Last Updated on 2024-10-11
A lot has been written about why tech startups succeed, but founders are less forthcoming about why tech startups fail. Letโs explore some common pitfalls of startup companies and how you can avoid them.
Statistically speaking, only about 10% of startups survive. That number is both intimidating and scary.
So, tech startup entrepreneurs need to learn strategies that can help their businesses grow. But, it is just as important for entrepreneurs to be aware of the dangers that lie ahead as it pays to know about the potential consequences. Letโs dive deeper.
Why Tech Startups Fail: 6 Scenarios to Avoid
Your greatest competition as a tech startup is time. Technology is volatile, and this aspect puts pressure on many businesses to deploy to market faster than their competition.
But thatโs the name of the game. Itโs up to startup leaders to navigate the waters and avoid the threats and wrong turns that lie ahead. Below are the top reasons why tech startups fail.
#1 Theyโre not solving an actual problem
One of the most common reasons why tech startups fail is because they are simply not solving a problem that people care about. This might seem like an obvious point, but it is one that is often overlooked in the excitement of coming up with a new idea and starting a business. If you want your startup to succeed, you need to make sure you are solving a real problem for real people.
How do you do this? First, you have to make sure that there is an existing market for your business idea. If a need for it exists (and people are willing to pay for the solution), you may have a viable opportunity. The next step would be strategizing how you will be able to make your product stand out. And this brings us to our next point.
Watch: Early-stage Startup Lessons
#2 There is no value in their product
Another reason why tech startups fail is that they do not have a clear value proposition. In other words, they are not offering something unique or special that sets them apart from the competition. Without a strong value proposition, attracting customers and growing your business will be difficult.
One way to ensure that your product has value is to gather customer feedback. What is it that they want? Is there a common pain point that your competitors overlooked? Are there other features that would make your product more valuable?
By answering these questions, you will be one step closer to achieving product-market fit. Without it, youโre dead in the water.
#3 Their business model is not sustainable
A third reason why tech startups fail is that they do not have a sustainable business model. How does this happen? This happens when tech startups are not generating enough revenue to cover their costs and make a profit. Without a sustainable business model, it is very difficult to scale your startup and make it successful in the long term.
For example, a tech startup hires an onsite, in-house software development team too soon. This is good if the business can sustain operational expenditures in the long term. But considering the high developer rates in the United States, impacted by the talent shortage, scaling too soon is expensive for startups. A cost-effective solution such as building an offshore software development team could be just what a startup needs.
#4 They get lost in their plans
Tech startups should make a business plan and stick to it (within reason). One of the main reasons why tech startups fail is that they cannot execute their plans effectively.
Starting a tech business can be an overwhelming experience, especially when youโre new to the scene or youโre a non-technical founder. When this happens, itโs easy to get lost and fail to follow your plans. You might not have the right team in place. Or you may be trying to do too many things at once without focus. Whatever the reason, if you cannot execute your plans effectively, your ship will likely sink.
#5 They miss market signals and fail to pivot
I know . . . We just said sticking to your plan is important to your businessโs survival. Entrepreneurs start businesses based on the best information available at the time, but they donโt know what they donโt know. If users, investors, advisors, and potential customers are giving similar feedback, listen for the echo.
A founder who rigidly, stubbornly sticks to a plan thatโs not working isnโt going to have a business for long. Donโt let your ego keep you on the wrong path simply because it was your plan.
#6 They have a high burn rate
For most startups, as long as youโve got cash in the bank, you live to fight another day. When a startup runs out of money, itโs game over. What are some scenarios that increase your burn rate?
One could be that the company underestimates how much money it would need to get started. If you havenโt launched a similar business before, you should double or triple your projections for the time and expense of getting off the ground. Can you survive under those conditions?
Another reason could be that they are not able to raise enough funding from investors. And finally, the startup may be overspending and scaling fast. Itโs important to plan every cent that goes into the business.
#7 Their marketing plans flop
A great product value and competitive edge build a strong foundation for any tech startup. Even so, many great products have failed due to ineffective marketing.
Your startupโs marketing strategy is every bit as important as the product itself. Some campaigns fail because they are trying to reach too many people with their message or because they are not using the proper channels to reach their target audience. Without a good marketing strategy, getting people interested in your startup will be very difficult.
Avoid Startup Risks With Full Scale
Following actionable techniques to grow your startup and being wary of the pitfalls of running a startup go hand in hand. Itโs always wiser to look at both sides of the spectrum. Doing so increases your chances of being part of the 10% that survive the startup phase.
Full Scale is a one-stop tech startup solution for software development services. We are a software development company that provides development services through our offshore arm in the Philippines.
With excellence in guiding tech startups to success, we made the list of Inc. 5000โs fastest-growing private companies in the United States. Our founders, Matt DeCoursey and Matt Watson, also established Startup Hustle, a podcast dedicated to entrepreneurs by entrepreneurs. This top-ranked podcast talks about all things startups and tech. Grow with Full Scale today!
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Matt Watson is a serial tech entrepreneur who has started four companies and had a nine-figure exit. He was the founder and CTO of VinSolutions, the #1 CRM software used in today’s automotive industry. He has over twenty years of experience working as a tech CTO and building cutting-edge SaaS solutions.
As the CEO of Full Scale, he has helped over 100 tech companies build their software services and development teams. Full Scale specializes in helping tech companies grow by augmenting their in-house teams with software development talent from the Philippines.
Matt hosts Startup Hustle, a top podcast about entrepreneurship with over 6 million downloads. He has a wealth of knowledge about startups and business from his personal experience and from interviewing hundreds of other entrepreneurs.