Why tech startups fail? Five (not) obvious common reasons

Building an innovative technology startup is very ‘on trend’. ‘Tech startup’ means a company that brings technology products or services to the market. Going down this path could bring success only if your product has real value and you don’t make mistakes while running the business. Sounds obvious? Maybe, but let’s take a deeper look and try to find out why tech startups fail.

I am a big fan of new technology. With enormous pleasure, I take part in conferences, workshops and meetings dedicated to startups. So, I must share with you an interesting phenomenon that I have recently noticed. Many people think that building a tech startup is a guarantee of success because this is a market trend and the plan to business must work. In my mind, this is false thinking and a common problem. I fully agree that tech products are something the market and clients need. But we cannot forget that success is stimulated by many different factors.

Last year I visited many countries, such as Germany, Spain, United Kingdom, Italy, Lithuania, Sweden, Norway, and Poland. I met with startups and often spoke with CEOs about their problems with building a business. Most of their products seemed to be really interesting and engaging, such as marketplaces with some bookable services, e-commerce platforms with wide offers for clients, or promising Proptech industry firms. The curious thing that connected them is the problem of providing technology services – including producing high-quality and reliable products and keeping on schedule. It is from this point that I want to begin my considerations.

Building software

There are many challenges in this field. Tech startups often base their value on a product that is usually very expensive. And here the problems start. Perhaps there is not enough budget or the budget is very limited and this causes numerous changes in the product concept. Or, the product does not meet the expectations of customers and, as a consequence, there is no demand.

Anyway, the market need is the point that I always try to underline. Why? Over 40% of startups fail because of this. Therefore, if you have already decided to build a tech startup, start with a deep analysis of the market, and the needs and behaviors of your potential customers, to determine the demand and features that your product should have. Do not spend your budget in vain. Make accurate and rational decisions.

My tip: Find your market fit. Use A/B tests. Find out what your users like and what they do not like. You must know how to give them real value. Do you have limited time? Go with MVP.

Tech startups

Funds and investors

Let’s move on. This point is definitely familiar to you, right? Getting financing is not easy. When you do not have a network of contacts and investor confidence you have to work hard. However, I think that a good product will always attract interest. Without a good product, there is no chance for you to attract a potential investor. However, you must know that even the best product must be skillfully sold. Present a vision of development, and have a clearly defined action plan and a comprehensively prepared business plan. Without this, it will be difficult to attract an investor to your product.

My tip: Be active and remember that a contact network is important. Conferences and other industry events are a good place to network. You can meet investors, discuss your product with them, and arouse interest.

Lack of structure and processes

Everyone deals with everything, there is no clearly defined division of roles and structured processes. You’ve probably heard of this, or maybe you’ve experienced such a situation yourself – right? Basically, it’s a natural ‘environment’ for startups. However, you must not overdo this. If your business is managed without a clear vision, then sooner or later you will be in serious trouble.

My tip: If you are developing a startup, at its initial stage select the few most talented people who will oversee the key areas of activity. You will not be able to control everything yourself. If you think that everything depends on you, then you are wrong. The team is equally important.

technology startups

Timing

Are you surprised of the importance of timing? During a TED conference speech, Bill Gross – who has founded many startups and incubated many others – presented interesting statistics that determined the success of 200 startups. As many as 42% of these firms succeeded at the business start-up stage. For example, Uber was created at the time of high demand for an innovative and easy-to-use solution for customers bored with traditional taxis. YouTube has a similar story. This was created in 2005, exactly when the internet became available all over the world, and people were looking for a place where they could find their favorite music for free.

My tip: Take 6 minutes of your time to listen to Bill Gros’s inspirational speech. Observing successful people is also one of the methods that helps in product development. Believe me!

Growing too slowly

Not everyone will be Unicorn from the beginning. Generating a large profit is a long and hard job. However, it is important that your growth is properly planned. Take into account that your product will probably have to compete with competitors. That’s why stagnation and lack of growth can thwart your plans.

My tip: Set ambitious goals, even if you know that it will be very difficult to achieve them. Thanks to this approach you will do everything possible to implement them and your business will go forward. Do not be petty and do not settle for small successes.

Final thoughts

Technology startups are the future. I have no doubt that soon we will hear about the success of the next tech startups. However, in this article I have highlighted that it is not always easy to build a tech startup. It is worth drawing conclusions from these common mistakes. Analyze the five factors mentioned above once more and think about whether there is such a threat for your product.

Read more:

– Effective tech project management. The best tools that help you move your project to a higher level

– Codest’s good practice for building software: project documentation

– Scrum or not to scrum? Pros and cons of Scrum methodology

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