Entrepreneurship Industry News

Three Reasons Why Your Startup Will Fail (And How to Prevent These Problems)

So, you want to be an entrepreneur? Better get comfortable with the idea of failure.

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From Pets.com to Theranos, Silicon Valley is littered with startup failures so spectacular they’ve become Valley legends. But here’s the thing: Most startup failures aren’t nearly so epic. Most collapsing startups don’t go out with a bang. They fizzle.

Failing startups can fizzle for months and even years, powered solely by their founders’ passions and small, sporadic cash influxes. As a startup advisor and founder myself, I call this the “fizzle bubble.” We’ve all heard the mantra, “fail fast, fail often,” but when your startup is on life support, no founder wants to pull the plug. The excuses and justifications come rolling in: “If I could just raise another round of capital,” “If we could just beat the competition to market,” “If we could just fix our marketing plan.”

Understanding when it’s time to say goodbye, however, is just as critical for being a successful entrepreneur as it is being able to come up with a great idea or successfully closing funding rounds.

Failing Forward: How Failure Can Drive Future Success

Recently, I read the CBInsights report on why startups fail. Three of the main reasons – having no product/market alignment, running out of cash, and not building the right founding team – really stood out to me. These three reasons are also why startups sputter on, bordering on the edge of failure for months. During this time, founders are busy blaming everyone but themselves for their problems or slapping on quick-fix solutions. They don’t see that fundamental market rules are working against them: It doesn’t matter how much capital you raise — if no one needs or wants your product, no one is going to buy it. Period.

So as a startup founder who fears their startup could be teetering on the edge of failure, what are you supposed to do? My advice: Get outside your fizzle bubble and focus on product-market fit. There is no point losing sleep over cash, your team, competition, product, marketing or any other reason that you might suspect is holding you back. None of these reasons matter if you do not have tangible demand for your offering.

The Cash Trap: Why Running Out Of Money Doesn’t Cause Failure

Contrary to a widely held belief, running out of cash is not the primary cause of startup failure. Running out of cash, however, is symptomatic of other glaring and fundamental issues with your startup. The reason why you’re out of cash is what really matters: Did a lack of experience contribute to foolish spending? Did a lack of product-market fit mean no revenue? Are you simply unable to raise money because the basic math doesn’t add up in your business model?

Three Steps To Avoiding Startup Failure

So, how you can you avoid failure? Let’s start with the basics.

  • Can you acquire customers for your solution? Product-market fit is everything. If you can’t pass a basic proof of concept test, don’t go any further until you do.
  • Can you scale your process of customer acquisition? Once you’ve saturated the immediate market, consider how you will scale your offering. Don’t go any further until you have a feasible plan in place.
  • Does basic business math work for you? You will run out of money if you cannot monetize at a level higher than your acquisition cost. To put it simply: Can you buy low and sell high? If you can’t, rethink your business model.

Once you pass the product-market fit and basic business math tests, take a good hard look at your execution abilities. Ask yourself the following:

  • Do I have the skills and experience to survive past my startup’s initial success and help it reach its full potential?
  • Do my team members complement my execution abilities and make up for my shortcomings?
  • Does my team have adequate experience to develop the right strategy, and recognize when it’s time to pivot?
  • Do we have checks and balances in place, like a good board or advisory team who can steer us back onto right path when founder issues arise?

Remember, it’s not enough just to surround yourself with a team that’s smarter than you. You need to proactively seek (and take) their advice.

What to Do When Your Startup Fails

It’s a cliché for a reason: Hindsight truly is 20/20. If you’re willing to get outside the fizzle bubble and accept failure, you can also open yourself to gaining much-needed wisdom.

Start with marketplace demand: Did anyone purchase your product? When we have a great idea we’re genuinely excited about, it’s easy to convince ourselves that everyone else will be just as excited too. More often than not, I find that the market for a so-called “genius idea” is actually too small to support a business.

If a market truly existed for your product, were you able to acquire any customers? Sure, people may love your product in theory, but if it’s too expensive, too complicated to use, or the competition produces a better version, you’ll find it very difficult to acquire and retain customers.

Finally, take a hard look at the numbers. Did you burn so much cash on development that it simply became impossible to make back these losses even with strong customer acquisition? If basic math won’t work in your favor, it’s time to go back to the drawing board.

Final Thoughts

No matter what stage of the startup lifecycle you’re in, surround yourself with people who are actually building a product, not just talking about building one. Their willingness to fail – and to support others who do so, too – is the real secret behind Silicon Valley’s magic.

Failure as an entrepreneur is inevitable. It’s what you learn from this failure that will determine whether you will ultimately be successful.

Read More: www.forbes.com