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Why Startups Fail

Why Startups Fail
Building a successful business is every entrepreneur’s goal—but only I in 12
succeed in doing it. Why do startups fail? The Startup Genome project analyzed data from 3,200 companies and came up with some answers. At the core of any successful business are two things: a good product and a large market for that product. In other words, a startup should be able to scale. And to scale properly, it must balance the growth of five core dimensions: customers, product, team, business model, and funding. The dominant reason for failure: premature scaling of one or more of those dimensions.

STAGES OF GROWTH
The primary activity of each stage


1 - DISCOVERY
Confirm
whether they
are wiving a
meaningful
problem.


2 - VALIDATION
Seek validation
that people are
interested in
their product.

3 - EFFICIENCY
Refine business
model and imp
rove efficiency
of customer
acquisition.

4 - SCALE
Drive growth
aggressively.

Not assessed in this graphic
SUSTAIN RENEWAL

Funds Raised by Stage
MILLIONS $3
1 - $0.2
2 - $0.8
3 - $0.9
4 - $3

Latest Month’s User
Growth by Stage
1 - 6%
2 - 21%
3 - 29%
4 - 43%


Cumulative Months
Worked by Stage

1 - 7
2 - 11
3 - 17
4 - 25

Number of Employees by stage

1 - 1
2 - 4
3 - 4
4 - 17



Startup
Lifecycle
- -
Companies that scale
prematurely are
classified as inconsistent


AVERAGE FUNDING RAISED
$1,100,000

and companies that scale properly
are classified as consistent

AVERAGE FUNDING RAISED
$ 3,400,000

COMPARING INCONSISTENT AND CONSISTENT STARTUPS

Team size BEFORE scaling AFTER

50% larger teams 50% smaller teams

Inconsistent startups have 50% larger teams
before scaling and 50% smaller teams after scaling.

Funding - Inconsistent startups raise 3 times more
money in the Efficiency stage and 1.8 times
less money in Scale stage.

18
times
more
money
SCALE

3 times
more
money

EFFICIENCY

Customer
Acquisition

$15,000 45% spend more
per month

80%
spend less


45% of startups
that scale prematurely
spend more
than $15,000 per month
on customer acquisition before optimizing
their conversion funnels &
acquisition costs. 80% of consistent
startups spend less than $15,000.

User Growth

Inconsistent
startups grow
10-12 times
faster in Discovery
stage, 1.5-2
times faster in
Validation stage,
7-8 times slower
in Efficiency
stage and 16-26
times slower in
Scale stage.


10-12
times faster
DISCOVERY

1.5-2
times faster
VALIDATION

7-8
times faster
EFFICIENCY

16-26 times faster
SCALE


Users (paid)

Enterprise
startups that
scale prematurety
have 75%
more paid users
in Discovery and
Validation stages
compared to
consistent
startups.


Consistent startups have
50% more paid users in the
Scale stage than inconsistent
startups


75%
more
users
DISCOVERY

75%
more
users
VALIDATION

50%
more
users
SCALE

Users (free)

23% of consistent
startups exceed
100,000 users.


99% of consumer
focused startups
that scale prematurely
stay below 100,000 users.


99% don't break the mark
23% exceed 100,000 users

a sign of premature scale:
PERFECTIONISM
-too much focus on scalability
-building nice-to-have features
-too little user testing

Outsourcing

On average,
inconsistent startups
outsourced 11 % of
product development
in Discovery and 19%
in Validation.
Consistent startups
outsourced 3 to 4%.

11%
3%
DISCOVERY

19% outsourced
4%
VALIDATION


Lines
of Code
Written

3.4
times more code
DISCOVERY

2.25
times more code
EFFICIENCY

Inconsistent startups write 3.4 limes more lines of code
in the Discovery stage and 2.25 times more lines of code
in the Efficiency stage.


Focus
in the
Discovery
Phase

77%
spend 50% of their resources
on product development

45%
focus on
customer development

DISCOVERY

77% of startups that scale prematurely focus 50% or
more of their resources in Discovery stage on product
development. 45% of consistent startups focus their
energy on customer development.

Why Startups Fail

shared by visually on Sep 01, 2011 in Business

Why Startups Fail

shared by visually on Sep 01, 2011 in Business

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Building a successful business is every entrepreneur's goal - but only 1 in 12 succeed. Why do startups fail? The Startup Genome project analyzed data from 3,200 companies and came up with some answer...
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