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Top 10 Reasons for Startup Failure : Page 2

Consider these common mistakes made by software entrepreneurs so you don't fall into any of the traps yourself.


6) Project Takes Too Long, Key Founders Move On

Even with a proof of concept, funding (or not), and a team that is trying their best to create, improve, and sell a product, the lives of the founding team do not become any easier. While they may feel a slight bit more stability, there are still enormous difficulties like cut-throat competition within their market, cost of acquiring customers and monetizing them for more than it cost to get them, scaling the product, etc. All this takes time even in the best scenario where the company is growing. Al this takes time and to state the obvious, time is a funny thing. It can change people, their ambitions, attitudes, beliefs, goals, family situations and much more. Over the course of a few years a number of the founding members may leave. Some are replaceable and some are often not.

While the common saying is that "everyone is replaceable," it is often not true in startups because often there is one engineer who knows a crucial part of the code or a person with the vision and the true leader; or the one sales person who has accounted for nearly all the revenue. If these people leave, the organizations become like chickens running around without a head. They might kick and scream, run around and make a mess, but ultimately they will die.

7) Business Model Can't Support Founding Team

This point is consistently echoed in nearly all other points because it is so pertinent. To keep the ship flowing, fuel is absolutely necessary. And money is the fuel that keeps companies going. We have covered how difficult it is to get money from investors. If possible, the best rout is often to position the company to earn money on its own. There is a startup term to the effect of being "noodle soup profitable" meaning that the company should make just enough money to keep its founding team afloat. The dollar amount for break-even can vary with the founding teams. If the founding team consists of one modest person, they can likely break even at $2,000 monthly income which would enable them to survive and worry less about money and more about building the company.

On the other hand, if the founding team is full of ex-VP's who need to support families or mortgages and can not dip below 10k monthly salary, the playing field changes quite a bit. This is pre-beginner cost structure overview, but it has to be understood since it is often difficult to monetize online users who are difficult to bring to your site in the first place.

8) Founders Get Funding But Can't Get the Product Right

There are many companies struggling along with an ever-changing product. The product doesn't change in its core, but rather in its look, usability and minor features. The founders try to get it right, but get lost in overwhelmingly different customer and focus-group feedback. It isn't as much of a problem as it used to be because the idea of following a vision while listening to customer needs is a great guide to finding the balance between the two. Nevertheless, an ever-changing product can be confusing to existing and new customers, harder and costlier to market and continuously augment, and can be a sign of a weak CEO who is not able to make sharp and crisp decisions.

9) Product Can't Find Market

Some companies get pretty far. They may get investment or are able to survive on their own, and even get a mature product to market that garners some attention. Things seemingly go well, but the product is never able to reach beyond a certain audience. Typically "early adopters" try out the product because it perks their attention, and the company is able to survive on that wave of revenue and consumer interest for a while, but is not able to reach beyond the early adopter market. Reasons for this are many. Sometimes the product is only marginally better than something people are already used to, or isn't helpful to a wide enough group, or costs too much, or is just poorly marketed. There are many reasons why some products never grow beyond a certain reach. We are just pointing out that a common cause of startup failure is simply that the company is just not able to attract a wide enough audience, often resulting in failure.

10) Founders Get Funding, Company Doesn't Take Off, Founders Stall and Create Illusions

I left this interesting scenario for last. Sometimes it is clear that a failure is impending to everyone except the investors. Customers laugh at the company and leave, employees quietly come to work and go home, while collecting a paycheck, and the executive team makes things look amazing from the vantage point of the people who invested in the company and help find further sources of funding. Sometimes the executive team spends most of the money on marketing in order to attract some users, and be able to show user growth to the investors to placate them. Sometimes the team bonds and does show good teamwork, making the investors reluctant to disband a solid team. There are many possibilities, so when evaluating or trying to make sense of a startup, considering who in the company is benefiting from maintaining the status quo and where the gaps look too big to make sense.

Alex Genadinik is a software engineer, SEO expert, and serial entrepreneur. He is currently working on a social site for hikers.
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