Do startups fail because of their own specific struggles, or are there a few primary problems that plague new companies?
New York data analytics firm CB Insights took a deep dive into the afterlives of failing startups last month when they published “156 Startup Failure Post-Mortems,” a compilation of insight from founders and investors that told the real stories of why they failed. After the report gained traction, requests for CB Insights to take the anecdotes and crunch some data began pouring in. Now, they’ve done just that.
In a new report, CB Insights breaks down the data and general findings. The team identified the 20 most frequently cited reasons for failure and discovered that while the reasons are diverse, a few represent significantly greater threats to the lives of young companies.
“After reading through every single of the 101 postmortems, we’ve learned two things. One – there is rarely one reason for a single startup’s failure. And two – across all these failures, the reasons are very diverse,” the report reads.
The following chart gives the breakdown:
The percentages in the chart exceed rather than add to 100 percent because many startups offered multiple causes for their failures. While problems like legal challenges and failure to pivot affected only a few of the 101 startups that participated before the data was analyzed, it’s clear some of these issues pose a major threat to startups. Problems with cash flow were cited as a reason for failure by 29 percent of the startups, and 23 percent cited the fact that they didn’t have the right team.
Nearly half of the companies said they failed because there wasn’t a need for their product. In the report, CB Insights expanded on each cause with an explanation of the reason and relevant examples from the postmortems. For ” no market needed,” their insight reads as follows:
Tackling problems that are interesting to solve rather than those that serve a market need was cited as the number one reason for failure in a notable 42 percent of cases. As Patient Communicator wrote, “I realized, essentially, that we had no customers because no one was really interested in the model we were pitching. Doctors want more patients, not an efficient office.” Treehouse Logic applied the concept more broadly in their post-mortem, writing, “Startups fail when they are not solving a market problem. We were not solving a large enough problem that we could universally serve with a scalable solution. We had great technology, great data on shopping behavior, great reputation as a though leader, great expertise, great advisors, etc, but what we didn’t have was technology or business model that solved a pain point in a scalable way.
Check out the full report here.