Why Startups Really Fail, and How To Fix It

Why Startups Really Fail, and How To Fix It
Photo by Matthew Osborn on Unsplash

As founder of six startups, advisor to founders, and a startup strategist at IMD (#1 ranked business school), I see many mistakes being made and have made many myself. What drives me crazy is that the same mistakes happen again and again.

So here is my scary list of the most impactful mistakes founders make:

Mistake 1: Scaling Early (Means Failing Early)

The top three reasons why 90% of startups fail are “no money,” “no market need,” and “too strong competition.” All these reasons are directly or indirectly related to understanding the market.

“Not enough money” means not having enough traction to convince investors, and no traction means that you don’t know the customer well enough to build a product that the market desperately seeks.

“No market demand” means there are too few customers for your product (no matter how good it is), or they are unwilling to pay enough for it.

“Too strong competition” means a product offers no added value/no USPs compared to the competition. It can even be great and have added value but will still fail if it’s lacking the ability to communicate its strengths.

As a founder, when you start building a product, you start with hypotheses and try to validate them. You might have identified an exciting market and now need to test your product in a structured way.

“The only thing that matters is getting to product-market fit.”

— Marc Andreessen, Andreessen Horowitz

How to fix the mistake of trying to scale too early:

It will help if you stay flexible and open-minded at this stage, as many hypotheses will not work. Finding out now what works and what doesn’t will save you a lot of time in the medium term. You will then know which market (ICP) and product to focus your scarce resources on. As soon as you see and are able to measure momentum, you are “ready to scale.”

Mistake 2: Too Much Emphasis on Building a Great Product

The market and most products are like cats and dogs: They usually do not get along. BUT…if you grow them together, they will love each other. You can believe me: I have achieved this with both cats and dogs and products and the market. Max and Klaus for example, grew up together (and even share their meal now, see picture below), and regarding products and the market, numerous startups follow the process I’ve built with www.growthuntld.com and see amazing results.

You don’t need a great product to achieve product-market fit or get traction. You don’t even need a real product. You must deliver the value you promise and get good at it before building your “final” product. Remember what products like Airbnb or Facebook looked like in the beginning? You don’t? Well, believe me when I say: They sucked. But that’s exactly the thing: Nobody remembers this now. So don’t worry if the product doesn’t meet your expectations yet.

“Many entrepreneurs who claim to embrace the lean Start-Up canon actually adopt only part of it, neglecting to research customer needs.”

Tom Eisenmann, Harvard

How to fix the mistake of trying to build a great product immediately:

Use a data-driven approach and test your value proposition properly before building a product. Go deep and take your time. You can run a demand test and see which value proposition works best.

Mistake 3: Lack Of Leadership

I have often observed that product inventors are not necessarily good communicators or leaders. Also, communication in teams is exhausting, and people like to avoid it. The same applies to setting clear goals. Unfortunately, most employees can’t read minds, and with everyone left guessing, disaster is inevitable. Other founders hide behind numerous 1-on-1s and miss out on collectively taking the whole team on a journey toward a fantastic vision.

The result: Everything turns out differently than imagined, leading to a vicious circle of disappointment for the employees and the founder, investors, and partners.

Good leadership is the secret sauce of a successful startup. Especially in tech, there is even less tolerance for bad or mediocre leadership to achieve excellent, sustainable, and cost-efficient results than in other companies and sectors.

How to fix a lack of leadership:

A clear communication architecture with team meetings, daily standups, and ad-hoc meetings is vital to motivating, informing, and leading the team.

Set clear, achievable goals together with the team. Goals ensure you’re running in the same direction instead of being busy like a bag of fleas while achieving nothing.

With the help of OKRs, you can set goals effectively and quickly. Get outside help with this because the theory sounds simple, but the implementation is often complex and needs some practice.

And always remember: Leadership is not everybody’s piece of cake. If you don’t feel comfortable leading a team or simply know that you’re better at building a great product then hire someone for the job!

Mistake 4: Losing Focus of What Really Matters

It happens so quickly: A customer with a budget comes knocking and wants your product. But just a little bit different. And they don’t belong to your target group. Or a prominent strategic investor finds your startup fits perfectly into their portfolio. But the product would have to be expanded toward B2B, not just B2C.

