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Also, what's the best way to manage this threat?

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While there might be many reasons for failures, I believe the biggest reason would be the failure to 'Pivot'

There are a lot of brilliant entrepreneurs and startups, but most of the successful ones are the ones doing something else they started out doing. The original idea may not be accepted by the market, but an ability to learn from that, and leverage that knowledge to create something else is key.

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@Anurag: Yes, I agree. My answer would have the same. – blunders Oct 20 '10 at 15:33
Infact the ability of a company to pivot,change and adapt not only defines the success and sustainability of a startup but also seasoned companies (see whats happening to Nokia, or what happened to Palm) – Ravi Vyas Oct 20 '10 at 15:41
@blunders thanks. @Ravi Totally agree. – Anurag Oct 21 '10 at 9:30
Agreed. In the book 'Founders at Work' you see that Paypal started off as a suite of security tools, and TripAdvisor started off as a B2B content idea. They're now totally different and successfully because they adapted. – Dan Esparza Oct 21 '10 at 19:10
Sometimes they fail because they are just built around dumb concepts and ideas... cannot pivot if you dont have much to pivot from – Frank Oct 26 '10 at 10:53
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up vote 7 down vote

While there are many reasons for failure, I believe the biggest reason would be lack of follow through.

You start a business or a project, then become distracted and move/flit to something else. Success needs concentration. Start on a given task and follow through to the end.

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@Gary_E: True, but how do you know what is on target, and what is not? – blunders Oct 20 '10 at 15:36
How do you reconcile this comment with the one re: "Pivot" above by Anurag? – Henry the Hengineer Oct 25 '10 at 6:43
Anurag's answer inplies that your company is around long enough to "pivot". In my experience, most startups fail well before there is any chance to pivot. – Gary E♦ Oct 25 '10 at 18:32
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I asked Jessica (of Y-combinator) this exact question: what is the most common reason for a Y-combinator startup failing? Her answer: the founders just stopped working on it. – Joel Spolsky♦ Nov 19 '10 at 3:24
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up vote 5 down vote

Expectations not meeting the reality.

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@slatecaster: How do you manage expectations then, and make sure the reality you see is truly real? – blunders Oct 20 '10 at 15:37
Establish a strategical direction where you'd like to be with your business. Set Tactical goals (steps), how to get there. Monitor those closely and adjust along the way to meet your goals. All this can be done with $0 investment and fairly small time investment. If the numbers on the paper don't add-up, it certainly won't be possible to realize the plans in reality. Don't make "jackpot" plans, like "Once I build my online store -- people will come and shop". Many make similar assumptions, which mislead them to invest time and money into those ideas. – usabilitest Oct 20 '10 at 16:59
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up vote 5 down vote

I am not sure I buy the "number one reason". There are a number of factors that are necessary for a business to "succeed". In some special cases one overwhelming aspect is so strong that it outweighs (either negatively or positively) the other aspects/factors.

This is a hugely subjective question and you will get answers all over the place. There is also the issue of root cause - like an autopsy. "How did this person die?"

  • lack of oxygen
  • because throat was constricted
  • because seatbelt cut off throat
  • etc etc or other examples.

So some answers like

  • "Wrong people"
  • "ran out of cash"
  • lack of follow-through

all might just be "Symptoms" or could be tracked back to an underlying issue.

I know it is nice to focus on simple easy single answers, but it isn't going to work and over the lifetime of a business there are different risks.

You have to evaluate the top risks and top priorities constantly and adapt to them.

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+1 for there not being one reason. There is rarely just one reason. And even if failure was usually due to one overwhelming factor, every situation is different, and as a result will vary from one startup to the next. I'm actually surprised this question got so many "one reason" answers. – Zuly Gonzalez♦ Oct 20 '10 at 21:39
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up vote 4 down vote

I figured I'd add another answer:

There are so many mistakes that can be made that can be fatal to a business. But note that almost all mistakes can be recoverable.

One thing that I took away from reading "founders at work" and listening to/reading other accounts of businesses is that the founders generally all make statements about how they were a week away from failing or got lucky at one point otherwise they would be dead, etc.

While i understand the OP's intent (I think) about what mistake(s) to avoid - i don't think it is useful to prioritize them. A listing of mistakes is great to read about but it is an inherent part of the business cycle to make mistakes and then try to fix/avoid/overcome them.

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@Tim: My point was more to get people to think - than to make a point, or find one. – blunders Oct 25 '10 at 2:48
@blunders I would reword it then to get rid of "number one reason" and instead ask "what is a reason businesses fail and how to mitigate that risk." – TimJ Oct 25 '10 at 4:05
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up vote 3 down vote

Focused Tenacity.

Almost any legitimate idea can make someone some kind of a living. To be sure, many startups should fail because the reward is not worth the effort. But I think the number one reason startups fail is because the entrepreneur fails to relentlessly adapt and pursue a focused idea until it achieves enough success to justify its existence.

