Why Startups Succeed, Why Startups Fail

I was meeting with someone recently who asked if I have any advice about what causes startups to succeed or fail. At first blush, it’s a funny question to ask someone who’s starting up a company; I mean, I should really be the one seeking advice. On the other hand, I have been involved in quite a number of failed startups (something like 12 at this point) and only one that has gone on to achieve any objective measure of success (i.e. Netflix), and I do certainly recognize some patterns in what I have seen take place in each. So I thought about the question for a moment and said I think there are three factors that will contribute to the failure of a startup:

Lack of Leadership

If we can agree that leadership encompasses a lot of vision-casting and market due diligence, it’s probably easy to agree that true leadership is the most important attribute in determining the potential in a startup. But its absence sometimes takes longer to identify than other attributes, because the company’s founders may be so enthusiastic about their idea that their lack of ability to lead isn’t noticeable.

Over time, though, as the company gets distracted and strays from its core capabilities, as the leaders fail to notice market changes that trigger a need for strategy adjustments, as delivery dates are missed or quality slips or innovation ceases altogether, the cracks begin to show and the company slides.

Lack of Funding

This is somewhat related to lack of leadership, because it is certainly a management responsibility to make sure the path to cash flow positivity and to profitability is clear, but in any case, there are many examples of companies that might have been great had they had enough funding to survive the first few difficult periods.

Lack of Talent

Again, this traces back a bit to lack of leadership, because finding talent and retaining it is a critical skill in business.

The person who asked me the question asked if I didn’t think there should be a fourth category for lack of market or lack of demand. I said no, I thought that fell under lack of leadership.

What have I omitted? Some interesting alternate possibilities are: lack of network (although the story at that link isn’t about a failing business, but rather a city failing to retain a successful business), or lack of access to clients, perhaps.

What else? Tell me in the comments how your experience would lead you to answer the question.

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One Comment

  1. Jake Ajwani
    Posted August 17, 2009 at 6:14 pm | Permalink

    Your three points seem so high level and simple, yet so many aspiring business owners continue to ignore those guidelines & take the plunge without doing enough homework. These entrepreneurs are either running away from pain (boring job or lack of) or towards pleasure (ex: some big payoff from being your own boss).

    Everyone has a great idea. Most people can start production from their computer or garage after-hours. But what 4 out of 5 people lack is the proper capital to get their product/service to market. I think that is the gap in planning.

    Two sub-items you can add to the list:
    A. Get Honest With Yourself. Take stock of your inventory, how/who can help you fund production & marketing costs.
    B. Answer The Whys? Why are you starting this business? Why would the consumer select your service over established competitors? What differentiates your idea from rest? Price-point differences are easy to identify, a point the goes unexplored is location.


    Crepes have been around for hundreds, no thousands of years? And they totally saturate Paris. But I’ve recently noticed them creeping up in cute towns (Huntington Village NY, Hoboken NJ, New Paltz NY). They are a unique twist to providing residents with simple, tasty, but different food. They are a perfect example of “blue oceans” business models. Check out the book.

    ~~ Jake ~~