Beating the statistics: The underlying reason so many startups fail

Eighteen months ago, CBInsights released a list of reasons why startups fail, based on analysis of 101 startup postmortems.

The analysis identified the top 20 reasons for failure that were derived from the patterns portrayed in the postmortem’s stories.

I decided to challenge this list.

Not because I doubt it in any way, but because I wanted to see if I could find a common ground for all these reasons — one ‘core reason’ that fuels all the others.

And I found what I was looking for!

A closer look at these 20 reasons reveals most of them were caused due to lack of deep understanding of the startup’s target audience and could have been prevented (or, at the very least, the effect on the startups’ life could have been minimised) if a consumer-driven approach was applied.

Sounds like fluff?

Maybe, but if you’re planning on beating the statistics, this ‘fluff’ might be your secret sauce.

Let’s put it to the test.

No market need

The number one reason for failure, cited in 42% of cases, demonstrates this point most vividly. Coming up with an idea is the easy part. Refining, adjusting and re-designing it to make sure it meets a real market need is the trickier part.

Why? Because it requires you to really understand what people want.

However, what they say they want isn’t necessarily what they actually want.

In the words of Henry Ford: “If I had asked people what they wanted, they would have said faster horses.”

It’s your job as an entrepreneur to understand the underlining of what people are saying — in Ford’s case, to get from point A to point B faster — and refine our ideas around that instead of just listening to their words and come up with a literal solution.

It’s also important you listen to the right people — those being your potential consumers and target audience. Your co-workers, dev team, best friends and mum don’t count, even if they fit the profile of your target audience.

Yes, it means you might have to pour some precious funds into getting this feedback, such as investing in some research or a survey. However, if your success relies so heavily on that, maybe you should look at it as your most important long-term invest — the one that can help you beat the statistics.

This brings us to the second reason on CBInsight’s list.

Running out of cash

This reason for failure is not caused due to lack of funds, but due to the wrong use of funds.

And what has that got to do with understanding your consumers?

Consumers hold the answers to where, how and what you should spend your money on.

Their reactions can prevent you from spending time and money on developing a feature they’re not interested in and can encourage you to keep working on something else for which they’re willing to pay a premium. That means they’re not just helping you save money but also helping you to stay focused (reason 11) and set the right pricing (reason five).

Their characteristics can direct you to where you can find them (and others like them) but even more than that, it will prevent you from throwing money on the wrong marketing tools, channels and messaging (reason eight).

Their behaviour can tell how friendly or unfriendly your product or interface is (reason six), and if you deeply analyse their behaviour and interaction with your product instead of ignoring them (reason nine), you can easily adjust it to better accommodate their preferences of use.

Bottom line

The money you invest in understanding your consumers at an early stage saves you from spending it in the wrong avenues while keeping you focused on more yielding opportunities. As a result, it helps to prevent you from running out of cash before you got the chance to prove yourself.

Speaking of cash, your investors are in fact a target audience of their own, and your offering to them is significantly different from the one you are offering your consumers. If you acknowledge this and make sure to speak differently to them, you have a much better chance of getting their interest and funds (and risk-proofing your startup from reason 16).

We can keep going through this list, and yes, some of the reasons are not consumer-related — such as not having the right team, a lack of passion and burn out — but I think the point is clear by now.

A profound understanding of your consumers and target audiences is a critical ingredient for startup success.

Usually perceived as a pure marketing ‘tool’, consumer understanding (and the consumer insights drawn from it) is in fact one of the most powerful, intangible business assets you can have, and if properly used, it can positively affect every aspect of your startup, be it marketing, product, pricing, innovation or customer service.

In a world and time where consumers hold the power to build and destroy ventures, startup founders and teams must lead a consumer-driven business from day one and let consumer insights guide their overall strategy.

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