With every successful industry comes a disheartening rate of attrition. It’s just the way it is. For example, an estimated 90% of Silicon Valley startups end in failure. When they do, many of the floundered companies’ founders take to the web to pen post-mortems detailing where and why things went wrong. As Fortunes’s Erin Griffith reports, a venture capital database called CB insights has analyzed 101 of these startup obituaries in order to pinpoint patterns.
From Griffith’s piece:
“The number-one reason for failure, cited by 42% of polled startups, is the lack of a market need for their product.
That should be self-evident. If no one wants your product, your company isn’t going to succeed. But many startups build things people don’t want with the irrational hope that they’ll convince them otherwise.”
That last part is key. Part of becoming an entrepreneur and venture capitalist in Silicon Valley is the hope that one day you’ll latch onto a product that completely revolutionizes the way people do things. Where regular startups simply shoot for the stars, these kinds of innovations aim beyond. Griffith uses mobile phones as an example:
“People dismissed [them] as a novelty in [their] early days. Obviously, they are no longer a novelty. The late Apple co-founder Steve Jobs famously said, ‘A lot of times, people don’t know what they want until you show it to them.’ The problem is that entrepreneurs have taken that to heart. For every $19 billion company like Uber, the private transportation service, there are all manner of frivolous products that never evolve past the phase.”
Griffith investigates some of the other big reasons from the graph above. One person she talked to calls “Running Out of Money” less a reason in and of itself and more a symptom of poor management. Another expert told her that startups founded alone tend to fail more often than those with co-founders. A lot of the reasons above can be collected beneath the umbrella of “Poor/Inadequate Leadership.”
So if you’re looking to join the fray and introduce your own company, be aware that the odds are against you. Do your best to practice good management and make sure your product satisfies the market. And if you do fail, know that it’s not the end of the world. A lot of people have to fall before they’re ready to rise.
Keep reading at Fortune.
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Graph credit: CB Insights via Fortune