Tuesday, October 2, 2007

Entrepreneur Issue! - Why do many startups fail?

I got the following question from an entrepreneur and I thought I share it with everyone.

“Why do many startups actually fail? In my observation, i have felt that there are many a startups which have a brilliant idea, a genuine team to execute that and also a good support for the product they intend to build, but still the companies fail to break even. I would love to hear from you your views on why startups fail? cheers, Vaibhav”

There may be a thousand different reasons, but here is an attempt at simplifying a clearly completed question. Here is a stab at a few common reasons:

1- Chemistry: often entrepreneurial teams fail to have the winning chemistry together ; it is a combination of reaching for perfection and greatness and ability to work together to compromise their way to success.

2- Too much Brilliance: a lot of companies fail because the market is not ready for the innovation yet and the entrepreneurs focus on their vision as opposed to what the customer wants or needs – they continue to miss the mark by listening to themselves more than listening to those who pay.

3- Confusing Execution & Effort: a very typical problem in startups is that the team is genuine and genuinely believes that they are executing well, but they are not! Execution is not doing a lot of work. Effective execution is what bridges aspiration and results – simply put, if they were executing well, they would not fail!

4- Not Listening: I have seen this one hundreds of times, Entrepreneurs often think that their situation is different (it is a different market, a unique product, a whatever …) so they fail to listen to their investors or trusted advisors (whom they picked by the way) or listen partially. By the time they begin to listen it is often too late.


Denny K said...

Why Startups Fail and Why Gigamon Should've Too

This is just my story. Hope you enjoy it. Thanks.


Denny K Miu

Anonymous said...

why do listed securities fluctuate in price?

it's the same reason for why startups fail

internal factors + external factors + random error

which of these is most important?

it's random error because fluctuations in quoted prices are unpredictible

....strange question sid

Tom said...

Forbes.com recently asked the same question and this article present an excellent set of reasons as to why it happens along with pulling on relevant examples.
- Tom

Ariel Diaz said...

I must really agree with the anonymous poster. Of course there are random errors about why startups fail and why stock values go up and down. But that really only applies in the short term.

Over the long term, execution does matter. Look at Microsoft's flat stock over the past 10 years, and Apple's. It's not outside forces. It's M$'s inability to innovate.

As for startups, The key is to make sure that you're doing everything you can internally to both take advantage of potential upswings, and to also best weather potential downswings. Of course a black swan can come and take you out, but there is a lot to do to make sure you're ready.

daffodil_wind at yahoo.com said...

Being an entrepreneur, and going thru the initial cycle 'keep looking for answers.

Almost 99% blogs talk about/speculate why startups fail. But none so far have seen solutions (may not be applicable to all) or put it in a +ve way what to do and how to measure progress.

Criticism is easy; analysis - even a 10yr old can do; We see so many HBS cases (and they make lot of money from academia) If people know magic sauce the success rate would be 100% or close. Its the same thing that some one claims his software can predict stock market.

There are general guidelines of what to do and what not to do. But stereotyping is common;

Only "success leads to bigger success"; till then entreps keep trying digging out of rat's hole; and keep away from -ve thoughts until they are out of patience or money.

I feel 'am handicapped by not being in the silicon valley or boston. But hey, who knows, one day 'might make it.

Overall, 'heard what the blog says a million times outside.

If any entrep or exec or angel investor hi-tech/IT in DFW TX interested 'would like to talk to you/reach out --Thanks (my addr is the name with which 'posted)