'20 reasons why startups fall' - Marek Zmyslowski

The authors compared the stories of the fall of 32 various startups and decided to present the most important reasons for that:

Here are these reasons with my comments. No, I didn't just copy the original article. This is why it pays to read this one. : - )

1. Underestimating the users: This reason was the most important. Startups are not looking for the feedback, they are not testing their products with users, they don't know their users. The big companies can ignore (which also has its time limits) the voice of users and focus on marketing in accordance with the conviction that people will buy everything "as seen on TV". The small ones are not in such a comfortable situation. One needs to lower oneself to the level of the poor user who doesn't embrace our app. Of course, the key is to look for the right feedback. In Poland, everyone who runs a business hears oftentimes that "this won't work" – often from people who:

are not going to use the product or service.
don't have the experience in running their own company.

This is why it is important to look for the opinions of real users, not the ones who, will use the product, "if you add 100 functions". You add 100 functions, and they will want the 101st. What's even more important is to define the very product in such a way that you wouldn't be able to survive without users, and of course, that you would use it as well.

2. Solving the problem which doesn't exist: "What are you actually doing?" – I like this question. It is asked sometimes on Aula Polska meetings when particularly fancy projects are presented. Fancy – this is the right word. Who is this service for? What customer's problem it solves? What will make the client use it? If the answer to this questions takes more than the so-called "elevator pitch", which is 2-3 sentences, you have a problem. Surely, the new product often defines the need that hasn't been verbalized by anyone before. It is sometimes necessary to try the product in order to realize that we need it. In such situations the product defines the whole category and rakes in exorbitant profits. We shouldn't expect such products from companies that can't even explain what they are doing, though!

3. Wrong team: You have 5 persons in the team, and you add the sixth one – all of a sudden, the stranger is responsible for 16 % of Your success. The most difficult moments are perhaps those when you need to enlarge the team, hire people, stop programming on your own, but instead start calling yourself a CTO, or conversely – accept that you are not good at it and hire the manager. Other difficult situations happen when there is some money on the horizon. Everyone who is setting up a joint-stock company should obligatorily see together the film "The Social Network".

4. Poor marketing: First launch, and then we will see. This is the approach of many startup owners. Frankly, each company needs to have some sort of marketing strategy, a predefined target group and a strategy how to get to it. Of course, the strategy itself won't give us the users. The problem that affects many companies is focusing on various "trendy" channels that are not working at all. Why do you want to focus only on the Internet? How about a billboard, press, radio or TV? Maybe leaflets? Everything should be based on the tests and solid analytics in order to evaluate what is working and what is not. There are lots of people who are incredibly excited about social media treating it as a marketing channel. They, though, forget that sometimes one company-friendly journalist could do more than a half-year of fan page development.

5. Lack of funds: Sometimes we are simply running out of money. No matter if we have an investor or not. What to do then? One friend of mine said that he launches his project, after it falls he goes to work for a half year (as a programmer) and then he quits and launches a new project.

6. Lack of business model: Money comes from some place and it would be good to know where we get it from in our business. To quote Rework: "business without the path to income is not a business, it's a hobby. Another business quotation: "we have 14 business models and we are going to try them one after another". It doesn't have to be a stupid approach. If we know that clients will be interested in our product, but we don't know yet how to sell it testing a couple of options seems to be a good idea. We can test them as long as we do not reach the previous point, though.

7. Products launched at the wrong time: Startups are crazy about innovations. If you launch your product too early, you are likely to squander your energy on educating the market. And after that, the competition will come and get the best bites. If you didn't use that time to build your brand, you simply gave them a favour. On the other hand, if you launch a product too late, no one will be interested in it, and it will get lost in the pile of the same items.

8. No passion and experience in a given area: I can see this sometimes on various conferences (hopefully it is quite rare) – people who come there to talk about their startups and seem like they are doing this as a punishment. Or they get confused when asked about the details. What's more, these are not regular employees, these are the startup founders! A company has a business model, an idea and money, but it lacks the passion and commitment to the product. They are not experts in this area. They just want to make money. Such a company finds a hard time to communicate with clients. It is hard to find empathy for the clients as well. Startup could be a business that we treat only as a way to make money – frankly speaking, you can't forget about this money making at no time. Maybe it would be better to hire someone who has both passion and experience if we want to get into the area we actually don't care about?

9. Failing to pivot at the right time: We are sensitive to "sunk costs" not only in our personal lives but also when we are running a company. The project that has no prospects seems to be more valuable only because we put in it tens or hundreds of zlotys. And sometimes the only right answer is to plow it and, for instance, start once again on a new platform. Take a look at what Nokia is doing right now. If you back off too late, it could be fatal for you company.

