The 5 Main Reasons Why Tech Startups Fail

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The 5 Main Reasons Why Tech Startups Fail

A quick glance at the top 10 richest people in the world shows one glaring trend: the majority are techpreneurs. It’s therefore little wonder that so many people are trying their hand at building the next Amazon or Facebook in the hope they can be the Jeff Bezos or Mark Zuckerberg of the future.

Unfortunately, there’s only so many Facebooks or Googles that the world can have so the overwhelming majority of such startups are unlikely to get to such size. Nevertheless, startups fail for more practical, avoidable reasons and we’ll look at how.

1. Lack of Cash

You’ve probably heard it said that a good business idea and a ready market is a more important ingredient in business success than capital. While this is true to some extent, there’s no denying that your business is unlikely to get very far if you have no money.

Many otherwise great startups have folded due to nothing else but cash flow problems. To prevent this from happening, it’s vital to develop as part of the overall business plan, a rigorous financial roadmap that details how the startup will be funded over the short, medium and long term.

2. Glacial Growth

Every founder dreams of exponential growth. Such dreams are often quickly shattered though once their product is eventually introduced to the market. For tech startups, slow growth not only means an inability to generate enough revenue to sustain operations but also makes it hard to secure new funding to sustain subsequent phases of the startup’s lifecycle.

Few things make angel investors more nervous about putting their money into a startup than persistently low sales. It puts the viability of the entire business into question. There’s also a danger of large players replicating the product and making it available to a much larger audience thus rendering the startup irrelevant or obsolete.

3. Explosive Growth

In the context of the dangers of glacial growth, explosive growth sounds like a fairly good problem to have. Except that it isn’t. The growth phases of a tech startup aren’t too different from the growth of a person. New freedoms and frontiers come with new challenges and responsibilities.

When you scale up too quickly, you run the risk of losing a firm grip of operations in the midst of the rising complexity. Your applications could be unable to cope with the sudden volumes (though something like the Java application performance monitoring tool could help in this regard).

Keeping up with orders, paying suppliers, responding to enquiries on time and losing sight of cash flow has landed many startups in serious irreversible problems.

4. Inadequate Market Research

Many business ideas sound nearly perfect in the founder’s imagination. That’s rarely the case in reality though. Due to a scarcity of cash and a desperation to get a product out there fast, some startups make the catastrophic mistake of bypassing good old-fashioned market research.

Apple founder Steve Jobs famously espoused the idea of customers not always knowing what they want which meant businesses had to show them. The iPhone is however the extreme exception. The majority of successful startups are those that respond to a known existing need. You cannot do that without acting on the basis of thorough market research.

5. The Garage Mentality

The tech industry abounds with stories of successful businesses that were founded in people’s garages and bedrooms. While the narrative is inspirational and demonstrates how possible it is to build a business with meager resources, beware the garage mentality.

What you don’t hear often is that the overwhelming majority of tech businesses that start in a garage or bedroom do fail. Part of the reason is the founder may get so self-absorbed all the while shutting themselves out from the realities of the outside world. The result is a product that is completely out of touch with what customers want.

Your business may not become a tech behemoth but by avoiding these pitfalls, you could find a niche and succeed in your own way.

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