Why Startups Fail: Three different views

Why Startups Fail according to their founders

Why do startups fail? There is remarkably little research on this topic, and none that rises to the level of being statistically reliable. The featured graphic above is drawn from a post-mortem analysis by CB Insights. At the time the graphic was first published they had analyzed 101 companies that failed. As of this writing the total is 232 startups.

In this case they are using the term “startup” common in Silicon Valley and other tech hubs. These are young companies that have large aspirations and often require equity financing in order to achieve their grand ambitions. This is important because it’s reasonable to think that the vast majority of companies that fail, might do so for a different set of reasons, or at least a different ordering of reasons. Startups in the Silicon Valley meaning make up less than 5% of all companies in the US.

Here is another list.

The visualization above is sourced, as you can see in the lower right, from an essay by Paul Graham. It dates to 2005 but there’s no reason to think the causes of failure have changed dramatically.

Below is a third graph that purports to show statistically the reasons why startups fail.

According to the site on the graphic,

This report is based upon thoroughly research on the Internet  searching for Startup mistakes.

Why Startups Fail: Why It Matters

Whether or not any of these are statistically valid, they should prompt you to think: which of these reasons might apply to my company? Addressing these risks of failure will be helpful in ensuring you don’t end up on the wrong side of this statistic: only 50% of companies in the US make it past their fifth birthday.

Startup survival rate by vintage

Sorry for the poor graphic quality, but this astonishing chart shows that the survival rate of businesses is pretty much independent of the year they started.

That’s why it’s important to know why startups fail. Closing your doors is the statistically typical fate of the majority of companies in their first 10 years of existence. If you avoid failure for typical reasons, you will dramatically increase your chance of survival, and success!

Don Gooding

1 comment

  • Don,

    I’m not surprised! After reading over 300 MTI proposals, I can tell you the most common flaw I saw was no work had been done to find out if anyone wanted to buy the product/service. All start up founders have an idea they love, but few seem find out early whether there’s a viable market. Customer discovery, market testing and developing strategic channel partners are all areas where I can help companies. Can you think of companies that want help with this?

    Thanks!

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