21 Reasons Why Tech Startups Fail
If you are in the tech startup world, you know there are hundreds of ways your million-dollar idea can go wrong before it even hits the markets, and there are plenty of reasons why tech startups fail afterward as well. From money mismanagement (or lack of money in general) to problems within your team or situations outside your reach -or the reach of your team-, like a stronger competitor, anything can happen in the startup world.
You might have started with one idea that seemed like it was about to change human lives forever – but then you changed your mind about it. When it was time to act on your new million-dollar idea, you couldn’t do it quite right. Because you didn’t understand the subtleties of business, you lost everything. In the startup world, failure can come from many directions, but the 21 ways listed in this article are the most common. Study and understand them to avoid them completely and achieve your goals in the meantime.
Not enough money.
Even if you have a million-dollar idea, it has to be in the market to get you money. And startups in general need a lot of money before they hit the market. Most startups are doomed to fail not because they have a bad product, but because they can’t get to the production stages before going broke.
A lot of tech startups aren’t founded by business-savvy people, they are made by enthusiastic entrepreneurs focused on their idea and their future product changing the lives of millions of people all over the world. While enthusiasm is great, you can get caught up in the middle of it and come out broke. People who think their idea is going to give them millions don’t seem to care or plan around costs – eventually falling under the pressure of the expenses.
Running out of money.
You may have worked around the money and cost issues, for a while. Startups take a long time to get outside the red, also known as losing money. You can plan for a few months or even a year using your savings, but eventually, money starts to run dry and you’re left with no other option than to shut down your entire operation. Obtaining a small business loan is one option.
Having no financial investors or the wrong financing.
As you’ve read, most tech startups aren’t founded by business-savvy people. And financial illiteracy is a huge problem when it comes to the success of startups. Not taking into account the importance of having reliable investors kills a lot of startups every year. Or worse, in desperation, most startups founders rely on high interest rates loans. Eventually, your startup crumbles under the pressure of debt, and debt still follows you around.
Having the wrong idea.
You might think you have a perfect idea. It’ll solve a problem that’s been around for ages. But… will it really do anything? It might sound and look like the best idea ever in your head, but that’s just theory. When it comes down to the real world, most ideas can’t even be done. Your startup might’ve been doomed before it started if that’s the case.
Having the wrong team.
If you have your money down and your idea right, there’s not much to do but work. And you can’t do it all by yourself. Eventually, you’ll need a team. The wrong kind of people in your team can kill your startup from the inside. Toxic people, lazy people or anyone not taking your idea seriously might be the end of something that could’ve been great.
Disharmony between your team and your investors.
If you managed to get a great team working for you and a great set of investors, that’s amazing! But remember to keep them both happy, as they are fundamental pillars of your tech startup. Eventually, they will cross paths. Your workers believe in the purity of your idea and your investors want to make money off it. You are going to be in the middle of both of them, trying to create a harmonious environment. Otherwise, one of those two will walk away. If you remove one pillar, the project will crumble eventually.
No business model.
You have an idea and a team working to develop it. But… towards what end? If you can’t scale your idea towards a market, there is no return for the monetary investment and workload done through all this time. Unless you find a way to roll out your startup into the real world as a business that serves the people, you’ll eventually find yourself out of money and with a failed startup.
Wrong marketing campaign.
If you have done everything right -which is not easy at all- up until the moment you launch your product to the masses, there is a pivotal moment in the startup process. Getting your product from your team to the customers. A marketing campaign is often disregarded, deemed unnecessary due to the importance of the startup’s final product. If you take this road, you will eventually realize you have no customers because you didn’t have a campaign dedicated to letting them know you have a product to sell.
Once you launched your product and captivated the first batch of customers, you are going to hear criticism, regardless of how good your product is. There is always room for improvement, but not everyone is willing to hear it. Most people think is bad to compromise their idea in favor of customer criticism. But a startup is a business, and businesses change if their customer base does not like the product’s execution. Unless you want to fail.
Unwilling to adapt.
