Few people embark upon the path of entrepreneurialism with the expectation of failure. However, for the vast majority of tech startups in 2020, failure is the most likely outcome.
Out of every tech startup created in 2020, only around 10% are expected to still exist by 2025, according to Entrepreneur Magazine. Such grim statistics should not, however, deter you from launching your own successful tech startup. While success is never guaranteed, it is more likely if you are aware of the common mistakes that cause most tech startups to crash and burn. With that in mind, here are the five key reasons why tech startups tend to fail.
1. An Uncompelling Product
Within the tech startup community, a frequently asked question to new founders is “is your product a vitamin or an aspirin?”. A vitamin is a product that is nice to have, an aspirin is a product that you need to have. A common mistake that too many founders make is assuming that just because their product or service is snazzy and put together, customers will flock to them. Failure to address a sufficient market need will kill your long-term prospects.
2. A Focus That is Too Niche
Granted, business gurus will extol the virtues of catering to a neglected market niche until the cows come home. However, this can easily backfire. Having a focus that is too niche will shrink your potential customer base and lead to an unsustainable business model.
The key is to strike the right balance. For example, take a look a Leovegas, a tech platform that provides online real-money games. If you look at the various slots at leovegas, you will not only see a number of specialized titles catering to certain types of gamer, but also a staggering array of more than 1000 slots for people to choose from. Combining specialization and variety is key.
3. Scaling Up Too Fast
One of the most common reasons for tech startup failure is when founders get too big for their boots and scale up before they are actually ready. It’s a well-trodden tale; founders get their first major cash injection via some shiny Series A funding, and suddenly think they are ready to take on the world. They go on a hiring and R&D spree, before finding themselves overstretched and out of their league.
One classic example of this in action is the gaming company Zynga, which got off to a great start producing free online games in the 2000s. However, they assumed that their initial growth trajectory would continue, prompting a spending spree that saw them spending $100 million on their own data centers. They soon found themselves without the resources to actually innovate and crashed and burned as a result.
4. Running Out of Cash
This one might seem obvious, given that all failed startups generally don’t tend to be flush with cash. However, this is far from a given. When startups run out of cash, it is because they failed to successfully navigate the fundraising ecosystem. Leaping to the next round of funding requires an ability to meet milestones set out my initial fundraisers, as well as having the personal skills needed to convince people that you are a worthwhile investment. If you can successfully navigate the fundraising rat race, your startup will never be short of cash.
These are the cardinal sins to avoid if you want to see your tech startup succeed. Avoiding these pitfalls is easier said than done, but knowing is half the battle.