Why startups fail?
Most startups don't succeed. Even raising capital is no guarantee of eventual success. But why do most startups fail, and how founders can increase their chances of success?
In a startup web conference organised by HSBC, one of the questions I had to answer was why some startups raise capital while most don't. There are, of course, several factors that separate the successful from the unsuccessful. Founder quality is the most critical. So is the quality of the solution.
But, other things being equal, one differentiator is the market size. We have seen some good decks with quality founders trying to solve intriguing problems. The current solutions suck, and there is a genuine need for a better solution.
Unfortunately, the market they are addressing (TAM) is tiny. These problems are a bit too niche to attract venture capital. Most VCs give them a pass even though these founders tick all boxes.
I recently read a survey of more than 1,000 founders on why they failed on Crunchbase.
Source: CB Insights
So what are the top reasons why startups fail?
1. Ran out of cash – 38%
2. No market need – 35%
3. Got outcompeted – 20%
One way to interpret "No market need" is to think many people didn't want a solution even though it was an interesting problem to solve.
"When Paul Graham, Jessica Livingston, Trevor Blackwell, and Robert Morris started the Y Combinator seed accelerator in 2005, they picked “make something people want” as their motto."
I like to think of this as "make something that many people want" if you want to raise venture capital.