Why So Many Tech Startups Fail
As Featured In the Huffington Post
Everyday you can read a new story about a team of well-funded tech entrepreneurs who strike gold with their revolutionary new application. Each story follows the same format: a desperate college student strings together some money, works 24 hours a day, and manages to get in front of an influential venture capitalist who gives her a million dollars. For many people around the world, this is a living model of the American Dream. But what most would-be entrepreneurs quickly discover is these stories are often hyperbole and the exception. For every success story you read, there are 100 who have failed – according to Small Biz Trends only 3% make it to the 5th year.
Why do Tech Start Ups Fail?
Underfunded: The second most common pitfall we see from failed startups is an utter disregard for how much money it actually takes to run the business. In an article published by Fortune, they cite statistics that failure due to lack of money accounts for nearly 30% of startup failure. Funding your technology is only a fraction of the equation; in order to truly prove a concept, you need to market your product, manage your product, and pay yourself a living wage to see it through. Most failed startups only account for their development costs and assume business will run in the door once its completed. This mentality is a trap and its an area we see a large number of founders fail.
A Lack of Direction: Starting a company is incredibly difficult, the path gets harder for most failed startups when they don’t have the support system and external guidance to help them along the way. We’ve seen a number of well planned, well funded ideas fail because the founder didn’t surround themselves with a strong team of advisors. Seeking advice and trusting a team of well vetted advisors is critical in any successful startup journey. Forbes argues that lack of vision is a primary driver that gets businesses in trouble.
Undefined Idea: Tech startups don’t fail because they have a good idea, they fail because they don’t unpack that idea and create a plan of execution. Small Biz Trends argues this a driving mistake they see most startup founders making, they jump into the deep-end without knowing how to swim. Anyone with a great idea should know and understand how to unpack that idea. If you don’t know how a user is going to transition from one screen to the next, you have no business spending money executing your idea. The adage of “failing to plan is planning to fail” rings ever true in technology development. You wouldn’t ever build a home without a blueprint, so don’t spend money developing your product without one.
Stacking the Deck in Your Favor – Lessons from a Startup Incubator
Startup Incubators have become popular in Silicon Valley and most large cities around the world. The concept has been made popular by organizations like Y Combinator and 500 startups who have an incredibly successful model of working with tech’s elite to help them grow their product and provide funding. The downfall to most of these programs is the need to uproot your life, move to a new city, and dive headfirst into your unplanned and untested idea. This model weeds out a lot of great ideas and forces would-be founders down a treacherous road often doomed for failure. Thankfully there is a newly emerging segment of the incubator market that’s aimed at an ever-growing mobile environment.
These emerging digital incubators include organizations like Gantzer that go to great lengths to help founders navigate the early-stage phase regardless of their physical geography. The Gantzer Incubator has pioneered a system that leverages the benefits of a traditional incubator without having to uproot your life. When looking for a quality incubator program, look for competency in the following areas.
Technology Architecture: the founder and their team must unpack an idea, conceptually design it on paper, define a plan of execution, and create a workable budget. A good incubator will guide you through this. This process acts as a critical foundation for any new business. Don’t pitch or ask for money until you’ve fully vetted and designed your product on paper and have a tangible idea of how you intend to execute it.
Seed/Angel Investment: an incubator should have close relationships with seed and angel investors eager to fund new ideas. Working with an incubator that has existing relationships with investors puts you at the front of the line and dramatically increases your chances of success. “Investors get a thousand pitches from startup founders,” explains Kyle Gantzer, founder and CEO of Gantzer Incubator. “A lot of those ideas are great, but never get funded because they get lost in the noise. Personal introductions that get you to the front of the line are crucial – that is what a quality incubator should be able to do for you.”
Home Field Advantage: Many incubators partner participants with successful advisors to help guide them through the early stages. Find an incubator where you know you’re going to be partnered with an expert who’s going to give you that unfair advantage. This will be the partner you need who will give you the unfiltered, brutally honest truth – something every startup needs!
Of course, even if you find a quality incubator, a good advisor, cross your t’s and dot the i’s, there is no guarantee of success. But getting those factors accounted for will significantly increase your odds and possibly save you from being part of the 97% that fail.