Today we're gonna look at why startups fail so you can avoid that trap
There are certain things and just kill a lot of startups
Knowing what they are and how to handle them will make it much more likely for you to succeed
This is Raw Startup
I've always been an entrepreneur but Vivino we raised 57 million dollars and have 30 million users all over the world
For years have spoken to several startups every single week
I've met with some amazing founders and startups some of them succeeded a lot of them failed
I've learned a lot from both groups in this video. I will look at the top five reasons. Why?
startups fail it's a list made out of real data and
My twenty five year experience as a founder for every reason I will give some clear and applicable advice on how to avoid
The pitfalls that kill the most startups about eight years ago
We did a seed round with Danish venture fund seed capital at that point. They started introducing me
so a lot of their portfolio companies I
Met with them so we could you know share experiences and learn from each other a year in or
So as I realizing that a lot of these companies had disappeared we know that most startups fail
But this was the first time I saw it in practice. This made me very very interested in look at what had gone wrong
Why had these companies died?
So since then I've looked carefully and why do these companies shut down what goes wrong for startups?
And that's we're gonna talk about today when I started doing research for this list
A lot of people came back to me and said lack of funding running out of money was one of the primary reasons
Why startups die that is true, a lot of companies do shutdown because they don't have any money left
But that's a consequence of something else
Startups don't die because of the lack of money. They die for some other reason
So I want to look at what that reason is. What is the actual reasons why they ran out of money?
Let me tell you the story about Blippar
Blippar was founded in 2011 in the augmented reality his space
They wanted to build a search engine where you could use a camera to search for anything
Just take a picture and Blippar will tell you what it is in December 2018
They went into bankruptcy. Although they'd raised a hundred and thirty million dollars
They ran out of money were not able to raise another round more specifically
Blippar claimed that one investor had blocked further investment. But really there must be another reason why Blipper went down
That reason is on this list
I have some insight as I met the CEO and Founder a few years ago and in a second
I'll show you the real reason why they went down. We will start at the bottom of the list
Here's the fifth biggest reason why startups fail number five lack of persistence
Being a founder is not a quick route to a Lamborghini if that's what you want
There are better and easier ways to get a Lamborghini that people that do this for the Lambo
Usually don't make it when people ask me. What does it take to be a great founder? I
Always say the same word
Stamina, it takes a lot of stamina to be a great founder from the outside it can
Sometimes look like these startups are overnight successes
but in the real world they're years of hard work or as we say an overnight success always
Takes five years of hard work when you're a founder. You never really know how close you are to hitting a big time
I think this particular cartoon shows it really well
Sometimes the lack of persistence means that you stop just before you hit it big time
One of the reasons why I'm a pretty good founder is because I never quit even when I should be quitting now
Let's look at the pro tips. How can we avoid this the best thing you can do where is set expectations?
Prepare yourself and the people around you that this is not a short run. This is a marathon
This is something that will take years to do years of hard work and there's also a pretty decent chance of failure now
Let's take a look at number four number four
premature scaling a few years ago the startup Genome Project
looked at the primary reason why startups fail they concluded that the biggest reason why startups fail is
Among funded startups was premature scaling premature scaling means growing the business too fast
And before the business is ready for it. This often happens just after a funding round
There's a lot of money in the bank and massive pressure to spend that money. The investors are shouting grow grow. Grow
Growth is good, but the business has to be ready Vivino had a competitor in the u.s
That was very very successful in the US market
They'd race 50 million dollars based on that success. And now the pressure was on to grow grow grow
They decided to launch in the UK, France and Germany
Rapidly, however, the markets were very very different
The model didn't work there the launch cost tens of millions of dollars and they ended up shutting down all
Three markets again. It almost killed the company they'd spent almost all the money and it's very little to show for it
This is classic premature scaling. They grew way way too fast at that point. The investor said no
We're not quite ready to put more money into the company. Let me be very clear here
This is a very dangerous situation for a start-up if you scale prematurely
Spend all the money with little to show for it
You can easily be in the situations where no investors will put more money in here are some examples of premature
Scaling rapidly increasing costs to early international growth to early premature paid user acquisition
Without proof that it's actually profitable, okay
So what are the pro tips so we can avoid premature scaling? Don't be too aggressive right after a funding round
I'm not a great poker player, but there's one rule that I have that works. Really
Well, don't bet just after you won a big hand you think you can do anything and you will make bad decisions
So take it cool right after a big round just say no
Investors and the people around you invested in you they believed in you and that gives you a lot of leverage
Use that leverage to just say no if somebody's pushing for premature scaling we're moving up on the list now
So let's take a look at number three number three broken founding team
I usually say founders build companies founders destroy companies
There's a lot of truth in that if you see a broken founding team, you have to fix it right away
There's no way a broken founding team will ever build a great startup. It happens all the time
Usually they disagree on who should do what how much to put into the startup or it can just be basic bad chemistry
Let's look at some pro tips alignment and manage expectations
I think the best advice here is to have alignment agree early
Who does what what the ambition level is for the startup create as much alignment as you can and manage everyones
Expectations early on you might as well have that conversation early on because you are gonna have it at some point
It does not get easier over time. It actually gets harder founders need to be different