“For every YES there have been a thousand NO’s before.”

— Steve Jobs

This is everyday life as a founder, and every time you say yes, you destroy the chance for success a little bit more. Sometimes it goes pretty well, but most of the time, you regret it afterward. Opportunities are simply opportunities and not long-term plans.

How to fix the mistake of losing focus of what really matters:

Having a clear strategy in place helps to say NO by agreeing and focusing on goals and priorities. The challenge here is that in a startup, you will probably have to adjust the strategy more often. Just not too often. And not too spontaneously. Treat it like an open document: In an early phase, I recommend reviewing the document monthly and changing it if necessary, then every quarter in line with the team’s short-term objectives and new market insights. The strategy is your tool for successful business management, and you should use it.

Mistake 5: Not Listening to Customers

Founders believe in what they repeat over and over about their idea: “It’s great”. At some point, it becomes natural for them to sell their idea, and they stop listening to customers and data. Some founders — especially the ones that started with an innovative product idea — never even start listening to customers. They believe so much in their idea that the market must be wrong and will catch up later and realize their product’s greatness. Again, this is one of the important reasons why startups fail.

You must never stop listening to your customers and team if you want to build a thriving organization, a great product, and be a good leader. You might be a visionary, and that’s great, but do your best to stay flexible regarding the product and make it successful. Your day-to-day strategic decisions and your sales pitch are two very different things.

You will have plenty of opportunities to sell your idea, whether it is to customers or investors. Do it whenever it adds value. Listen and adjust the rest of the time.

How to fix it:

Build a framework to collect feedback from users, customers, and the team. Do standardized interviews and surveys, and listen — especially when it comes to interviews. Most importantly: Always stay humble and keep on learning. This also means avoiding being too subjective in how you interpret feedback.

Mistake 6: Taking the Wrong Shortcuts

Yes, we all know how to do it. It’s so easy, and there are many books on how to build startups. And in theory, it might all be true. But in practice, it looks very different: Suddenly, user acquisition doesn’t work as planned. The new feature is buggy, and your co-founder has been in bed with COVID for three weeks.

What do you do now? Do you still follow the best-practice guidelines from the brilliant books you’ve all read? Or are you starting to put out fires and taking shortcuts?

It’s probably the latter. And that means the beginning of the end for your startup. A shortcut usually leads to a dead end eventually because you took a wrong turn under all the duress and ad hoc decision-making. Why? Because you didn’t acquire enough knowledge and establish enough strategic structure to decide correctly and based on data once things got hard. Learning on the go works for a maximum of 1 out of 10 startups. The others die. And the one that survives was probably not learning on the go, either. They not only had a good product, they likely had help and a robust strategic framework to go to market.

“The number one problem I’ve seen for startups, is they don’t actually have product/market fit, when they think they do.”

— Alex Schultz, Facebook

How to fix taking the wrong shortcuts

Get help from someone who can keep you on the right track. Someone who is not firmly caught up in the operations and has a helicopter view. This can be a person (advisor) or an organization, for example, an accelerator.


Does this article provide instant help, or can you immediately change anything based on it and save your flailing startup on your own?

Honestly, I don’t think so.

The reason is simple: When shit hits the fan, all good intentions are quickly forgotten, and you function on autopilot. Instincts take over, and focus and rational analysis fade into the background.

You are lucky if you even notice this might be happening. This is also why I believe every founder or founding team needs “external” leadership — from an advisor or board of directors. From someone with experience who is not that deep into operations and is not afraid to voice unpopular truths. Someone with a birds-eye view. Someone you listen to. Unfortunately, this still happens far too little. However, there might still be time to take this step and if you can, please do!

I would be very interested to hear about your experience and if you think I missed some other important reasons why startups fail. Write me or comment here. It’s highly appreciated!

Why Startups Really Fail, and How To Fix It was originally published in Entrepreneur’s Handbook on Medium, where people are continuing the conversation by highlighting and responding to this story.

This content was originally published here.