5 reasons why startups fail
80-90% of all technology startups never reach their initial vision to become a large international growth company. Since I started STING 2002, I have seen more than 100 startups pass through our Business Accelerator. Some have already become international companies and some are on their way. But I have also seen several of our startups fail. There is, of course, not one single explanation, but I can definitely see a pattern among those who fail, and I would like to share these observations with you.
The most common reason for failure has to do with the team. For instance, if the founders and key players do not share the same vision of where they want to be in 5-10 years, they will sooner or later enter into a frustrating conflict on that topic. The result is often loss of time or worse; the company is closed down.
Teams with a shared vision of their roles, and of the company’s goal and strategy, have a much higher success rate. And it’s clear that those who do not very early develop a well-thought-out shareholders agreement tend to run into conflicts later on.
A startup’s success is also related to the energy and ambition of the founders. To build a large international growth company, the key persons must be willing to work extremely hard without much payment for many years and move to other countries. Having that kind of drive and international ambition is necessary.
What about the team competence? It is not required that the founders have all the required top skills between themselves – BUT, they must have the ability, the will and the magnetic power to attract those top people to the team. And startups who succeed often recruit individuals that are overqualified at the time of hiring, because they’re planning and preparing for the time when the company will grow into a larger organization.
Another observation relates to all industries having their specific rules and business logic. Teams who don’t understand this early enough and wait to bring on board people with relevant industry know how, tend to have a much longer way to market. Therefore, they are often out paced by other teams that do have the relevant industry know how, especially within sales and marketing.
My final observation is that startups that do not care about creating a strong, dynamic corporate culture and reinforcing the company’s vision and goal, have a much lower chance of succeeding. As always, it is all about people!