualifications. This ultimately leads to building a substandard product that no one will use.
- Ineffective management – Teams should clearly know what the company needs and should be 100% involved in the process. They must be empowered to become self-managing because traditional waterfall management methodologies are not structured for the fast-paced decision-making that tech startups require. Old-fashioned managerial approaches make projects subject to delays and cause product quality to deteriorate.
- Poor communication – If the development team and the founders don’t set a clear communication flow, this will lead to confusion, a fractured vision, and lack of trust that would hinder the team to reach business targets.
Related article: Why is strategic technology planning so difficult?
If a product has no built-in monetization mechanisms, it’s usually because of three things: 1) it’s a funded experiment product which can afford to lose money; 2) it's a venture aimed at monetizing in a meaningful way but has the necessary funds to keep costs at bay while demonstrating growth; or 3) it's a side project that may never become a business — and that’s okay.
If your business is not one of those three things, then you should know how to recoup your investments and make profit with the product.
Lack of focus
Passionate founders are always looking to add more features into their new products, thinking that more function or better design will make the solution more appealing to customers. In reality, it could work the other way around, as putting more features will make the product confusing and less usable.
Focus is the art of curbing your scope to the key function that truly matters for the majority of customers.
Inadequate investment in technology
Finding the right technology is necessary for implementing systems and processes to deploy new products. A lot of startup companies fail because they didn’t invest in the proper technology.
Small- to medium-sized businesses (SMBs) utilize technologies such as cloud computing, collaboration tools, and cybersecurity because they know these are crucial in their day-to-day operations.
Success certainly won’t happen overnight, and it might not even happen for a couple of years. But companies who invest carefully and strategically plan ahead can expect to achieve profitability before they exit their incubation stage.