Why do most startups fail?

(Photo: 123RF)

GUEST BLOG. Did you know that the vast majority of startups end up failing sooner or later? This is not really surprising and there are several reasons for this.

According to “Harvard Business Review», five of the top 10 reasons are customer related, mainly not meeting their needs or improperly designing the product due to lack of listening. Sometimes worse, ignoring customers and developing a product that serves no purpose other than feeding the ego (common among inventors).

Among the other reasons is obviously not having the right team or not being able to create an MVP (minimum viable product) and therefore not mastering the product approach.

Finally, in the other important reasons that explain the failure of start-ups, there is the lack of alignment between the founders or the lack of focus and passion for the problem.

However, when I look at the success and failure stories of start-ups in LinkedIn posts, most seem to attribute their success as much as the end of their project to “lack of funding”. This is even more explicit at the moment with the economic situation and the reduction of venture capital funding. However, according to a study by CB Insight, of the top 20 reasons startups fail, only two are money-related. So maybe we should stop giving the impression that capital is the real problem.

This is not surprising, because a start-up is first and foremost a human enterprise whose success depends primarily on how people in the organization (employees) and outside (customers) are managed.

So what can you do to stop your startup from joining the cohort of those who go bankrupt after a year? Two things are essential. And they are inextricably linked.

Make money (and yes, it matters!)

You have no idea how many times I talked to “startupers” and when I asked the simple question: but how are you going to make money, he looked at me like I was an alien. Making money was almost out of fashion in the last couple of years, when some company valuations were based on the “number of data scientists with PhDs” in the box or other superfluous metrics.

The first step, therefore, is simple: have a business model that meets a real need and, above all, generates revenue. No income, no business. To get an idea of ​​a sustainable business model, there is a lot of literature on the subject!

However, having a good model is not enough. For a company to be sustainable, it must not only meet a need, but also have a meaning, a reason for being.

This is the second element.

Money without “meaning” is not worth it!

We’re just beginning to talk about it, thanks in particular to author Simon Sinek, who brilliantly brought it to light.

Meaning is why you do what you do. One does not dismiss the other to the point that it is not enough to generate income or defend a just cause.

The two are linked, because money alone will not motivate those who work for you and will fail to encourage them even more if you run out of money in hard times. If your team is just in your house because you pay more, your chances of success are very slim, as I don’t know of a single start-up that hasn’t struggled. To take Connect&GO as an example – we’ve been technically bankrupt at least 3 or 4 times! At times, employees accepted sacrifices because our ambition to transform the industry made sense.

You will also no longer be motivated. You will throw in the towel and move on. In other words, money does not bring people together. Meaning, on the other hand, yes.

Money is the fuel that gets you from point A to point B. Meaning is what gets you and your team there.

It’s the same for an investor. Imagine that you invested a few million in a start-up. While your ultimate goal is obviously to get the most return (and therefore money) from an eventual exit, if you feel that this is the founders’ sole motivation, your money is much more at risk. In fact, when an entrepreneur is motivated by a just cause, he is much more likely to have the courage to persevere in adversity.

Not to mention, he’ll be more likely to surround himself with the right people than someone whose only goal is to make as much profit as possible. As the first team will be inspired and motivated by the goal they set for themselves, it’s meaning that brings people together, not money. Or if it is, not for long. Cultivating a sense of purpose will make the startup and its team strive to succeed.

Is it not always necessary to make sense?

I already expect to receive detracting emails telling me that my text is reductive and that it is not always necessary to have a company with a meaning that transcends them. For my part, I don’t see many that last!

For example, a shared workspace has a meaning: that of bringing entrepreneurs together and allowing them to discuss. Just like a bar that has the effect of facilitating social interactions and entertaining people. For the first example, however, it proves that meaning without money is no guarantee of success either: think of WeWork. The company bet everything on meaning, leading the team to surpass itself, but by forgetting the money, the company lost its meaning!

A bakery also has a meaning. Whether giving quality bread to those in need or perpetuating an artisanal tradition.

Ditto for the bookstore, the toy store, etc.

I don’t know of any business that is useless. Except maybe the bank… (joke).

It’s a matter of where you place the cursor. As much as a social enterprise is more concerned with generating impact than profits, a tech startup will aim the opposite. But both will have the ambition to serve a purpose and make a profit. Either way, that’s what will make them last longer. No goal, no real motivation, no profit, no real means!

Leave a Comment