The Real Reason Your Startup Will Fail

However, these reasons are the effects of the real reason most startups fail. The real reason that most startups fail can be traced back to one reason. Are you ready? Here it is:

 

Startups fail because of bad management.

 

Think about the list above. Why does a startup have any of these problems? It’s usually bad management that causes your startup to fail. Let’s go through each of them.

 

A. Running out of cash.

 

For example, there are lots of startups that have raised lots of money over the past few years, and are unicorns on paper. Many of the management teams just assumed that the easy money would just keep flowing.

Then reality set in, and they found it hard to raise their next round of funding. Worse yet, they have bloated teams and bloated spending to boot.

That’s a recipe for failure and the failure of your startup.

 

B. No market for your product.

 

Or, you realize too late that there is no market for your product. A great team will recognize the problem early, conserve their cash and pivot to something better. A weak team will recognize the problem too late and be forced to shut down their company.

 

C. You’re out competed.

 

Now let’s talk about competition. A great team is never out competed. Ever. The great team rises to the occasion. A weak team doesn’t just get out competed. A weak team puts themselves into a bad competitive position where they can’t win no matter how hard they try.

The result is the weak management teams have to shut down the company.

 

D. Flawed business model.

 

Every successful startup has to tweak their business model. The reason is no one gets it one hundred percent right at the start.

The great management teams recognize the mistakes and quickly fix them. Weak management teams put their head in the sand and just keep hoping that everything will be okay.

The result is predictable. They have to shutdown the company.

 

E. Regulatory/legal challenges.

 

I’ve worked with some management teams that have faced lawsuits and regulatory approval. I know it can be hard to overcome the roadblocks, but the great teams find a way to survive each and every challenge they face.

The bad management team get crushed.

The takeaway for you should be that your team is everything.

And by team I mean, you and your co-founder, the team you hire, and the investors you work with. That’s your team.

It’s all about Fox’s law, which is an adjustment to Rachleff’s law by venture capitalist Andy Rachleff. Rachleff’s law goes like this:

1. The #1 company-killer is lack of market.
2. When a great team meets a lousy market, market wins.
3. When a lousy team meets a great market, market wins.
4. When a great team meets a great market, something special happens.

I agree with rule number 1, rule number 2, and rule number 4, but I don’t agree with rule number 3. In my experience the right rule number 3 is:

When a lousy team meets a great market, the lousy team will still fail.

It’s just not enough to go after a big opportunity with a great idea. There are plenty of other entrepreneurs that likely have the same great idea you do.

But there’s one more thing you’re going to need need to succeed. That’s why I’ve added a rule number 5:

You need a great idea, a great team, and you need some luck if you’re going to win.

So now here’s my adjusted version of Rachleff’s law:

1. The #1 company-killer is lack of market.
2. When a great team meets a lousy market, market wins.
3. When a lousy team meets a great market, the lousy team will still fail.
4. When a great team meets a great market, something special happens.
5. You need a great idea, a great team, and you need some luck if you’re going to win.

Team. It’s everything. Get this right, and everything else will fall into place.

 

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