It’s not uncommon to hear about the launch of an exciting startup, only to hear several months later that it fizzled out.
More than two-thirds of startups never generate a return for investors.
Why is the chance of failure higher than the rate of success?
Although every situation is different and industries vary, there are several common reasons startups don’t succeed. Here’s a look at seven shared challenges and the strategies that can successfully navigate them.
Timing to Market is Off
Years before YouTube launched, a company offering the same services failed, according to Heidi Knoblauch, who runs a venture readiness program that helps founders secure capital and is an entrepreneurship professor at the University of Albany in New York. The business flopped because broadband internet didn’t exist at the time.
“Even though it was exactly what YouTube is, it was the wrong time to be in the market,” she says. “It’s all about product market fit.”
Lacking a Plan
Developing a plan seems obvious, but Leah Parillo, the vice president of business development of growth at Six Marketing, a certified go-to-market (GTM) partner, says she sees startups fail because they lack a clear plan. Pressure from a board or private equity to generate revenue creates a rush to get started and repay the seed money. As a result, founders tend to be tactic-oriented, focused on actions and methods before having a plan.
“They come in and want a logo, a website and LinkedIn,” she says. “If you have no vision, foundation or strategy and you’re just guessing, it wastes time and resources.”
Instead, she says, founders should be looking at:
What’s our target market?
What’s the value proposition?
What differentiates us from our competition?
Is there competition? If not, introducing a concept to the market is another challenge to consider.
“A lot of times, [founders] might not want to take the time to do a proof of concept, so they scale very quickly, and everything kind of blows up,” she says.
Waiting for Perfection
Everyone feels vulnerable about putting something into the world that is less than perfect. Founders especially want (and to some extent need to) put their best foot forward to build trust with investors, employees and customers.
“The biggest reason I see startups fail is that they hide their technology or product until it’s fully developed,” Knoblauch says. “That’s absolutely the wrong way to do it. There are so many ways you can go to market quickly to see and test the market.”
With AI tools, founders can quickly launch a website to test the market and confirm proof of concept. She stresses the importance of making decisions with 60% to 70% of the information rather than waiting to achieve 100%.
There are caveats, she notes. Some industries, such as life sciences, need more time to launch than others, like tech startups, which must scale quickly to be considered successful.
Overlooking the Importance of Benchmarks
Setting key performance indicators (KPIs) and measurement standards from the start allows for assessment of where the product or service is tracking in the market.
“A lot of startups that I’ve worked with didn’t set benchmarks from the beginning,” Parillo says. “Even if they don’t have the money to invest in technology, it’s about figuring out what your real margins are and going from there.”
She recommends keeping track of the acquisition cost and the product or service sales cycle length. Without these benchmarks, founders are starting from scratch when trying to overcome mistakes.
While tracking metrics is essential to identify when something isn’t working and it’s time to pivot or quit, avoid relying on KPIs so heavily that it turns into a pursuit of perfection.
Forgetting the Impact of Relationships
Taking the power of relationships for granted is one factor that trips up founders, according to Serena Ziskroit, founder of Mighty One People Human Capital Consultancy, which works with clients ranging from Series A to venture capital and private equity firms, as well as public companies. Before launching her business, she worked as an employee at several startups.
“Treat all employees and former employees as future customers,” she says. “It’s important for founders and CEOs to treat investors, employees and stakeholders with exemplary respect because [you] want them to remain loyal.”
Regardless of whether the startup flops or thrives, nurturing relationships pays dividends. It creates a desire for top talent to stay with the company as it grows or follow the founder to a new venture. Valuing relationships encourages investors to invest again and customers to keep buying.
Failing too Slow
Knoblauch says when a founder shares that they’ve been working on a project for four years, that’s not a good sign. Investors would rather hear, “I’ve been working on this for three days and have 100,000 users on the platform.”
Ziskroit says that “fail often, fail fast” was a mantra in her early days at startups.
The current culture makes it challenging to embody this principle because “failing often and failing fast is somewhat counterintuitive,” Ziskroit adds.
Many founders are serial entrepreneurs and are intrinsically driven to get up and try again. It can be hard to embrace failure at first, since society and early education teach the standard is striving for straight As.
“If one of your companies fails, take care of everyone involved and start building again to prove to investors and former employees that you are resilient and will learn from your prior mistakes,” she says.
Moving Past Failure
With startup failure statistics being what they are, most founders will likely experience a business failure at some point. But for most entrepreneurs, it’s in their blood to try and try again.
“So many founders I know almost can’t not try it again,” Knoblauch says. “I see people become a little bit more cautious and that’s not necessarily a bad thing, but you can’t be paralyzed by fear.
It’s not uncommon to feel like a venture has failed when the reality is that the founder stopped running the business. Failing and ceasing are two different scenarios. If you find yourself in this spot, she recommends stepping back, taking a breather and trying something new.
When you’re ready to start again, use the lessons learned from previous experiences to build a stronger foundation. Go back and do your due diligence. Confirm proof of concept before diving into the specifics or investing significant resources.
“Every setback is an opportunity to learn,” Parillo says. “That applies not just to startups, but in life. Sometimes setbacks are a blessing in disguise.”
Image courtesy of LightField Studios/Shutterstock
This article was first published in the September 2025 issue of SUCCESS Digital Edition. Get your FREE copy here.
