The #1 Reason Startups Fail – And How You Can Avoid It
August 16, 2017
There is no denying that running a startup business is a roller-coaster ride. It’s inevitable that you’ll face unknowns and have to take on risks.
In almost all circumstances, you face an uphill battle in the marketplace. 9 out of 10 startups fail – for a gamut of reasons.
CB Insights tracks data and anecdotal “post-mortem” stories of businesses that went south. According to their reporting, here are the top reasons for failure:
The top reason is particularly telling. 42% of startups report that they fail because they could not discover a significant market need for their product. Second was a lack of cash, a problem that’s likely a result of many of these problems working in concert.
Only 14% reported their failure as a result of bad marketing, closely followed by the feeling the product was mistimed at 13%.
The main reason most startups fail is that their product doesn’t have enough intrinsic appeal in the first place. Is there any way to mitigate this issue?
The Product Appeal Conundrum
Steve Jobs famously said:
“A lot of times, people don’t know what they want until you show it to them.”
When it comes to converting sales, one of the key elements is the motivation of your audience. It’s a question of appeal. Do consumers feel a need for your product? Is there an appeal you can actually tap into?
The fact that so many startups fail because they don’t tap into a market need suggests a painful twist on what Jobs said. A lot of times, people don’t know what they don’t want until you show them.
The startup is faced with a conundrum. The only way to confirm if people will pay for your product is to get them to buy it, but you can’t get that confirmation unless you put out an untested product. You must face the risk of finding out that they won’t pay for it.
There is no way to remove this risk. But you can mitigate it.
Seeking Intrinsic Value
In today’s startup culture, it’s arguable that Steve Jobs’ perspective has been taken to the extreme.
Many people in startups jump into the role of “hero entrepreneur”, thinking that through passion and sheer will they’ll convince people to buy something they don’t need. They’re so enamored with their role as an independent entrepreneur they fail to see that their product has no intrinsic value.
Or they think that marketing and advertising will create the need that motivates consumers. And this can happen – new trends sometimes catch on with the help of a flood of ads, great distribution deals, and excellent reseller arrangements.
There was a time when nobody knew they needed a mobile phone. To a large degree, the product itself created the market. Today, mobile phones have almost universal adoption.
However, Apple also speculated that people didn’t yet know they needed the Apple Watch. But the value of this product hasn’t met expectations. It has not bridged the gap to majority adoption.
Creating a need in the market place takes a lot of money and almost as much luck. As the data shows, most smaller startups don’t make it this way.
Instead, success happens when the appeal originates from within the product itself. There is an intrinsic value people recognize which motivates them to buy.
Marketing’s job is to tap into this appeal and communicate it in a clear, credible way.
One thing to note is that intrinsic value isn’t always explicitly understood by the target audience. Your product may very well offer a value that people don’t yet understand. Marketing’s job, in this case, is to help educate people on how they’ll benefit from your offer.
What intrinsic value does imply is that the value is derived from the product itself. The appeal of the product doesn’t originate from the marketing or advertising.
It’s self-evident, then, that if you can discover this potential appeal and build your initial value proposition around it, you go from taking a wild risk to taking a practical risk.
You won’t know for sure if people will buy your product until they buy it. But you can have a clear vision of what would motivate them, which allows you target audiences and communicate a sound value proposition.
Testing the Waters
The starting point is you and the people you work with. You should know and believe in the intrinsic value of your offer. It’s your purpose – it drives how you’ll help people. Realize that if you start out knowing your product is a solution in search of a problem, you’re at a much higher risk of failure. You’ll have to create a market instead of tap into one.
Understand and articulate your competitive advantage. Why are you a better choice over not only direct competitors, but also other options people have? How will you overcome hesitation and apathy? If you don’t know why you’re a better choice, don’t expect your audience to figure it out.
Map out the thought sequence customers will go through as they make their purchase decision. What are the series of smaller, micro “yes” moments you must create to get the final “yes” when they’re ready to buy? What content do you need to coincide with their thought sequence?
How do you need to segment your audiences? Many products don’t have a single appeal, but rather a number of different benefits that appeal to a specific audience. You can create PPC campaigns with landing pages to test specific content for each.
What conclusions do people need to reach before they buy your product? How will they justify and post-rationalize the purchase?
What will they tell their friends about you? Is the value you offer strong enough to turn customers into advocates?
Finally, how will you distill the appeal of your product and its intrinsic value into headlines, images, and content that communicates that value?
When you’ve answered these questions, marketing and advertising can do their jobs.
If you can’t, you’re in the perilous group of startups that risk failure because they’re trying to market a product nobody actually wants.