5 Business Lessons from Startup Failures

About 99% of startups fail. Entrepreneurs struggle with many problems on a daily basis and face rejection over and over again until they establish themselves in their field. CB Insights reports that venture capital (VC)-backed startups die at a rate of 1 per week in North America. Having in mind that those startups are among the lucky 1% of startups that were scrutinized by institutional investors, this number is alarming. Although startup failures are much more common than startup success stories, they can provide some valuable insights that could guide entrepreneurs and help them manoeuvre between daily challenges.

Lesson 1: Ensure that there is a big market for your product or service. According to CB Insights research, about 35% of startups fail because there is no market need for their product or service. “[…] the market is one of the most important factors when it comes to a startup’s success or failure,” claims Marc Andreesen, Co-founder of Netscape, a computer services company. It is pretty obvious that if there is no market demand for a product or service, such products and services should not be launched. Still, many entrepreneurs fail to notice it and act counter-intuitively.

Lesson 2: Research before taking risks. Founders take risks more than most people. To reduce the risk of failure, many founders raise venture capital (VC). If you are planning to seek VC, invest your time in proper research. Travis Steffen, CEO of GrowFlow, a software provider, shares that when his team were raising money, they realized that the size of their ‘total addressable market’ was an obstacle. They also noticed that the churn risk of target customers affected their ability to scale, which they had not reflected in their financial models. Steffen concludes that if they had done it sooner, the fundraising process would have been much faster.  

Lesson 3: Evaluate your idea. Most of failed startups worked intensively on technical aspects, but skipped the business model and idea validation steps. ThinkGrow research found that the lack of idea validation affected 17% of business-to-consumer (B2C) startups. In many cases, ‘great’ business ideas are in fact ‘the opposite of market needs’. To avoid this scenario, try to become your worst critic and evaluate your idea from as many perspectives as possible. Don’t start brainstorming on the value proposition of your product or service until you are completely sure that you are creating something that people actually need.  

Lesson 4: Learn from negative feedback. Carrie Chan, Co-founder and CEO of Avant Meats, a tech company, admits that the negative feedback her team received from 2 investors who decided not to invest in the company was in fact useful for shaping their future strategy, and helped them improve their product. As their product idea was challenged, this feedback helped them better define and differentiate their product in the market and make it more sellable. Eventually, they managed to develop a patentable idea and product concept based on more data and a thorough analysis. 

Lesson 5: Take risks and learn from failures. Employees should be encouraged to push themselves outside their comfort zone and take risks. It is also important to know when it is time to kill ideas or projects if they are not working the way you expected. There is an opportunity cost to projects if they are not generating the right outcomes. Take the time to admit failures, and encourage your team to take even more risks. Small failures can lead to greater success as long as you learn from your experience.

References:  Harshith Mallya, inc42.com | Oleg Feldgajer, linkedin.com | Team Rucha Joshi, timesnext.com | Travis Steffen, forbes.com | Anastasia Mudrova, thinkgrowth.org | Saemoon Yoon, weforum.org | Darpan Munjal, inc.com