Why Tech Startups Fail and How Founders Can Bounce Back

Updated: Jan 16, 2019

According to an anonymous survey, 75 percent of venture-backed companies will fail. However, many tech startup founders treat funding as the "holy grail" of startup success. In fact, most believe that, if they just landed their next round of funding, all of their dreams will come true. Unfortunately, this isn't the case.

"The fact that you have gained outside investment doesn't always translate to success", "There are thousands of startups that have failed even after they have received investment. It's easy to become complacent when you receive an injection of funds. That's why you need to look beyond the money. Think about what you would do with the money and how it's going to pay off."

Avoid these common startup-killing mistakes as you carve your path towards startup success:

Top 5 Reasons Tech Startups Fail


A Business Man

1. Failure to Achieve Product/Market Fit

The most common reasons for bad product/market fit include confusing value propositions, poor assumptions based on ineffective data analysis, and market share miscalculations.

"You can always feel when product/market fit isn't happening. The customers aren't quite getting value out of the product, word of mouth isn't spreading, usage isn't growing that fast, press reviews are kind of 'blah,' the sales cycle takes too long, and lots of deals never close.

To achieve product/market fit, repeatedly test your assumptions with customers and provide your customers with unparalleled customer experience.


2. Running Out of Money

Simply "running out of money" doesn't necessarily mean that the startup didn't have enough to capital begin with. Instead, the startup likely mismanaged runway. In other words, a startup's last round is only as good as its ability to manage customer acquisition costs, curb unnecessary product improvements, avoid inefficient hiring practices, and more. The best startup founders master these principals (while making a few mistakes along the way) before ramping up expenses.

"One of the problems with raising money is it teaches you bad habits from the startup".


Dollar Bill in a jar


3. Hiring the Wrong People

When your team is small, there's no room for dead weight. According to Business Insider, Instagram only had 13 employees when it was purchased for $1 billion dollars by Facebook in 2013. In this instance, team members were hired and expected to execute flawlessly. Now more than ever, today's tech startup hires should possess an entrepreneurial spirit, share the organization's cultural identity, and deliver growth-oriented results.

For tech startups, investment in the wrong person could cause significant setbacks. For one, managers will need to spend valuable time and money training the new hire. Additionally, teams will need to spend even more funds on recruiting a replacement for the bad hire.


4. Getting Outpaced by Competitors

When a tech startup fails to innovate, the startup will likely be outpaced by the competition and left in the dust. To stay ahead of the competitors, startups should utilize consumer experience management platforms to gather data, assess trends, and validate assumptions in real-time.

For most startups, staying relevant isn't a matter of obsessing over what the competition is doing; instead, it's a matter of continually gathering customer insights and funneling them into all-new strategic developments.

"It's competitive insights like those that will provide you the opportunity to outpace the competition."

5. Scaling Without a Business Plan

A business plan forces founders to focus on the nuts and bolts of the startup. Without a business plan in place, startups face real challenges when trying to get from point A to point B. In this instance, the startup might know what success looks like but lack the execution direction needed to get there.


When building a business plan, the U.S. Small Business Administration recommends incorporating the following components:

Executive summary; company description; market analysis; organization and management; service or product; marketing and sales; funding request; and financial projections.


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Unlock Startup Success at GIGA

No one likes failure. However, failure is something that every entrepreneur will experience at one point or another. The best way to recover? Accept it, analyze what went wrong, and set your sights on a new horizon. If you're in the process of scaling a tech startup, you can reduce your likelihood of failure by surrounding yourself with the right people.

What GIGA Do?

We respond to a significant need for facilitated entrepreneurship support which provides a clear path for company growth and success. On the other hand, we leverage the Investor communities, who seek best opportunities in the market - We make the right connects.

Over the years, GIGA has launched full-service Innovation Centres that provided our services to help take start-ups and growing start-ups to the next level of growth. At GIGA, you'll find other high-growth tech startups eager to change the world!

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