Top 4 Reasons Startups Fail

In September the online furniture company Dot & Bo announced they were closing. The company had over $20 million in venture investment and a valuation of $60 million. Before the announcement they were in talks with a potential buyer. When those fell through they notified the public they would close their digital doors and sell off assets.

If you aren’t familiar with Dot & Bo they were a combination media company and furniture retailer aimed at millennials. They carefully curated looks and sold furniture online. Instead of a catalog of options, shoppers got a story. Instead of traditional ad-based marketing, the company focused on product placement and word-of-mouth to get products sold.

Dot & Bo wasn’t able to get a regular flow of buyers or drop shipping costs – especially on larger items. Why would a company with healthy investment and valuation have to close shop? Here are the top four reasons startups fail.

Top 4 Reasons Startup’s Fail:

  1. Inaccurate market assumptions

Dot & Bo was marketing higher-priced home goods to millennials. This age group has student loan debt, entry-level jobs, and a pretty tumultuous job market. While their products were well loved and shared on social, that didn’t translate to the sales they needed to stay afloat. Up to 42% of startups fail because of miss-assessed market needs.

  1. Expensive capital requirements

The next largest reason for failure is just flat running out of cash. You have to spend some to make some, but keep the balance from tipping the wrong direction.

  1. Not having the right team

The third biggest reason for failure is not having the right team. The right people in key positions, experience and leadership are important. Dedication to the project is also huge. While some companies survive by shoe-stringing employees, successful ones bring the right people in as soon as possible realizing the right team is key to success.

  1. Poor Marketing and Getting Out Competed

Combined, these too make up 33% of why companies fail. Without the right marketing you are never going to set yourself apart from the competition. If your competition is better, faster, more interesting or more in line with consumer needs, then the startup isn’t going to recover.

Have a question about successful startups? Ask us at @StarterNoise.