Why Startups Fail

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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 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. View the <a href="http://visual.ly/">infographic</a> for more!
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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.