7 July 2023 - Diana Bluhm

Start-up fails: Are these your end opponents too? This is how you defeat them!


Useful tips to grow your start-up

A desperate woman in front of her laptop
There are many reasons why start-ups fail. But you can learn from them and approach it differently. © Jeshoots.com/Unsplash

You can learn a lot from the mistakes of others. That's why CB Insights looked at 101 start-ups that failed. More precisely, they were asked which reasons led to failure. This study produced the following list with the 20 most frequently mentioned answers:

  1. No market need
  2. Ran out of cash
  3. Not the right team
  4. Get outcompeted
  5. Pricing/cost issues
  6. User un-friendly product
  7. Product without a business model
  8. Poor marketing
  9. Ignore customers
  10. Product mistimed
  1. Lose focus
  2. Disharmony among team/investors
  3. Pivot* gone bad
  4. Lack passion
  5. Failed geographical expansion
  6. No financing/investor interest
  7. Legal challenges
  8. Didn't use network
  9. Burnout
  10. Failure to pivot*

* Pivot: In the start-up context, the word 'pivot' refers to a realignment of the (product) strategy.

But what do we actually mean by 'start-ups'? According to Business Insider Deutschland, a start-up is understood to be a 'recently founded company with an innovative business idea and high growth potential'. So both the degree of innovation of the idea and the scalability are important. This is often the case with technology-driven business ideas, which is why many startups are located in the digital, high and deep tech or similar sectors.

The main reasons why startups fail

Let's now look at the five most commonly cited answers to the question of why start-ups fail. It is striking that many of the reasons are based on bad planning before the start-up:

#1 No market need

This answer was chosen by 42 percent of the start-ups surveyed and thus the most frequently. Often the teams start with problems that they know from their own environment or that arise from research work. However, this does not mean that they have actually understood the needs of their customers or that the problem is significant enough. Sometimes the product is simply not right for the current market, so the company does not make any sales. So what is missing is a structured approach to the customer development process through the phases of customer discovery, customer validation, customer development and business development.

#2 Ran out of cash and #5 Pricing/cost issues

These two points can be summarised as 'funding problems'. They can occur before, during and after business start-up. A realistic financial calculation before the establishment is a good basis to start successfully during the first years. Nevertheless, this planning often turns out to be too optimistic or is calculated too short-term. Even afterwards, the key performance indicators (KPI), the cash flow, the runway (i.e. how long the start-up can operate with the current income and expenses before it runs out of money) and the burn rate (money that is 'burned' within a month) should be known at all times - throughout the entire life cycle. Further financial problems arise from a lack of willingness to pay a certain price or if the customers do not accept the pricing model. In addition, entrepreneurs should check whether the buyer persona is also the user persona or whether other customers need to be convinced during the purchasing process. Depending on the customer group, the sales cycles must also be taken into account and included in the calculation. If the sales cycles are too long, further difficulties can arise that need to be avoided in advance. In the course of the entire business cycle, the financial strategy must be permanently reviewed and adjusted.

A man looks into the camera, a workshop is taking place in the background
Customer development process, cash flow, runway, team building: With advisory support from Starthaus, your start-up can be safely positioned. © Starthaus/iStock

#3 Not the right team

One or two people who are passionate about the idea are not necessarily enough to successfully found a start-up. It is often advisable to find co-founders from the very beginning (or even before the start-up) who have the missing skills. After all, a founding team that cannot produce the prototype itself will probably not have the success that a diverse team with different knowledge and skills would have. In addition, the team members should discuss values, objectives and role distributions right from the start and evaluate whether they match or complement each other. Otherwise, this can lead to major misunderstandings in the course of the founding and growth processes.

#4 Get outcompeted

As an entrepreneur, you not only have to keep an eye on your own business, but also on the competition. Market changes must be monitored not only before the start-up, but also in the years after the product launch. Are other players entering the market who offer a similar product or service? Who is targeting the same group? If necessary, product and/or marketing strategies should then be adapted. After all, it is ultimately the customer who decides which products or services they choose to solve their 'problem'.

In our consultations, we often meet start-ups who tell us about these problems. For some start-up teams, it starts before they are founded that they need support to find their way to the first prototype. Some are looking for ways to establish themselves in the market after the product launch. Still others face the challenge of setting up their own team for the future.

This is how the Starthaus supports start-ups from Bremen and Bremerhaven

That's why we, as Starthaus Bremen & Bremerhaven, are broadly positioned with workshops, individual and group-based consultations, innovation methods and a large network to support start-ups before, during and after their foundation. As a segment of BAB - The Funding Bank for Bremen and Bremerhaven, we also offer financial solutions such as equity investments or loans.

At the Starthaus we have a team that specifically looks after start-ups. Their goal is to accompany, advise and support the founders in all stages of their business through workshops, consultations and programmes. The team is made up of qualified start-up experts who themselves have experience in economics, but all have different levels of expertise in areas such as investor readiness support, KPI and cash flow planning, organisational development and team building, defining product strategy, setting focus and mentoring.

On the Starthaus website, interested parties can find information on our various programmes and funding opportunities. There are also a variety of free workshops for start-ups in the events calendar. In the 'Creating clear structures' section, those interested in founding a start-up in the pre-start-up phases can find, among other things, templates for the business plan and financial calculation as well as the Business Model Canvas.

Do you want to position your start-up securely? Or do you have any areas where we can support you? Then send us an email at info@starthaus-bremen.de or call us at +49 (0)421 9600 372 if you have any questions about your start-up (idea). We have the answers.

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