- Hi, I'm Dan Martell, serial entrepreneur,
investor and creator of SaaS Academy and in this video
I'm gonna share with you the five reasons that startups fail
and be sure to stay 'til the end where I tell you how to get to
access my "Idea to Exit" free mini-course
to help you start up right.
(upbeat music)
I've been building SaaS businesses for over 20 years and
I've seen many reasons startups fail
and these are the five biggest ones.
Reason number one, market problems.
When you're starting off and you're solving a problem,
you need to figure out what market has the biggest pain that
you're going to introduce that product to.
And many startups do the opposite where they start off
with a technology and then they spend time trying to
find a problem for it to solve.
And what you want to do is make sure that when you start your
startup that you find the market first.
That you validate it first.
That you talk to early adopter customers.
Early adopter customers are special.
They're people that have had the problem themselves and solved it
in some unique way internally.
It might be putting together some spreadsheet,
some scrips, they hire a developer
to build an internal tool.
When you find those customers, they're going to be the
beginning of the opening of that market to really educate you how
you should deploy your product into that.
Reason number two, business model failures.
When it comes to building a business,
there is five different types of financial models
that need to be understood.
Things like the operating model, the financing model,
but at the end of the day as you build your product you gotta
figure what's the price, how do I bring it to market,
how do I service the customers, what does it cost me to actually
deliver that value and for many startups they get hung up on the
fact that sometimes they're not charging enough for the size of
customers they're going after and that kind of customer
requires such an expensive sales process that they're never able
to make the numbers work.
Or they've got a technology that's just priced in a weird
value stream where they're charging maybe a global site
license to a company instead of doing a per user basis.
So whatever it is in your product,
you gotta figure out what's the business model
applied to that market.
Not just building the product, which is tough enough.
Not trying to figure out who has the problem,
which is again another big area that's ridiculously hard,
but figuring out how to structure the model and
the business side of things to really make it grow.
Reason number three, poor management.
You know, as I've gone out there I've invested in about
30+ companies, I've met thousands of SaaS and
tech founders over the years,
one of the things I've seen amongst those that succeeded
and failed is the leadership team, the management team,
the early founders were just incredible people.
They're folks that could execute.
I still remember this one time
there was this rising star startup.
18 months in they had hundreds of thousands of customers and
the reason they failed is because of cofounder infighting.
Like the business was actually great but the two cofounders
couldn't get on the same page in regards to the product roadmap.
So when I think of the top reasons poor management,
lack of clear leadership, ownership,
the idea of co-CEOs never, I mean it's so rare that that
works when you have two people accountable for something,
you have nobody accountable for it.
So really think about how you build the operating model from a
management point of view.
Who leads, who's accountable, who's managing certain business
areas and make sure that you empower them to be successful
because poor management is a key area
and one of the top reasons that startups fail.
Reason number four, running outta cash.
Now yes, you're probably going,
"Duh. Not having money is obviously gonna be a reason
"I'm gonna fail and that's why I need to raise funding," or,
"That's why I'm so scared 'cause
"I only have so much in savings."
When you think about it,
it's not about how much money you have,
it's about how you deploy that capital
and in what timeline.
You know, one of the biggest decisions a startup's gotta make
is, what's the constraints?
If you only have so much money, what's the timeline constraints?
What's the resource constraints?
What's the feature set constraints that we could
possibly build in that timeline?
So it's not about capital, it's about capital management.
Is understanding what are the milestones that we need to get
done over the next 90 days to allow us to unlock either the
sales growth or the funding opportunity for us to continue
investing in this startup.
So running out of cash, yes, is the reason that you're gonna
fail but how you get there is a decision that
every founder gets to make.
So be sure to manage those milestones,
hit those goals so that you can unlock
the next level of growth in your startup.
Number five, product problems. I've seen startups that have an
incredible customer list, they have all the opportunity,
they've got the management team, they've got everything going for
them but for some reason they can't figure how to get the
simplest of features built.
And even worse they might actually have customer spending
hundreds of thousands a month on their product and they're still
deploying buggy software.
At a core level, as software business,
a SaaS business, a tech business is code and if you don't build a
product management system and a continuous integration
deployment system and ability to manage your customer support
and pay back some code debt and fix those bugs
then you're always gonna be fighting a tidal wave.
So I've seen over the years tons of startups fail not because
they didn't have the opportunity,
not because they didn't figure out the business model,
not because they didn't have the right leadership,
although you could argue a lack of leadership is a reason why
product processes doesn't work, but the product problems will be
the reasons that your startup will fail.
To recap, number one, market problems.
Number two, business model failures.
Number three, poor management.
Number four, running out of cash.
And number five, product problems.
As I mentioned at the beginning of the video,
I want to share an incredible resource called
the "Idea to Exit" mini-course. It's a three-part series.
The link is below in the description,
free to download.
I cover ideation, prototyping, team structures,
fundraising, it's all there for you.
Just click the link and get access to that and
if you like this video,
be sure to click the like button,
share it with your friends and subscribe to this channel.
As per usual, I want to challenge you to live a bigger
life and a bigger business and I'll see you next week.
Kinda weak, eh?
- [Jared] I was gonna say it's a weak ending.
- Yeah, yeah.