10. User unfriendly product: All about that usability. It is worth noticing the difference between the point 1 and 10. We could listen to the users, engage in dialogue, gather ideas and bug reports – but the product will still cause pain to the users. Listening to the users is a company's characteristic, the quality of product relates to the very product and to the lack of competence of a given company.

11. Pricing issues: Prices that are too high or too low and therefore stop us from making money. Too high: an urge to make money and immediate or too quick payment introduction or the pricing that doesn't fit the market. It is often the result of unrealistic business plans and pressure from investors. It is sometimes the problem with the complete lack of understanding of the market. One of my clients invented a functionality that was supposed to facilitate the use of their services. It would have been a good idea, only if it had been possible to pay for it via text messages that cost around 25cents each. Unfortunately, the client came up with the idea that users should pay 10USD per year for that service. Despite the intensive promotion the service was bought only by a couple of users. Too low: freemium model where free-of-charge part of the service completely satisfies the need of the users and premium part is just fancy.

12. Not using networking enough: Startups that are ugly ducklings. Their founders could use their networks and contacts but they don't do it. A short survey of my friends from Facebook and LinkedIn who have companies:

Some of them sometimes boast about their businesses, write what's new
Some of them are overusing these opportunities, there are some people who send constantly some invitations which actually produces the opposite results
But some of them never use these channels. They perhaps assume that if someone is interested in a company, he or she will use the communication channels of that company.

13. Disharmony between investors and founders: So what we have the investors? If they have different vision than founders, or they want to take money from the company which means they make weird decisions or hire their people, you have a hard time. As a founder with the minority stake you could only gnash your teeth.

14. Losing focus: Having "our own company" often means that we want to make 4 products at the same time. We want to add new functionalities, go on conferences, or give interviews. The thing that suffers the most in such cases is of course the product development.

15. Burn out: It's true that sometimes one needs to work long hours but it shouldn't last too long because you could get sick of your own startup. :-)

16. Competition: People from 37Signals (company that runs famous BaseCamp online tool) say that there is no point in thinking about our competition. We should focus on our own work. It's true unless we are doing the same thing as our rivals but they are better at this.

17. Problems with attracting investors: You could know how to sell your product to users, but have no clue how to sell your company to investors. This actually comes down to both personal issues and the lack of business model (see above).

18. Bad location: Sometimes it is necessary to have clients near your place. If you have B2B service, you need to sell it directly. You need to go to industry events, which means that being located in, for instance, Kano is not a perfect thing because it would be difficult to get every second day to Lagos or Abuja. Of course, this problem could be neutralized. You can handle your contacts with clients in a different way. The real problem with location is the lack of workers on site, which means you need to resort to remote workers.

19. Lack of full-time engagement: It sometimes seems that running a company in a part-time manner is possible. It is, but not always. Among the stories of falls described in the article on Chubby Brain you can find the story about the auction aggregating service Overto.pl that was founded 6 years before Ebay in Poland. It was really a great chance to build a stronger position than Ebay because Overto's browser was much better than that on Ebay. I remember that service more often didn't work than worked. Eventually, it stopped working. The founder described the story of Overto. As it turned out, none of the founders worked full-time. They all had they own jobs. When the problems with infrastructure arose, they weren't able to react fast enough. Even worse, the struggle with the current problems restricted the development.

20. Company chose a bad time to start: A bad time is a financial crisis, so a bad climate for investments. The company that would have started in a different circumstances could have survived. It is worth noting that it is the least frequently given reason.

Summary

It is easy to notice that the reasons of company's fall are related to two areas:

The company, its management, relations with investors;
The product/service which is offered by a company and the way it is promoted, sold, etc.

It seems that issues related to the product are more important. All in all, the quality of product affects the "quality" of the company.

Did we miss some important reasons? Maybe poor management? It could be put in poor team category, but actually it is not the same thing. Or maybe the owners who created those 32 stories thought that, say what you like, they were good managers. :-)

How do you imagine the following list related to Nigerian startups? What reasons would be ranked higher, and what lower? I believe that there won't be many changes. I'm curious what you think about this.

Zmyslowski is 28 years old and the Managing Director of . He established the first branch of the company in Africa in August 2013. Before joining Africa Internet Holding, he successfully co-founded and exited online ventures in Poland. Being an enthusiast of African culture and economic development, Marek moved to Nigeria to become a part of the continent's online revolution. He is an internet geek, fashion enthusiast, and sports addict. Marek is also a former snowboard instructor, holding a racing license.