The 'not-so-obvious' Reasons Why Startups Fail
The GTM Newsletter
90% of startups fail.
10% of startups fail within the first year.
Across all industries, startup failures seem to be close to the same.
Failure is most common for startups during years two through five, with 70% falling into this category.
Well that’s a pretty bleak way to open up a newsletter.
Aren’t we supposed to be all ‘holly and jolly’ as we head into the holidays? 🎄🎅
Well, holiday season or not, the reality is that failure is the default. In order to succeed, you need to not only pitch a near perfect game but you need to avoid pitfalls.
Some of those pitfalls are more obvious than others…and so today we’ll share some of the ‘not-so-obvious’ reasons why startups fail from people who have lived through failure to tell the tales.
Anyway, let’s get into it.
The ‘not-so-obvious’ Reasons Why Startups Fail
Now, of course, there are many reasons why startups fail.
Some of the most common (or obvious) reasons include:
Lack of market demand for the product: It is important for a startup to thoroughly research and validate the demand for its product or service before launching. If there is not enough demand for the product, the startup will struggle to gain traction and may ultimately fail.
Insufficient funding: Many startups rely on funding from investors or loans to get off the ground and sustain themselves in the early stages of the business. If a startup is unable to secure enough funding, it may struggle to pay for necessary expenses and may ultimately fail.
Poor management: Effective leadership and management are crucial for the success of any business, including software startups. Poor management, such as a lack of clear goals or poor decision-making, can lead to the failure of a startup.
Competition: The software industry is highly competitive, and startups may struggle to compete with larger, established companies. If a startup is unable to differentiate itself or offer a unique value proposition, it may struggle to gain a foothold in the market.
Technical challenges: Building software can be complex and time-consuming, and startups may face technical challenges that they are unable to overcome. This can lead to delays in launching the product or service, which can impact the success of the startup.
Those ones are so obvious that all five of those were actually written by AI (ChatGPT).
Building off of last week’s theme of How Generative AI Will Impact Your GTM Motion…
We can add one more to that list: It can help you open a newsletter.
Alright, time to hear from some actual human beings who live/eat/breathe this stuff.
I like Scott Brown’s take on bridging the start-up execution gap (Scott is the CMO at Hum Capital, former Sapphire Ventures, ex-Facebook, ex-Google).
When I asked him this question, this was his immediate response over Slack:
Starting a new company (that yes, is going to disrupt an industry) doesn't mean you can ignore the fundamentals.
The most common issue I see in companies that fail is that they don't spend time making sure the basics are done right: data is clean, customer interactions are high-quality, processes are identified and generally followed.
Too many folks believe the "big idea" will make up for the 1000s of little interactions the company has with customers, vendors and suppliers.
While you can't just focus on basics and operations, not investing in your foundation will limit your future growth -- and maybe kill your company.
After all, the best idea doesn't guarantee success. Execution, focus, continuous improvement generally lead to greater long-term value over the best idea.
I agreed with his take that even “big ideas” are really in the business of executing on “a million micro interactions” and those micros interactions add up to the success/failure of the company.
So if the battle is won in the details, which ones should I prioritize first?
Well Scott has already written it better than I ever could so I’m going to borrow directly from an article he wrote a few a few years ago titled “Slow is smooth, smooth is fast - bridging the start-up execution gap”:
In working with start-ups, I’m often told marketing is the last thing they need.
There are always higher priorities: product/market fit, hiring, engineering and growth. Touché — I would not argue for running before you can walk.
That said, I often find founders listing the same problems — prioritizing what to build, finding early customers, getting their staff and investors aligned on the company's mission — that having marketing fundamentals in place could help solve.
Time and again, I find myself agreeing with founders: they don't need a marketing department, but they do need to start working on their marketing muscles to future proof their business.
Slow is smooth, smooth is fast
This counter-intuitive saying is attributed to the US military, and it's meaning was explained to me as either:
Any skill you are acquiring should first be practiced slowly, and in a series of rational steps so you can master the underlying mechanics. Focusing on speed before technique limits the upper bound of your future performance because you tried to skip the basics. Get the fundamentals right, then on speed.
"Moving fast and breaking things” may seem like progress, but it’s more likely inefficient and wasteful because you haven’t identified the right problem before starting to break things. Slowing things down until you identify the right problem, and then quickly executing, likely will get you to a better solution, faster than a random approach.