If your idea is going great but technology got a little bit farther than your product’s reach, it might be better to adapt. But some startups -or even millionaire business- are unwilling to do it. Thinking technological advancement is a fad or fashion is the wrong thing to do. Ask the stockholders at Blockbuster how they feel about this.
The other face of failure due to adaptation issues is adapting poorly. Doing it halfway through or downright bad will kill your startup. Once you realize your product isn’t doing as great as you thought or if your team isn’t fulfilling their duties as they should, you have to adapt and do it quick. Doing it wrong or too slow will give you nothing but failure in the end. Staying in a sinking ship thinking things are about to change isn’t a good strategy.
Mistiming your product.
This one is huge. A great part of having a good product is the right time. Nobody is going to be successful by selling ice cream in the middle of winter. And neither will you if your startup doesn’t time their release successfully. You have to read the market and see where it’s going. If it is not time to release just yet, wait it out. A poorly timed rollout can successfully kill your entire startup. Not because you had a bad product, but because you couldn’t wait for a couple of months.
You might think you have a great product, but if your customers can’t use it correctly, then you have nothing but a reason to fail. You have to make your ideas turn into user-friendly apps or products, otherwise, people will get rid of them as quickly as they got them. Nobody reads manuals anymore. Your product needs to be able to be used instinctively if you want to thrive.
The competition is better.
Sometimes not failing is out of your reach. Even if you have the best product you and your team can make, even if you can time it perfectly and have the best marketing campaign you could’ve planned. It still won’t be enough. Because there might be another startup that does it a little bit better, a little bit earlier. Sometimes, you just fail. And it’s part of the game.
A tech startup isn’t like your average 9 to 5. It’s more of a 24/7 kind of deal. If you are the boss, founder, and owner you are doing multiple jobs and making sure everyone else does their job as well. This isn’t for everyone. And it isn’t healthy either. Some people just burn out way before the startup starts to take off, other people quit altogether when the startup is doing good because they can’t take it anymore. You need to have moments for yourself and isolate yourself from the working world, otherwise, you will fail – even if your startup is doing great.
Unless you are a lawyer, there are certain difficulties you are going to face when dealing with a startup. Difficulties you might not be able to understand by yourself. Patent issues, copyright issues and all kinds of problems that will need qualified help. Some people decide to ignore it until it’s too big to take care of, killing the startup as a result.
Not networking or using their existing network.
Most tech startup owners think of investors as their enemy. They think investors are there to get the money they once put in the business. But they are there to help you. They want you to succeed as much as you want to. Not using them is putting yourself at an unnecessary disadvantage. And just like not having a marketing team or campaign, not networking is a crucial mistake most people make. You got to surround yourself with successful people, learn from their mistakes and their winning strategies. Don’t depend on your investors alone.
No market for your product.
If nobody is trying to buy your idea or product, then no matter how good it is, it’s worthless. You might have invested all your money, took months out of your life and your team’s life to create a product that nobody wants. It happened in the past and it’ll happen in the future. You have to make sure you have done market research before you decide to launch your startup – or it will fail before you even think about starting.
Growing too slow.
Once you start to put your money and work in, your startup needs to grow. And it needs to grow at an adequate pace or it won’t be able to face its responsibilities. Rent, salaries, legal fees among other things start to pile up. Unless your startup has grown enough to face all of it… it’ll fail. Read this article on how to gain more clients.
Growing too fast.
On the other side, you can grow too fast as well. You might face exponential growth out of nowhere. At first, you will be thrilled about it. But eventually, you will realize you skipped on important lessons and developmental phases. Before you know it, you won’t be able to face the huge issues a big startup faces every day – and eventually, the own size of your startup will make it crumble over you.
Conclusion | Why Tech Startups Fail
The startup world is often unpredictable and a good idea doesn’t always equate to success. This article named a few ways and reasons why tech startups fail, lack of money, legal issues, no business model, etc, but the truth is that there are at least hundreds of ways a startups can fail. The biggest steps that one can take towards running a successful tech startup are understanding how your idea/business makes money (business model), obtaining funding to start the businesses and quickly building a customer base.