The startup scene in Switzerland is growing. This is shown by the increasing number of startups being founded. Nevertheless, the percentage of successful startups remains low. Eighty out of every hundred newly founded startups fail within the first three years. What are the most common reasons for these failures?
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As Frank Thelen says: “The link will open in a new window Starting a business is a tough journey”. And actually there are huge risks to bear, many difficult decisions to make and some situations where you fall flat on your face and just have to pick yourself up again. For the most part, failing isn’t always so terrible because you usually learn something from it. Mistakes are a source of expertise and people who analyse the mistakes of others hopefully won’t make the same mistake themselves. In this article, we show you seven mistakes that often lead to failure and, more importantly, what lessons you can take away for your startup so it doesn’t happen to you.
This point takes first place in the list of mistakes connected with starting a business. While statistics show that 80 percent of startups are forced to give up within the first three years, they don’t show how many ideas have already been thrown away before a business is founded. Countless business ideas are never implemented because of the fear of failure.
Serial founder Ertan Wittwer (a co-founder of bestsmile) sees this phenomenon very frequently. In an The link will open in a new window interview with FOUNDED, he explains that he has heard so many excuses as to why the situation or the timing isn’t quite “right” and it would be better to “wait a little longer”. But he has founded a company and started a family within the same period. He also thinks there’s no more exciting project than starting a business. And your CV is definitely improved by a startup phase – whether successful or not. This is because starting a business shows that you’re prepared to take on something new and that you can think like an entrepreneur.
You can’t be afraid to fail. On the one hand, because failure shouldn’t be viewed as a taboo. On the other hand, because it holds you back from “doing”. And if you do nothing, you’ve already lost.
Reason number two is none other than a lack of product-market fit, as this is a crucial factor in success or failure. Finding this product-market fit is one of the most important but also one of the most difficult tasks in the initial phase of starting a business. The task is basically to ensure that the business idea and the market requirements fit together. In the words of The link will open in a new window Pipedrive Blog, the value proposition and the customer expectations have to match. Often, founders are not aware of this crucial criteria or they cherish the assumption that their product will find buyers or users somewhere out there. After all, their product is super innovative and really cool. But that isn’t necessarily enough to guarantee a product-market fit. One reason why the product-market fit isn’t successful can be
A young company can only enter the growth phase successfully if the product-market fit is found. Also, the startup must interact very intensively with the market, the target group and its product. Everything must fit together perfectly. An outside perspective can help you succeed in this task. For example, the startup institute, The link will open in a new window IFJ Institut für Jungunternehmen, supports founders on the road to self-employment.
The success of a company is largely dependent on the team. For good reason, investors at pitches pay close attention to the composition of specialists in the founding team, because the team is crucial to the success or failure of the startup. An excellent team with skills that complement one another, that has a certain diversity and shares the same values can be successful even with only a moderately good startup idea. After all, if the product requires a course change, a strong team can “pivot” effectively and continue to pull together. This is because a good team holds together and continually searches for solutions, instead of dragging each other down and burying their heads in the sand when problems arise.
A successful startup needs team members with skills that complement one another. If everyone can do the same thing and thinks in the same way, the team won’t get very far. But consistency is important in the startup’s values and objectives. If everyone wants to succeed together, they’ll stick together, even through a “pivot”, which means that the product or target group might change but the team continues to hold together and carries on with as much commitment as ever.
If a startup launches more products too soon or wants to enter a new business area, it risks losing everything. A startup should focus on what it can do best and invest capital only into the growth of its core product. Then, all resources – human or financial – are focused together. This is enormously important so the startup can scale up its activities. And this in turn is important for becoming competitive and continuing to attract further growth capital.
A good illustration of this is the bankruptcy in 2022 of the logistics startup Luckabox, which was published in the The link will open in a new window Handelszeitung newspaper. The founding idea was to match shipping orders with couriers in real time using a Smart Logistics platform. This went well until Luckabox wanted to open up a new business area in parallel and offer a solution for the return transport of scooters in urban areas. Luckabox ultimately failed because it was handling these two business areas simultaneously. Looking back, co-founders Maite Mihm and Aike Festini said themselves that they should have focused on their core business.
A startup should focus on one product and put all its energies into it. This means that all capital is available for establishing one product, and all employees can tackle one objective and work intensively towards having one unbeatably good product.
Another mistake that founding teams make is wanting to please everyone – or the opposite: not listening to any advice. The example of Luckabox also shows that different stakeholders can have different ideas and suggestions for the startup. It’s not easy to find a middle path between the feedback and input gathered on the one hand, and “doing your thing” on the other hand. But it’s definitely an aspect that can be crucial to success or failure.
While it’s very important for the development of product and strategy that all stakeholders – investors, customers, partners, co-founders, etc. – have open minds, it’s important to remember that taking all feedback on board can mean quickly getting lost in details and working on too many fronts at once, which weakens your focus. The other extreme is being “uncoachable”, meaning that you know your own path and are determined to follow it, come what may.
It’s important to accept varied feedback, because outside perspectives from different stakeholders show aspects that you otherwise wouldn’t see. However, it’s important to check the feedback and input carefully and select what should be considered and implemented so that focus isn’t lost.
Another reason young companies fail on the market is a business model with unsuitable pricing. On the one hand, this is about determining product prices; on the other hand, how the product is paid for. When pricing is based solely on internal costs, a startup can be brought into difficulty by prices that the target group perceives as overinflated. Customers are prepared to pay money if the product satisfies a need or solves a problem for them. The greater the need or the problem and the better the solution, the more they are prepared to pay. So the price you determine must be one the customers are prepared to pay. If this readiness is very low, the product-market fit isn’t good enough and this takes us back to the second reason that startups fail.
Depending on the product, startups must also consider whether the subscription payment model is suitable, per purchase, per month, per user success (for example, if the product brings the customer to leads and then the customer pays per lead), or whether it can be used for free and the customers are advertisers. This latter demands a large community of users for advertising customers to be at all interested. The payment model must be considered carefully because each has its advantages and disadvantages. For example, a subscription model makes it easier to plan revenues, while a user success model counteracts any possible customer scepticism because they only pay when they get something.
Pricing must be oriented towards the benefits brought to the target group. The payment model can also have a considerable influence on how the price is perceived. If payment readiness really isn’t there, the product-market fit should be reviewed.
In times of inflation, insufficient financing can trigger declining investment readiness among investors, business angels and venture capitalists (VCs) , which the startup can do little to control. Here, the focus is on the area where founders can actually have an influence.
On the one hand, startup founders must learn to achieve as much as possible with the smallest amount of capital, which means structuring the startup as cost-effectively as possible. On the other hand, they must also convince enough investors to ensure that financing is secure and there is investment in growth. After all, growth is capital-intensive. And the cash burn rate − the proportion of spent money − can quickly run to six figures every month.
After the financing round is before the financing round. It’s important to run the startup in a “lean” and focussed way, but research and development, and growth, come at a cost. A high cost. And these shouldn’t be delayed by “dawdling” when it comes to raising funds. Startups must constantly reach out towards suitable financing opportunities and nurture the appropriate networks.