These "slow" principles underly the 5 marketing muscles I talk to almost every start up about:
#1 Build customer empathy and insight
It's an old, and often maligned, marketing tactic but there is incredible value in taking the time to write down personas of your target audiences. Your persona doesn’t have to be rigorous, 100% accurate or even data-driven (although there are great tools like Facebook’s Audience Insights for validating your intuition about your customers.)
Writing personas does two things for your org:
It forces you to think about your customers — who they are, what motivates them, why they might want your product, where you can find them, etc.
It develops a common, customer-centric language for your team — it’s amazing what happens when you stop thinking of customers as faceless “users,” and give them a name and a personality for your teams to interact with.
There are a million templates for personas (just try Googling it). Choose a format that works for you, but at a minimum you should identify:
The pain points in their life (and hopefully how you're solving this for them)
The role they play in the purchase process (and who else might influence the purchase)
How and where they get their information
Your estimate of how many people there are in this persona, and what their economic value to you is
My recommendations for developing personas you can actually use in your start-up:
Write it down — Choose a template or format, and fill it in. You can always make it pretty and more robust later. By committing it to paper, you can test, revise and expand the personas as your understanding of the market grows.
Limit yourself — Don’t develop more than 3-4 personas. More than that, and you either: aren’t focused enough in your sales efforts, or you’re getting too nuanced. and won’t be able to use the personas to guide your thinking. You want a few, clear archetypes you can test your thinking with.
Embrace the "anti-customer" — If you struggle to articulate who your customer is, develop a persona for the person you absolutely DO NOT WANT as a customer. Thinking about who you want to avoid will give you insight on who you really want to attract.
Give them a face and a name — It’s a woo-woo practice, I know. But by giving your personas personalities with faces and a name, you make it easier for your teams to walk a mile in their shoes. This helps build a common language around your customers that your product, sales and marketing can use.
Not writing these personas down, and sharing them, are two common mistakes I see founder make. Those are the "smooth is slow" acts that makes sure you understand your customers and develop a customer-centric POV your teams can rally behind. Once you have those, you can execute more quickly.
#2 Capture audience data
Now that you have your personas, how are you collecting data that help you test them? Remember that people you interact with give you signals about their interest in you. From the earliest moment, you need to capture these signals, even if you're not "marketing" yet. This means:
Have a CRM solution — It doesn’t need to be SalesForce or HubSpot, but have a system for collecting customer data and interactions. Be sure whatever system you choose integrates with channels or functionality you'll want to use down the road.
Capture lead contact info — From the beginning, make sure you collect a list of people who are interested in you. You're wasting a valuable asset if you're not logging people's contact info. Yes, you can use this for direct sales later, but you can also upload this information to platforms like Facebook, LinkedIn and Google to match audiences, enabling you to learn more about them, and reach them in other channels.
Deploy retargeting pixels on your website — It may be too early to start retargeting campaigns, but you should have the infrastructure in place to enable you to reach people who have expressed interest in your company by visiting your web site.
#3 Answer the “Why”
In fact, answer "why" 5 times. If you’re already venture-backed, you’ve demonstrated to some smart people that you have a strong POV on an economically interesting problem. Congratulations! Now, you need to make sure you have a compelling story for customers and the market about WHY you’re building what you are.
This doesn’t have to Simon Sinak TED-level “why” insight. What I find is that start-ups become fixated on what they’re building, and forget to provide context on the broader issue, trend or behavioral shift you’re helping drive. Why is this important? To bastardize the Wayne Gretzky quote, if you tell people where the puck is going, they’ll forgive some of the pivots and mistakes you make along the way.
#4 Create “economies of content”
Years ago I had the opportunity to plan Scott McNealy's blog when he was CEO of Sun Microsystem. This was supposed to be the first blog by a CEO of a Fortune 500 company, and there was no way I was going to be able to fill an editorial calendar with unique content. That's when I developed the theory of Economies of Content.
Simply put, content is relatively time intensive and expensive to create. Distribution is cheap, and getting cheaper. To make sure we get the full value of our content efforts, we need to:
Make sure we articulate a distinct POV
Reduce, reuse and recycle the themes from that content across every marketing channel (eg blog, keynote speech, media push, advertising, etc), multiple times
Today, that sounds like modern content-marketing principles. With the allure of "move fast and break things" mentality, many start ups change their message too frequently, or don't sweat all the value from a content asset before moving on. They're not realizing their Economies of Content.