We have a tendency to hire people that are like us that think like us that might not be the best solution
We need people that have different skills and sometimes different
Personalities to build an amazing startup because there's so many different tasks and skills
Needed to solve those to us if all founders are similar
They will all want to do the same tasks and fight about who's going to do
The other tasks different personalities can be difficult, but it is a requirement to build a great startup
So think diverse when you're looking for a co-founders
Solo is not a great solution the easy way out of this one would be to be a solo founder
But the numbers actually show that solo founders perform a bit worse than companies with multiple founders
I highly recommend having multiple founders. So being solo is not really a solution. I would recommend
Okay, we're getting to the top of the list. Let's have a look at number two
Number two bad timing first mover advantage sounds like a great idea for a startup
But really it might not be where you want to be
You want to hit the sweet spot in the middle not too early and not too late
the problem with being too early is neither the
Technology you're building nor the market is ready you end up investing crazy amounts of money into a technology
That isn't ready to market that really isn't ready either
Neither Facebook nor Google were first movers
But they were the last standing as you can imagine if you're very late to market. There will be too much competition
Let's take a look at Vivino because we hit the timing incredibly
Well, we started in 2010 and when we launched the app, there were 600 wine apps in the App Store
You might think we were late for the market, but actually the timing was really really good
Let's have a look at that timeline
The iPhone was launched in 2007 and the App Store in 2008 by 2009 in 2010
It really starts to grow in popularity and the competing OS Android is also starting to take off
The smartphone is starting to gain critical mass
We also need the camera and the phone to be online in a supermarket that also happened around the same time as time goes by
It also becomes easier and easier to develop on this platform
The technology matures if we had started two years earlier, we would had some big challenges first of all building
The product would have been a problem
Developing on smartphone was less mature and the image recognition needed was not mature on top of development being hard and costly
We would be building for a small market
There were very few smartphones out there and they had a bad camera and most of them were not online
We needed all those things for Vivino to work
That was all about being too early. If we were too late. Somebody else would have taken that massive market
There's a great TED talk by Bill Gross on this subject. I highly recommend it and without giving away too much
It's got something to do with timing
So what are the pro tips here rather late then early and you can always compensate by executing better
I would rather be late than early you can be too late
But a little bit late is better than too early
The problem with too early is there's a very good chance. You'll be dead before the market actually hits
Investors gone and no more startups as the money will all be invested the way to compensate for being late is to do better
Execute better build a better product beat the competition
It's really really hard to compensate for being too early
the window might be longer than you think in our case is probably a couple of years any time between
2010 and 2012 we would have been fine. So you look at a market and think maybe it's too late
If you can execute better, you might actually have a shot. Okay, we're getting to the top of the list number one
No product market fit. Yeah, no surprise here
The hardest thing and the most important thing for a start-up is to find the product market fit
It is a requirement for any startup. There's no way around it. You have to find your product market fit product market fit
Basically means that you find a product
That you can build at scale that the market wants at the price that the market is willing to pay. And yes
You need all three to have a product market fit product market fit is mostly a challenge in the beginning
But we see more and more companies that have raised
Multiple rounds of funding and still haven't found a product market fit for Vivino
We found a great product market fit very early on scanning a bottle of wine and giving you all the information in
Seconds was a great product market fit
however, that was a free product and not something we could build a business on we need a second product market fit that could make
Us some money so in 2016, we started building a Marketplace on top of the Vivino
We wanted to have a marketplace where we could charge a marketing fee. Every time a bottle of wine was sold
It took us a couple of years to find the product market fit, but by 2018
We'd found the product market fit for the commercial part of the business. The point is be aware
You might need multiple product market fits before the startup is out of the danger zone now
Let's go back to blipper that I mentioned earlier. They'd raised a hundred and thirty million dollars in 2015
I met with the CEO and Founder Ambarish Mitra. They already raised a lot of money by then for me, though
It was pretty clear that they had not found a product market fit
They still kept it all going to December 2018
And the reason why they went down was not lack of funding. They never found a product market fit
Okay, let's take a look at the pro tips to find a product market fit all
Focus on product market fit there's no way around this
The only thing you need to put your effort into is finding product market fit
Don't waste your time doing any other stuff when you don't have product market fit
You only look for probably market fit be aware of a false product market fit
When we work hard on our product to improve our product we sometimes fall into the trap of thinking
we have a product market fit a false probably market fit be careful with those false positives a
very common mistake here is to do paid marketing be very
Careful with doing paid marketing before you have a product market fit
It may trick you into thinking you actually have a product market fit. You really don't have a product market fit
You're just paying users to buy or download your product finally this is about learning fast
Always use a Minimum Viable Product strategy release early often and learn fast
The faster you learn the faster. You'll have a product market fit. That's it guys. Take a very good
Look at this list based on my experience. These are the top five reasons. Why startups fail looking at this list
It's so important because we can learn so much from the ones that failed that will increase our chance of success
Radically, if you want more videos just like this one to learn to build a better startup, please subscribe to my channel right now
Thank you very much for watching