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Why Startups Fail: Product and Market

Launching a successful startup is hard, so it’s no surprise that entrepreneurs make mistakes when founding and growing a new company. These mistakes can range from flawed business models, to incompatible founders, to poor vision and imagination, to bad hires.

The key thing to realize is that ‘failure’ is not always a bad thing. The world has conditioned us to believe that a lack of success is equivalent to failure, and conventional, rational logic would tend to agree. However, the only real failure that any entrepreneur can make is not to learn from their mistakes — or, indeed, their successes! Understanding why a startup has succeeded, or not, and then capitalizing on that knowledge and experience is vital for any entrepreneur.

So if a startup doesn’t achieve its expected traction, it hasn’t necessarily failed — it’s just that there are things it could have done better.

So what are the main barriers to success for a startup? Where are the major lessons to be learned? There are many factors, but they all boil down to three key things: the product/market; the people; and the money. In this three part series, we’ll explore each and work out how founders and entrepreneurs can avoid the major pitfalls.

Market and business
Not understanding the market, or transitions in a market, is a common reason for startups lacking traction and missing growth targets. Entrepreneurs can have a great-looking business model and a fantastic idea, but if they don’t understand their customers or users and the market at large, it’s all in vain.

Contrary to popular opinion, an entrepreneur is not always a marketer — they may understand their target market, but this doesn’t always translate to being able to sell it to that market. Products in the tech world often fail because an entrepreneur often tries to go immediately to ‘growth’ marketing — social media, online advertising, etc — rather than forming a solid foundation of loyal users who can be trusted to provide honest feedback and be loyal to the product, rather than users attracted through ads or social media, who lack a ‘connection.’ Building this core community is an incredibly important part of getting that vital initial traction, and yet it’s a step many entrepreneurs skip.

Startup founders must have intricate understanding of their customers and their problems and needs if they’re to achieve significant traction. Understanding the challenges faced by potential customers, and the resulting issues, is the key starting point for the research and development process that eventually leads to a product.

Product
It’s important to remember, though, that the product is not just what is actually being built or developed. The product, for the founders or entrepreneurs, is also the business model: This is what is pitched to investors, as any episode of Dragons’ Den will show. The final end ‘product’ is what justifies the business model and what is taken to market, whether that is a free-to-use, ad-supported product — such as Facebook — or a paid product, such as a new piece of hardware or subscription to software or services.

A lack of focus often kills startups before they have begun. This often trips up first-time founders, who are often coders and developers. They may have developed a great app, service or platform and have a workable business model that can win over investors, plus they understand their market and customers. Great, right? Well… maybe. The issue comes when they find themselves wanting to add more and more to the app or service, instead of focusing on achieving what’s known as product/market fit and making sure the app will first fill a hole in the market and secondly, can scale.

It’s essential that startups achieve product/market fit before going onto scale and growth. The fit and definition for every startup will be different, but an accepted definition that works across all industries and sectors comes from Sean Ellis, the first marketing hire at LogMeIn and Uproar, and later an independent consultant and author: If at least 40% of customers say they would be ‘very disappointed’ if the service or platform disappeared, a startup is judged to have achieved product/market fit.

Achieving product/market fit is vital.

Aligning product and market
Achieving that fit simply means focusing on the potential customer base and adapting the product to their collective needs. If a platform has 1,000 users and 900 of them say it needs an essential feature for it to become a crucial app in their work or personal lives, it’s probably a good idea to add that feature. Conversely, if 50 of those 1,000 users want a feature, it may be wise not to add it because when/if the startup scales to 1 million users, it wouldn’t be terribly well used and would potentially affect the user experience of the platform at scale.

In conclusion: entrepreneurs and founders need to focus on their users if they are to achieve success. This is crucial in the early-stages of founding a startup, but it even comes in handy at unicorn or post-unicorn stages when considering a direction to take or making a choice over a new feature or service.

June 2020

#LTW

June 2021

#LTW