The Top 6 Reasons Startups Fail

16 September, 2021

“Why do startups fail?”

So we gave those post-mortems the CB Insights data treatment to see if we could answer this question.

After reading through 111 post-mortems since 2018, we’ve learned there is rarely one reason for a single startup’s failure. However, we did begin to see a pattern to these stories.

And so after sifting through the post-mortems, we identified the top 12 reasons startups fail.

Since many startups offered multiple reasons for their failure, you’ll see that the chart highlighting the top reasons doesn’t add up to 100% (it far exceeds it).

Following the chart is an explanation of each reason and relevant examples from the post-mortems.

There is certainly no survivorship bias here. But many very relevant lessons for anyone in the entrepreneurial ecosystem.

It’s worth noting that this type of data-driven analysis would not be possible without a number of founders being courageous enough to share stories of their startup’s demise with the world. So a big thank you to them.


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 ability to cut your losses where necessary and redirect your efforts when you see a dead end — or lack passion for a domain — was deemed important to succeeding and avoiding burnout, as was having a solid, diverse, and driven team so that responsibilities can be shared.

Pivot gone bad

Pivots like Burbn to Instagram or ThePoint to Groupon can go extraordinarily well. Or they can start you down the wrong road.

As The Verge reported on Inboard Technology‘s failed pivot.

After investors refused to inject more funds, the company was forced to shut 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.

 

Disharmony among team/investors

Discord with a co-founder was a fatal issue for startup post-mortem companies. But acrimony isn’t limited to the founding team, and when things go bad with a board or investor, it can get ugly pretty quickly, as evidenced in the case of Hubba.

Poor product

Sometimes, it all comes down to the product — and a flawed one was enough to sink companies in 8% of cases.

Bad things also happen when you ignore what users want and need, whether consciously or accidentally.

Product mistimed

If you release your product too early, users may write it off as not good enough, and getting them back may be difficult if their first impression of you is negative. And if you release your product too late, you may have missed your window of opportunity in the market.

Not the right team

A diverse team with different skill sets was often cited as being critical to the success of a company. Failure post-mortems often lamented that “I wish we 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 after failing to build a sustainable business model for its database product, co-founder Jason Crawford wrote in his post-mortem blog post that the company’s inability to make key hires was one of the reasons for its downfall.