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Investigating the root cause of startup failure in today’s business world

Nobody launches a startup thinking it will fail, yet the majority do so within the first 12-24 months. Understanding the leading causes may allow you to avoid a similar fate.

As humans, we think we’re different from our counterparts more than we truly are. Research reveals that any two humans chosen at random share roughly 99.9 percent of the same DNA. In other words, for all of the surface level differences we may have – skin color, eye color, hair texture, height, weight, etc. – we’re the same at the core. The same could be said of businesses.

Deep down, most successful businesses share the same set of core traits. But this is also true of failed businesses. If you were to conduct an autopsy of thousands of failed startups over the years, you’d conclude they were tripped up by a familiar set of mistakes and circumstances.

As the most recent CBI Insights report shows, there’s rarely a single cause of failure. There are, however, several common factors.

According to the CBI Insights report, 42 percent of failed startups launch products that have no market need. The product itself might be interesting, unique, and effective, but if customers don’t want it, you can’t build a successful brand.

Steve Jobs once said, “People don’t know what they want until you show it to them. That’s why we never rely on market research. Our task is to read things that are not yet on the page.”

While this strategy may have worked for Jobs and company, this isn’t necessarily advice you want to follow. Going too far down this road will lead you to develop a product with no market need. This issue can be solved by doing more due diligence on the front end and spending time researching what customers actually want from a product.

The CBI Insights report confirms this, suggesting that as many as 29 percent of failed startups run out of cash. The question is, how can you keep your startup properly funded without racking up too much debt or forking over too much equity?

Research is the answer. You have to be patient enough to seek out opportunities, evaluate them, and move confidently toward the ones that offer the greatest chances of success. Funding is always going to be a numbers game,and you must be willing to take educated chances.

Nearly one-quarter of failed startups – 23 percent, to be exact – don’t have the right founding team in place. They either have inexperienced people at the helm of the ship, or too many people with irrelevant experience and inapplicable talents.

Never start a company with people because it’s convenient. A startup team should be strategically formed based on talents, skills, resources, and opportunities. If these people happen to be your friends, that’s great. If they aren’t, that’s perfectly fine, too.

Roughly 9 percent of failed startups blame a lack of passion on their flop. They may survive for a few months or years, but when the going gets tough, they lack the motivation to keep pushing through

Passion is a necessary ingredient of success; however, this isn’t to say it’s everything. As entrepreneur Don Charlton explains, “Passion is definitely an essential ingredient to your entrepreneurial journey, but so is an underserved, untapped market. Without one or the other, startups – and therefore entrepreneurs – fail.”

Competition is actually very healthy. It forces you to be proactive and prevents you from sitting back and relaxing. However, there’s a fine line between competition and too much competition.

CBI Insights data shows that 19 percent of failed startups get outcompeted by other companies in their niche. If you know you’re going to be in a highly competitive niche, be prepared to work hard and be willing to pivot at a moment’s notice.

Whether you’re licking your wounds from a startup failure, or preparing to launch a startup and hoping to avoid failure, it’s imperative that you never assume you know it all. The moment you relax is the moment you get uprooted.

The most successful entrepreneurs are the ones who never stop learning. They’re the ones who recognize their own shortcomings and actively seek both formal and informal education from those who possess knowledge they don’t have.

Adopt this same mentality and success won’t be nearly as elusive.

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