Most people tend to follow the example of successful precedents. That’s a good strategy but supplementing it from another perspective would make it even more effective. Lessons learned from failures are something that shouldn’t be missed.
According to CB Insights’ compilation of startup failure cases, no startup failed due to a single reason. It was a combination of multiple reasons that drove startups to shut down, and analysis of 111 startup failures showed there was a pattern in those reasons.
One of the reasons is related to the prevalent view in Silicon Valley, that successful companies almost always involve overwork. Combined with working from home during the pandemic, this misbelief led to burnout, especially among tech workers. Burnouts were sometimes severe enough to close the company because team members could no longer implement innovative ideas to overcome stagnated growth.
Other operational issues had something to do with people (either the team or investors) or external factors like laws and regulations. Building the right team, or in other words, hiring is certainly an important factor in running a business. Jason Crawford (co-founder of Fieldbook) wrote in his post-mortem blog post that while he “knew investors would need to see strong, consistent growth before Series A, but didn’t expect that engineers would need to see it even before that to join.” Unfortunately, his business with modest growth wasn’t attractive enough for engineers compared to other industries like AI or cryptocurrency. Disharmony among team members is also pointed out as a reason for startup failure, not to mention the distrust of investors in the company's viability. Unexpected external obstacles like increased tariffs or revisions of regulations brought some companies’ operations to an end.
Another type of reason for startup failures is related to the products or services. In fact, such problems are so diverse, accounting for half of the 12 reasons demonstrated in the CB Insights’ report. Products may lack needs in the market, get outcompeted, or have pricing/cost issues. On a more fundamental level, the product itself may be simply not good enough or released at an inappropriate time. VR platform Vreal said in retrospection that “unfortunately, the VR market never developed as quickly as we all had hoped, and we were definitely ahead of our time.”
So far, we were able to see what causes startups to fall apart. To put it the other way, startups need to wisely deal with those matters in order to survive. Market research and product development are a matter of course, and attracting and retaining talents and investors are also crucial to startups’ existence. At the same time, founders and members should keep the balance between their work and life to avoid burnout. It is indeed a tough task, and for startups, especially those in their early stages, it’s even more challenging because they are usually short of resources. So, to focus their time and effort on core activities, startups should minimize their resources spent in the areas where getting help from outside the company is more effective.
Securities management is one example, which begins as early as a startup successfully secures financing through a series of funding rounds. Documents and follow-ups of convertible notes, SAFEs, stock options, and cap table are difficult and time-consuming, but couldn’t be neglected. QuotaBook can streamline such equity management to allow more time on your core business. Let’s schedule a demo to discuss your needs and show you how we solve them.
Make equity simple with QuotaBook - QuotaBook is a global equity management platform with a mission to create an ecosystem for private companies and their investors and employees. Leaving spreadsheets and manual works behind, every stakeholder can connect online and sync crucial data on equity such as cap table or employee stock options. It is the leading platform used by top startups and VCs in Asia, backed by Y Combinator.
Disclaimer: This piece is written for information purposes only and is not intended as financial or legal advice. QuotaBook does not assume any reliability for dependence on the information provided above.