Why do over 90% of the startups fail within 3 years? We need to think about this question again.
In this world of startups, it’s very common to hear about success stories. We know we are guilty! We are very proud of our startups’ success and achievements. But we thought that it is also necessary to talk about startups that fail and to analyze why. As Thomas Edison once said
“I have learned fifty thousand ways it cannot be done and therefore I am fifty thousand times nearer the final successful experiment”.
Using the words of one of the greatest businessmen and inventors, we want to add that failure does not mean a lack of talent. The “big ones” have failed many times, but today our life is easier thanks to their ideas!
CB Insights found that 70% of upstart tech companies fail around 20 months after first raising financing. And consumer hardware startups fail even more, with 97% ultimately dying or becoming “zombies”! But what is the cause?
CB Insights listed 20 reasons, but we will present only the 3 that, in our opinion, are the main ones.
1. Not listening to customers
If there is no market need, the startup will fail. Solving a market problem is extremely necessary and many startups close their doors for lack of it. They may even have great technology, good reputation, good leaders, great expertise, great advisors, among others ... but if they don't have a technology or a business model that solves a pain in a scalable way, they are likely to never succeed. It is very easy to have a tunnel vision and spend too much time building a startup for ourselves, instead of just reaching out to clients, interviewing them, and checking how much they will be paying for it.
2. People and the startups’ culture
Here we can distinguish two cases. The first has to do with the lack of the right people at startups. If the founding team cannot build an MVP or launch the product on its own, needing external help in order to do those, they should not start a startup. The second case has to do with the lack of alignment and interest within the team itself, for example, when members start to question where the project is going, or the lack of alignment between the founders and the investors. Business is a human endeavor and if humans can't connect to other humans (inside or outside the company), business can’t happen.
Talking about investors, don't miss our Scaleup Portugal series, where we introduce you to our investors, such as Bynd Venture Capital, Bright Pixel, Portugal Ventures, among others. Watch the episodes of the series here, or listen to our podcast on Spotify.
3. Only 2 reasons out of 20 are about money
Contrary to what many people think, it is not always about the lack of capital. Most new businesses don’t shut their doors because they are going broke. In fact, they are profitable but fail for personal reasons. On the other hand, you would be shocked by the statistics related to “normal” work. According to Paysa data, the average time of a worker in the 10 largest technology companies, such as Google or Facebook, is less than 2 years. Little, isn't it? Not saying that opening a startup is the way for us all, but it is interesting to establish this comparison. So, don't get carried away by the scary statistics.
In conclusion, the disadvantages of working at a startup are generally related to short-term risks. Things don't always go well at first. Startups may fail, but there’s always the chance it will be a success, and even if it isn’t, you will certainly walk away with a unique experience to help you find your next job. It allows you to adapt to situations and gain experience and different job skills. In addition, working in the startups area allows you to work with a group of individuals passionate about what they do and it gives you more room to express your creativity and to grow personally. Remember, the key words are 3: passion, effort and perseverance. If it feels like the right fit for you, get to know our programs and find out how we can help you build your successful business.
Check out our previous post: Portugal's Buzz: Is it worth it or not?