"Four key factors that contribute to the failure of a startup"

Seth Godin's famous book "The Dip" advises us on whether to give up or persist on any subject when we are undecided: "Quit the wrong stuff. Stick with the right stuff. Have the guts to do one or the other."

Research shows that the overwhelming majority of newly established startups fail in a short period of time. The stakeholders of the entrepreneurship ecosystem have already accepted the fact that the success rate of innovative technology startups is low. That is why investors manage their risks by anticipating that the majority of their technology startup investments will end up in failure. Many different research organizations publish studies from time to time on why a startup fails. Over the years, we have observed that research results also change. For example, in CB Insights' study published in 2019, "product-market fit" was in the first place, but in their 2021 study, it had dropped to second place. Similarly, "running out of money" was in second place in 2019, but became the top reason in 2021.

The dynamics of the world economy have shifted due to various political tensions, wars, natural disasters, and especially the covid-19 pandemic. The power of capital has become more dominant in the startup world. Competition has turned into a cut-throat war in the startup world. Startups that manage to catch product-market fit focus on dominating the market in their vertical after obtaining financial power and do not leave any chance for their competitors to survive. Therefore, it is not possible to name any other names in the technology world except for the market leader in a vertical. For example, we don't even wonder about the second-ranked photo-sharing social media app after Instagram, we don't know who is Twitter's competitor, or we don't think of any other business networking alternative besides LinkedIn.

The reasons for a startup's failure need to be divided into two main groups: the first group mostly consists of factors that can be changed by the entrepreneur or factors that can alter the course of the startup, and the second group is externally-driven factors that the entrepreneur cannot do much about. Therefore, in this article, I will focus on the first group of factors.

1. Product-Market Fit: "The Market Might Not Need You"

For many entrepreneurs, their idea is perfect. However, what is important is not the idea in their head but the idea that has been tested and validated in the market. Because a product or service only makes sense when it is purchased by a customer. If entrepreneurs continue without testing their ideas, they may unfortunately be shocked to find out that the market does not need them.

Designing, producing, and introducing a product or service to the market requires serious time and capital. This process needs to be shaped simultaneously with customer feedback. If progress is made without any feedback from customers, then in case of negative feedback after launching to the market, all processes will need to be revisited from scratch, which will be very costly. Considering that a technology startup already has a short budget, such a mistake can completely destroy a startup.

Experiencing product-market mismatch is a natural problem for many entrepreneurs who develop innovative ideas. However, the real issue that leads startups to failure is not being able to revise the relevant product to make it marketable. According to feedback from the market, the product or service should be "pivoted" and tested again in an agile manner until the desired sales reactions are obtained from the market. Unfortunately, startups that cannot achieve this fit in their first attempts go bankrupt as they no longer have the resources and time to continue these trials.

Especially if you are developing a product or service in the B2B field, your job is harder. Moreover, if you are a student, a recent graduate, or if you are stepping outside your area of expertise, you are not usually familiar with the B2B sector where the product is located. Entrepreneurs of this type can easily establish startups in sectors such as food ordering, car rental, or flight ticket purchasing, where they themselves also experience the user experience as a consumer. However, they struggle to develop products that have a customer value in B2B sectors because they do not know the market well. Because in order to successfully perform many tasks such as raw material procurement, obtaining corporate sales appointments, finding experienced personnel, and providing post-sales service, you need to have knowledge and a network about the dynamics and stakeholders of the relevant market. For example, to be a successful startup in specific B2B areas such as automation of payroll processes in human resources, optimization of sales representatives' customer visit routes with artificial intelligence, data analysis application that can predict breakdowns of heavy industry vehicles, or tracking of packages on the food production line with IoT, you need to have experience in the relevant sector vertical.

2. Inability to Form the Right Team: "No Voltron, No Battle"

3. Running out of Money: "If the Wheel Stops, You Fall off the Bike"

4. Wrong Investor: "Either You're the Queen or You're a Loser!"

In his famous book "The Dip," Seth Godin advises us to "quit the wrong stuff. Stick with the right stuff. Have the guts to do one or the other." when we are unsure about whether to give up or persist on any subject.