Statistics vary on the failure rate for startups, but it is generally estimated to be between 80 percent and 90 percent. It's sobering to face the fact that fewer than two out of every 10 new businesses will still be in existence a few years from now, but entrepreneurs are, by definition, optimists, so statistics like this seldom discourage them. Overall, this is a good thing -- after all, there's no point in starting a company if you don't believe in your vision.
At the same time, it's sensible to be realistic and address some of the reasons why so many startups fail. As someone who has experienced both successes and failures with startups, I have found that one of the most worthwhile things you can do is make a study of failure. The following tips are taken both from my own experience and from studying some high-profile startup failures in recent history.
One of the most common causes of early failure, especially with tech-related startups, is that the product or service is released before everything has been thoroughly tested and all major problems have been addressed. This can have several causes. In some cases, the founders are so anxious to get the ball rolling that they simply don't have the patience to test every feature and fix every bug before going public. They might also underestimate the potential seriousness of "minor" glitches.
Consider the video chat service Airtime, which launched in 2012 and, after a disappointing launch, folded within two years. This company initially seemed to have a brilliant idea that was at the cutting edge of a viral new trend: video chatting. Airtime, however, had some serious programming bugs that made it frustrating for its early customers. In an age of instant communication, a few glitches early on can be enough to prevent a company from ever taking off.
Every business needs a certain amount of capital to get started. Underfunding can cause serious, even fatal problems, such as being unable to keep up with customer demand. If you don't have the funding you need, it's better to wait and explore more options than to attempt to launch a watered-down version of your business.
On the other hand, there are also dangers of being overfunded. This can put extreme pressure on you to produce impressive results quickly. An example of this is SearchMe, a visual search engine that folded in 2009. This company raised more than $45 million in venture capital while attempting to introduce a new and largely untested idea to the market -- most people were (and still are) accustomed to using text-based search engines. SearchMe was unable to produce results fast enough to satisfy its investors and failed.
While it may seem obvious that a business should prioritize what its customers want and need, this principle isn't always put into practice. Many entrepreneurs fall in love with their own vision to the extent that they put customers second. You may not even realize you're doing this if you don't consciously guard against it.
Robin Chase , co-founder of the popular Zipcar service, first started another company, GoLoco, that never succeeded the way Zipcar has. While both companies introduced innovative transportation alternatives in major cities, they were built on very different concepts. While GoLoco was a ride-sharing service, ZipCar gives people a simple way to rent cars short term. Chase later admitted, "We built the website first and asked our customers about it later." This pretty well sums up the problem of entrepreneurs not taking the time to find out what their customers truly need.
These are a few examples of how many startups -- even those started by very smart people -- make mistakes that doom them to failure. While most case studies about business focus on the winners, it's equally important to analyze the reasons for failure. The early stages of a business are the most crucial. By avoiding some of the most common pitfalls that plague so many startups, you can improve your chances of becoming one of the success stories.