The No. 1 Reason of a Startup Failing is Lack of Capital: These are 11 More Reasons

By: Sharjeel Sohaib

• 

Nov 5, 2021

 • 

The number one reason that startups go bust is a failure to raise capital, or a lack of capital to sustain operations. There are 11 more reasons found out by Venture Capital Research firm CB Insights. After going through these factors, don’t get bogged down and instead read about the five companies from the Inland Empire that may help inspire your own startup idea.

Or, also get inspired from three Billion dollar companies from the Inland Empire region, companies that adopted the path of sustainable growth year after year.

11. Burn Out

How To Tell You Have Reached The Point Of Burnout

“Burnout was given as a reason for failure 5% of the time”.

CB Insights

In the CB Insights research, or what it calls ‘startup post mortems’, founders cited surprising reasons as this:

“Ultimately we shut down because our team is ready to move on to something new.”

CEO Daniel Conway | Doughbies

It implies that having the interest and passion about a certain field of work is as important of a factor in sticking around as having demand for your product. It appears Doughbies had demand but its founders and the team did not have the firepower to keep working in the domain.

10. Failed Pivot

Fail Fast, Iterate, And Pivot. I Was Reading The Article “4 Startup… | By  Kyle Galbraith | Hackernoon.com | Medium

After investors refused to inject more funds, the company was forced to shut down.

CB Insights

Electric skateboard startup Inboard is a key example of a failed pivot.

The startup was one of the highest-profile competitors to top electric skateboard company Boosted, and last year announced plans to enter the electric scooter market — a push that seems to have doomed Inboard.

Verge

The story is that the company received a large order of e-Scooters from a European scooter operator and in in order to cater to that order, the startup decided to pivot to B2B market instead of B2B that it previously focused upon.

9. Disharmony among team/investors

People Groups Conflict - Free Photo On Pixabay

Discord with a co-founder was a fatal issue for startup post-mortem companies. 

CB Insights

There’s nothing as toxic for a startup as infighting. A prime example is retail startup Hubba where founders, investors, and executive team didn’t get along well resulting in the investors pulling out of startup’s funding. As a result, it failed and closed.

8. Poor product

Poor Quality Of Products - How To Spot A Fake Product | The Economic Times

Sometimes, it all comes down to the product — and a flawed one was enough to sink companies in 8% of cases.

CB Insights

CB Insights revealed that poor product is also one of the key reasons of startup failure. A key example is startup ScaleFactor that raised more than $100M in one year and closed down citing COVID-19 as the reason of failure. However, a detailed investigation and background interviews by Forbes magazine revealed the startup had a poor product and other problems that caused it to shut down.

7. Product Mistimed

Image

For some companies on our list, an unforeseen factor like the Covid-19 pandemic contributed to product untimeliness.

CB Insights

It appears VC money comes easy and goes easy. At least, that is the case with VR startup Vreal that shutdown its operations because it said it was ‘ahead of time’. What this meant was that the platform never saw the traction it hoped for and had to close down.

6. Not the right team

24,856 Bad Team Illustrations &Amp; Clip Art - Istock

“I wish we had a CTO from the start” or wished that the startup had “a founder that loved the business aspect of things.”

Jason Crawford| Co-founder of Fieldbook

Failure to attract and retain the right talent is also a determining factor for many startups that ultimately failed. This ‘post-mortem’ blog post by Fieldbook’s CEO reveals how several assumptions about the growth rate, imitation of bigger SaaS apps, and difficulty of niche undermines talent hiring efforts.

5. Pricing/cost issues

Pricing Goals And Issues - Global Marketing Professor

Pricing is a dark art when it comes to startup success”.

CB Insights

Pricing of SaaS apps may appears to be simple but who knew that a bad pricing killed a lot of startups. Things like customer acquisition cost, onboarding experience, and retention of customers all impact the pricing and vice versa.

4. Regulatory/legal challenges

4 Important Legal Issues In Higher Education | Northeastern University

Sometimes a startup can evolve from a simple idea and enter a world of legal complexities that can ultimately shut it down.

CB Insights Research

A Kickstarter-based project called Coolest Cooler shut down operations after the duties to import stuff from China increase from 20% to 25%. However, the overarching idea is that legal and regulatory issues can spill over to the core of a business. Not to forget the uphill legal battles that Uber and Airbnb have fought world over to just stay operational in the markets.

3. Flawed business model

10 Of The Worst Business Ideas To Steer Clear From In 2021

Venture capitalists, along with Telco’s, don’t typically invest in open source companies.

Lumina Networks CEO Andrew Coward

An open source Telecom software provider had to shut down because its business model did not make sense. The telecom industry had proprietary software that all big companies used and the open source software model never flourished enough for Lumina Networks to sustain.

2.  Got Outcompeted

5 Most-Common Reasons Why Your Business Is Losing Customers To Competition

While obsessing over the competition is not healthy, ignoring it was also a recipe for failure in 20% of the startup failures.

CB Insights

A gaming robot startup called ‘Reach Robot’ closed down because it could not survive in the fiercely competitive space of consumer hardware space.

1. No Market Need

Why A Startup Fails In 2021 - Top 12 Genuine Reasons - A Place For Every  Entrepreneur

CB Insights research revealed that 35% of startups that failed did not have a market need.

Startup Empire Wire

A startup that raised $1 Billion in funding closed doors in less than a year after raising money. This shows that ‘market need’ is a thing that can drown even the most well-funded startups.

“…[T]here were ‘one or two reasons’ for Quibi’s failure: The idea behind Quibi either ‘wasn’t strong enough to justify a stand-alone streaming service’ or the service’s launch in the middle of a pandemic was particularly ill-timed. ‘Unfortunately, we will never know, but we suspect it’s been a combination of the two.’”

CEO Quibi

Here’s a detailed story by CNET on Quibi’s closure and another one by Verge in which the magazine wrote about 11 reasons why Quibi crashed and burned down in a year.

These stories and quotes, as well as the context in which these 12 factors play out in the startup failure can help you understand what is that the afflicts a startup’s chances to succeed. Still, running our of cash is the number one factor that your startup can fail, hence the need to ensure funding from another source (until the business makes money) or monetization early on.


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Author

  • Avatar Of Sharjeel

    Sharjeel joined Startempire Wire as emerging technologies editor. Earlier, he worked at Silicon Canals, a leading English language technology media source for the Benelux and wider Europe. He covered the European technology and startup ecosystem digging into latest funding rounds of startups.

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