Analyst firm CB Insights has identified 12 reasons why startups fail

04 October, 2022

 

CB Insights is a privately held company with a business intelligence platform and a global database that provides market intelligence on private companies and investor activity. 

The company has analysed more than 100 startups that have failed over five years. It turned out that the reasons for failure were different for all of them, but some patterns could still be traced. 

1. Running out of money

Money and time are limited, so must be allocated wisely. Thus, a lack of money, combined with an inability to attract new investment, was the main problem cited by startups as the reason for their failure. It was highlighted by 38% of the surveyed founders.

For example, despite partnerships with Boeing, General Electric and NetJets, aerospace start-up Aerion Corporation failed to convince investors of its potential:

"The AS2 supersonic business jet programme meets all market, technical, regulatory and environmental requirements, and the market for the new supersonic segment of general aviation has been confirmed with $11.2 billion worth of AS2 sales.

However, in the current financial climate, it has proven extremely difficult to close the planned and necessary major new capital requirements to complete the AS2 launch. Given these conditions, Aerion is now taking appropriate steps to address the current financial situation," the company explains.

2. No market need

Another problem for startups was addressing the wrong problems to meet market needs. This mistake was acknowledged by 35% of the startups surveyed

This was the case with mobile streaming service Quibi, which closed in October 2020 just 6 months after launching and raising a whopping $1.8bn. As reported in the Wall Street Journal, founder Jeffrey Katzenberg and CEO Meg Whitman said in a letter to employees during the closure:

"There were 'one or two reasons' for Quibi's failure: the idea behind Quibi either 'wasn't strong enough to justify a standalone streaming service' or launching the service in the middle of a pandemic wasn't particularly timely. Unfortunately, we'll never know, but we suspect it was a combination of the two."

If you misjudge the market's needs today and in the near future, the investment raised will not help. The failure of the startup is guaranteed. That is why the founders of axler Y Combinator chose "Make something that people need" as their motto back in 2005. 

 

Other popular reasons include an unsuitable business model, problems with changes in legislation and competitors who have managed to avoid previous problems. Since many startups cited several reasons for their failure, the full CB Insights chart highlighting the main reasons does not equal 100%, it far exceeds them.

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