03/23/18

Failed Founders Reveal #1 Cause of Startup Death

A report from Startup Genome found that 92% of all startups fail within the first 3 years. For those considering starting their own entrepreneurial journey, this cold statistic may be demoralizing. In order to survive and join the 8% of successful startups, entrepreneurs must learn valuable lessons from founders who failed before them.

Fortunately, the #1 killer of startups has nothing to do with cash, competition, or even the state of the economy. Research from CB Insights found the number-one reason for startup failure is the lack of a market need for their product.

“Why do so many founders build things no one wants? Because they begin by trying to think of startup ideas,” said Paul Graham, co-founder of Y Combinator. “[This] doesn’t merely yield few good ideas; it yields bad ideas that sound plausible enough to fool you into working on them.”

Instead of focusing on problems to be solved, founders build startups around novelty products and services that customers never asked for. This occurs when entrepreneurs fail to validate their product with customers, likely inspired by famous quotes such as this oft-cited tidbit from Apple co-founder Steve Jobs: “A lot of times, people don’t know what they want until you show it to them.” Or Henry Ford, Founder of Ford Motor: “If I had asked people what they wanted, they would have said ‘faster horses.’”

These ideas represent the management strategies behind just two successful entrepreneurs, not the millions of failed startups who tried to provide the world with what they needed instead of what they wanted.

“If you address a market that really wants your product — if the dogs are eating the dog food — then you can screw up almost everything in the company and you will succeed,” said Andy Rachleff, CEO of Wealthfront. “Conversely, if you’re really good at execution but the dogs don’t want to eat the dog food, you have no chance of winning.”

Entrepreneurs should take heart after learning the #1 cause of startup failure. Despite low startup success rates, founders can drastically improve their odds of survival if they simply focus on creating products that satisfy a market need.

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About the author

Jesse Sumrak
Jesse Sumrak is a Social Media Manager for SendGrid, a leading digital communication platform. He's created and managed content for startups, growth-stage companies, and publicly-traded businesses. Jesse has spent almost a decade writing about small business and entrepreneurship topics, having built and sold his own post-apocalyptic fitness bootstrapped startup. When he's not dabbling in digital marketing, you'll find him ultrarunning in the Rocky Mountains of Colorado. Jesse studied Public Relations at Brigham Young University

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