Why startups fail, according to their founders

In his defense, I bet this guy knew how to party.

This is an essentially perfect list. I take "have a great team" as implicit as you won't be able to do all those things without one.

Luck is a huge factor in success, and it plays into all those things in very direct ways. I've been involved in three failed startups (and one successful consultancy) and seen all those factors play out.

Timing and making a product enough people want (and are willing to pay for) are the two areas where luck plays the biggest role. Market validation is a huge issue for new technology, and it's surprisingly easy--with the best market intelligence you've got--to build something that not enough people want (yet) to make money.

And not all markets allow fast pivots or particularly small MVPs. Sometimes you don't know it isn't going to get picked up until it's too late to change course. In other cases there is simply no way to know if you should take a fairly good offer today and cash out, or not. It's easy to point to cases where founders turned down good offers and went on to make large multiples of them, and cases where founders turned down good offers and went broke.

It would be a very valuable exercise to gather up cases like that and present them in a business school context. My bet is that no one would be able to consistently make the right decision based on the information available at the time, which would make the role of luck unequivocal.

I agree, but I think 7) a great team, is missing from that list. It really helps avoid problems with 1, 2, 4 and 5. For some markets, 3 media vitality, isn't required and if you get the other things right you need less luck.

this seems to be an awful trend I am noticing more and more. Clickbait title and no substance in the article.

Interesting point you touched up on "the value of that money". The value is learnt through experience. But at who's expense. I highly recommend everyone get into investing their money so they can learn this value before they spend someone else's money.

>Isn't it common knowledge nowadays that simple luck plays a really big part of of succeeding as a start-up?

It's not a contradiction. Refer to the chart in the article: http://fortunedotcom.files.wordpress.com/2014/09/unknown2-e1...

Luck can be an important component, however, it doesn't mean it's not super-easy to identify an immediate cause of death in the absence of that luck. For example, let's suppose that you literally have to win a lottery or none of your sources of funding will close. (Remember, we are defining this as a lottery for this hypothetical mental exercise - I don't think it is one.)

Now, there is luck, for example the must-have round closing days before money runs out. That is luck. (In point of fact this is actually reported by some founders - the same ones who declare how lucky they were.)

And on the other half of the spectrum, article shows 30% of startups reporting dying due to running out of money. So in the other 70% of cases the startups either: got lucky to close their round; or had no trouble closing their round; or didn't need it. In any case in 70% of cases, running out of money wasn't the reason they died.

So even though we used a simplified model that you have to win a lottery to get funding, we can still see that it results in some people reporting they were very lucky to get funding at the last minute, however the cause of death in 30% of cases remaining "running out of money."

Likewise, some companies will chance on a product people really, really want, and pivot into it. Meanwhile, "No market need" kills 42% of startups.

So there is no contradiction. You can have three groups of companies in each case:

  (1 funding):
  Group 1: No problem closing funding.  (Or don't need it.)
  Group 2: Nobody wants to fund and would die, but miraculously
    closes a round just in time.  Reports being super-lucky.
  Group 3: Tries to get into Group 2 after realizing they're not Group 1.  Fails to do so.
    They die and report "Running out of money" as cause of death.

After this point, who do we hear from? We hear from 3 in the present article. We hear from Group 2 - very frequently - after they report how lucky they were. We also hear from members of Group 1, who report not having trouble closing their funding rounds.

Now let's look at market fit:

  (2 market need):
  Group 1: No problem with product-market fit.
    Facebook would be an example, Dropbox another.
  Group 2: Building wrong product, nobody wants it.
    But gets super-lucky and chances onto a market niche and pivots into it.
  Group 3: Building wrong product, nobody wants it.
    Does not get super-lucky and accidentally pivot into something people want.

So, we hear about Group 2.3 in this article. It accounts for 42% of deaths. We also hear frequently about Group (2.)1 and sometimes about Group 2.2.

It's rarer to hear about Group 2.2 though!! (Much rarer than in the funding example where good ideas were really lucky to get funded at all.

So since we hear so frequently about groups that were really lucky to close their funding for a good idea, but more rarely about groups that were really lucky to identify something people actually wanted, while building the wrong thing, it stands to reason that Building the Right Thing is less based on Luck than funding is.

I'm not 100% sure of this reasoning though.

However, from the analysis above you can clearly tell that simple luck is kind of orthogonal to the points raised in the article. :)

Luck of Action? Luck of Perception/Observation? Luck of Perseverance/Never give up? Luck of Change?

To me, monetization has to do with #1 - making a product that people want. Obviously not all products require actual revenue, but they all require users.

I think failure to monetize is a result of one or many of the reasons mentioned in the article: No market need, Pricing issue, Lack of business model, etc.

It is exactly #1

That's not impossible, it would just mean that most businesses fail for multiple reasons. Lots of the reasons in the list seem like they could easily go together, e.g. "No Financing/Investor Interest" + "Ran Out Of Cash"? "Burn Out" + "Lack Passion" + "Lose Focus"?

Goes to my point I mentioned above in response to a comment about low quality journalism. Whe every pixel is dedicated to pimping ad clicks, it makes the experience just awful. There's an area ripe for disruption!