From lack of product-market fit to disharmony on the team, we break down the top 20 reasons for startup failure by analyzing 101 startup failure post-mortems.
WHERE IS THIS DATA COMING FROM?
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After we compiled our list of startup failure post-mortems, one of the most frequent requests we received was if we could distill the reasons for failure down from all these posts. Startups, investors, economic development folks, academics and corporations all wanted some insight into the question:
“Are there a few primary drivers of startup failure?”
So we gave those post-mortems the CB Insights’ data treatment to see if we could answer this question. And so after reading through every single of the 101 postmortems, we’ve learned two things. One – there is rarely one reason for a single startup’s failure. And two – across all these failures, the reasons are very diverse.
And so after sifting through these post-mortems, we identified the 20 most frequently cited reasons for failure.
Since many startups offered multiple reasons for their failure, you’ll see that chart highlighting the top 20 reasons doesn’t add upto 100% (it far exceeds it). Following the chart is an explanation of each reason and relevant examples from the postmortems.
There is certainly no survivorship bias here. But many very relevant lessons for anyone involved 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 the stories of their startup’s demise with the world. So a big thank you to them.
Not pivoting away or quickly enough from a bad product, a bad hire or a bad decision quickly enough was cited as a reason for failure in 7% of the post mortems. Dwelling or being married to a bad idea can sap resources and money as well as leave employees frustrated by a lack of progress. As Keith Nowak writes in Imercive’s post-mortem:
“We were caught mid-pivot – half way between a strategy we knew wouldn’t work and one which we believed could be successful but was not able to be aggressively pursued. This was a very difficult place to be both professionally and personally. We were extremely frustrated at not being able to properly go after our new strategy and every day that passed without meaningful progress was one step closer to the failure of my first company. Even though we put everything we had into getting through this phase we were never able to make it through the pivot.”