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Agree, this would have been my answer. – Ricardo Oct 20 '10 at 19:15
This is like the halting problem though. Any time someone asks "why am I not making it?" the answer could be - "Be more tenacious". I don't buy it. How long do you try and how do you know when it is time to try something else? – TimJ Oct 20 '10 at 20:57
Tim, That's a different question entirely. You quit when the effort is sufficiently greater than the hope of reward. Experience, wisdom, and more than a bit of bravado is required to to know when to hold 'em and when to fold 'em. – Keith DeLong Oct 20 '10 at 21:21
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Tim, the question isn't 'how to predict & measure the validity of a startup', it's 'why do most fail'. A startup fails when an entrepreneur ceases operations due to a belief that the venture has no viable future. After doing this for almost 30 years I believe the number 1 reason isn't lack of a crystal ball to predict viability. More than any other reason they give up after a lack of focused tenacious adaption of their startup idea. – Keith DeLong Oct 21 '10 at 15:52
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Keith, you're right on the money! – usabilitest Oct 21 '10 at 18:21
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up vote 3 down vote

This is a little like asking why relationships fail because there are so many factors, but ultimately it all comes down to unsatisfied expectations. How founders define success and failure, and how willing people are to adapt and compromise has a big impact.

Recently, I saw that Xmarks (formerly FoxMarks) was shutting down. They blogged about quitting and it struck me as, well, whining like a kid who lost their favorite toy and will accept no substitutes. Xmarks would rather quit, shutting down the entire company and leaving 2 million users high and dry (especially people like me who do cross-browser work and have no viable alternative for automated bookmark synch).

You might wonder how they managed to not find a viable business model given that they have 2 MILLION USERS. Read that blog post and you'll see that they just could not get out of their initial rut of trying to monetize a "bookmark corpus" that frankly didn't sound like a great idea to begin with, but hey. They had their hearts set on that vision of "success" and were willing to drop the entire company when it became clear that they couldn't be as big as they wanted if they stick to monetizing the magic bookmark corpus. It is a sad case of "doing one thing (that has no direct path to monetization), but doing it really well". What could have happened for them if they had worked on other biz models while they still had funds?

Anurag suggested "failure to pivot" as a main reason for failed startups and I think I agree but with the clarification that before you can pivot, you have to be willing to let go of your first vision, and be more in love with finding success than in love with one particular business idea.

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@KellyRued: Looks like they did change... "UPDATE: We’ve set up a Pledgebank page where you can sign up if you’re willing to pay at least $10 a year for Xmarks. No credit card is required, but please only pledge if you are genuinely willing and able to pay" but only 33,768 people signed up, 66,232 more were needed... LINK: pledgebank.com/XmarksPremium – blunders Oct 20 '10 at 22:05
Yeah, I pledged already. I will really miss Xmarks. I'm still hoping they get acquired or something else saves the service. – KellyRued Oct 20 '10 at 22:57
This almost sounds more like a rant against a company than an answer to the question... – TimJ Oct 21 '10 at 6:13
Kelly, great example. The very reason the 'Pivot' is difficult is that you have to accept that your initial vision was wrong, which is saying that you were wrong. This is very hard for people to accept. Yes, I fully agree that people should be in love with finding success, the rest will follow – Anurag Oct 21 '10 at 9:16
Tim, sorry to give the impression of a rant. I intended to use Xmarks as an example to illustrate my point. They had what many startups consider "success" (millions of happy users, a GREAT product, funding, big office/staff, etc.). People blame failure on too little money or products, not the right people, but I think not having the right goals/adapting to reality is a bigger problem (that's what killed my first startup too). ;) – KellyRued Oct 21 '10 at 14:24
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up vote 2 down vote

Wrong people

You will see lots of excuses like:

  1. No enought cash
  2. Too early on the market
  3. No enought marketing

The reality is that successes is build on two factors:

People & Luck

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@user3997: True, but how do you know a person is the right person, and why? – blunders Oct 20 '10 at 17:39
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You don't know. That's why building a startup is so hard, and why so many fail. I've found that investing on people that have REPEATED successes history is the less risky. But that's very hard to find since there is the luck factor around. – Pierre 303 Oct 20 '10 at 17:47
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up vote 2 down vote

They were started in the first place.

A lot of people start businesses underestimates the difficulty. This is not actually a problem. I suspect this is the rule, not the exception. Clients did not pay. Crucial backer backed out. Sales too low. These did not hinder thriving businesses you see everywhere .

What really cause businesses to fold is their founders lack of tenacity, dedication, and creativity to solve these bumps along their path. Perhaps without these traits, the business should not have been started?

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up vote 2 down vote

Dedication is a must.

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up vote 2 down vote

I think the #1 reason is quitting...

Yes some fail due to lack of pivot, others due to team moral issues, others can't find the right co-founder/s or the right investors, others cant find a scalable business model, others can't create a minimum viable product, some fail at marketing, others fail when they are in-love with the position and dont see they cant fill it....

Many many reasons, all can be solved if you DO NOT QUIT, take a year, take two, take 30 and you will win...and win big :)

Check Seth Godin book the dip, he talk there of where to quit and where to stick! i think its THE most important book an entrepreneur should read (and its only on hour as an audiobook :))

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up vote 1 down vote

Not picking up the right problem to solve is one.

And those who pick the right problem, not moving onto a better problem or a better solution is the next reason.

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up vote 1 down vote

Mike Maples gave an excellent presentation explaining what a startup is: http://techcrunch.com/2010/10/22/mike-maples-you-have-to-be-willing-to-throw-it-all-away-video/

A startup is in search of a business model. Once it settles on a business model it's not a startup anymore -- it's a business.

Failure is giving up before you've found a business model.

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up vote 0 down vote

@Sharel Omer

and 45 mins to read :)

Exactly what I would have wrote.

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up vote 0 down vote

no MARKET. A lot of people build something that nobody wants. That's the failure of 95% of startups in my view.

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