I tell founders they need to think about their go-to-market as a political campaign that will last for the next 18-24 months. They need a stump speech — informed by #3 above "Answer the Why" — that they can stick to for months. Just like politicians, you update the data points and case studies, but you reuse and recycle the themes every time you tell your story. It's likely that just about the time you're sick of saying the same thing, is about the same time the market starts engaging with your conversation.
#5 Have a "planning"
A favorite quote of mine is President Eisenhower’s about the D-Day invasion: “Plans are useless. Planning is everything.”
Plans aren’t the solution to your start up's problems. But similar to personas, the act of thinking through — and documenting — your plan can deliver immense value. The act of planning structures your hypotheses, outlines actions you’ll test, and defines what success looks like. The value comes from the process, but writing it down helps you get your teams aligned — and let's you go back and see where reality diverged from your plan.
Too often I engage with start-ups that haven’t thought through, let alone writing down, the marketing experiments they're running. As a result, they may be moving fast, but they're not setting themselves up for becoming smooth by refining each, individual action.
📈 How to take action:
Build customer empathy and insight.
Capture audience data.
Answer the “Why”.
Create “economies of content”.
Have a “planning”.
Go follow Scott Brown HERE for more great content.
I was fortunate to have Suresh Khanna, COO/Co-founder at Pieces, Former CRO/President of Adroll, ex- Director of inside Sales at Google on the pod this week and here was his answer on the #1 reason why he thinks startups fail:
“Really often I see startups fail because they aren’t solving a problem that is a burning fire for their target audience.
And often it comes because they built the technology because they were interested/curious and then they are retro-fitting around a paint point.
This notion of low to moderate pain can feel like positive signal or like you’re on the right path but you need a lot more than low/moderate pain in order to succeed especially in this environment where CFO’s are cutting non-essential software…you need to solve a really BIG problem for a meaningful amount of people.
Often the route problem is simply: I don’t think this is a big enough problem for your audience.”
A lot of hard-earned wisdom/truth in those sentences.
“Most people still underestimate how hard building a successful startup is even if they know it’s really hard.
The truth is it’s almost impossible.
Therefore they join or invest in great teams.
Companies that are only ‘great’ can get to a Series A and maybe even a B but that’s when things sputter and wane.
If you want really the big outcomes, you need to be truly exceptional.
That’s the bar for startups. Great isn’t good enough. Only exceptional gets it done.”
📈 How to take action:
Make sure you are working for, or building, a “need to have” not a “nice to have”.
You can’t settle for great talent at a startup, exceptional has to be the bar across the board.
Validate that your product is solving a burning fire for your buyers, if it’s not, go back to the drawing board.
👀 More for your eyeballs:
Tomasz Tunguz has been pumping out some great content recently after leaving Redpoint, this article he wrote on PLG & Profitability shows that PLG companies’ profitability has suffered more than sales-led businesses.
Thomas Eisenmann, Professor of Entrepreneurship at Harvard draws on his past 24 years teaching about the topic and unpacks his thoughts (in great detail) below.
👂More for your eardrums:
You can listen to the full episode with Suresh Khanna below. We talked through: how to find people who are "wired for greatness”, how he built a peer to peer, self-policing training/enablement program at Adroll and how he was able to develop a culture that rewarded teaching others and winning as a team above all else.
🚀 Start-ups to watch:
LexCheck’s AI-based contract review and intelligence platform helps companies accelerate efficient revenue growth while mitigating risk - big things ahead for this team.
🔥Hottest GTM job of the week:
Sales Enablement Manager at Cube, more details here.
See more top GTM jobs here.
That’s all from me.
We’re going to do Part 2 of “How Generative AI will Impact your GTM Motion” in the new year as more leaders adopt it into their GTM workflows.
But since it is the holidays, I’m going to end this one with a little gratitude.
Paul is the “unsung hero” behind the scenes and he’s sick this week (we told him to go rest!) but he’s still out there doing the work of ten normal humans…go show him some love and maybe that’ll give him the juice he needs for a speedy recovery.