Almost every entrepreneur is aware that the vast majority of startups fail. The statistics on the true rate of failure differ -- some sources claim that 90% fail, while others estimate 80%. Some are more optimistic, pinning the approximate 15 year failure rate at 75 percent.
Whichever source you believe, one thing is clear - the majority of startups aren’t successful, at least not over the long term. Startup failure happens for a variety of reasons, from lack of a realistic vision for the company to insufficient funding, poor decisions and intense competition.
One reason that isn’t explored as frequently as the others is a product that just doesn’t “fit” its target audience, whether due to poor design, weak quality assurance or just a lack of value for its target customers.
With this in mind, we analyzed this list of 77 startup failures to better understand the reasons for their failure. Our goal was simple: to discover what product managers can learn from failed startups, and how these lessons can be used to avoid making the same mistakes.
Build a Culture of Quality to Improve Retention and Growth
We’ve written before about the importance of creating and maintaining a culture of quality within your startup. PostRocket, a Facebook marketing tool that closed its doors in 2013, is a fantastic example of what can happen when a good product idea fails to focus on quality.
PostRocket started its life as a Facebook exposure and engagement optimization tool designed for marketers. Its major selling point was that it could help marketers reach a wider audience on Facebook through their status updates, images and other content.
Unlike other startups, which fail because they simply don’t offer enough value, PostRocker was a valuable tool for its target audience. Its problem, as explained by CEO Tim Chae as it closed its doors, was that it couldn’t live up to its team’s own standard of quality:
“When we first started PostRocket, we wanted to not only help marketers like you succeed in Facebook marketing, but do so with an exceptional product and service to back it. We were never able to reach the high bar we set for ourselves.”
“Our product had many issues and even through the down-time and bugs, you stuck with us. We thank you for that.”
Many customers are willing to forgive minor bugs and issues in a free or new product. However, as many product manager have experienced, as your product gets older and more established, the frustration of dealing with these bugs can (and likely will) hurt your ability to retain customers.
Aim For Simplicity
Personal finance management tool Wesabe had everything going for it. It launched before Mint, which later dominated the market. It had a clear goal: not just to give people financial management tools, but to help them change their spending habits for the better.
Despite this, Wesabe wasn’t successful. One reason explained by Marc Hedlund in his 2010 post-mortem blog post, was that Mint focused intensely on simplifying every aspect of personal financial management, whereas Wesabe didn’t:
“Mint focused on making the user do almost no work at all, by automatically editing and categorizing their data, reducing the number of fields in their signup form, and giving them immediate gratification as soon as they possibly could; we completely sucked at all of that. Instead, I prioritized trying to build tools that would eventually help people change their financial behavior for the better, which I believed required people to more closely work with and understand their data.”
“I was focused on trying to make the usability of editing data as easy and functional as it could be; Mint was focused on making it so you never had to do that at all. Their approach completely kicked our approach’s ass.”
Personal financial management is complex and time-consuming. The less you your audience has to do to use your product, the better. Even if it means missing out on power or versatility, many users will instinctively pick a simple but flawed solution over a complex, perfect one.
If You Seek Press, Make Sure You're Prepared
Flud was a social news reader that seemed to do everything right. It had a beautiful UI, received a lot of press, and put a social spin on an activity -- reading the news -- that most people spend at least a few minutes doing every day.
Despite this, it closed in 2013 after failing to find a profitable audience.
What happened? One of Flud’s problems was that it wasn’t fully prepared for the press it received:
“Flud was lucky enough to get a ton of press around its early product launches. However, from then on, when the team would launch a new product, they would reflexively go after press, Ghoshal says. They would get press, users would overload the app, the system crashed, and when they finally got it back up, there were still too many bugs left, and, in a world of eleven billion apps, people tend to be pretty unforgiving of glitchy user experiences. (As they should, by the way.)”
Press can be a valuable marketing channel for a startup. However, it’s important that you’re fully prepared for the traffic that press can bring. Bugs that seem small can become very big when your traffic increases to 100 times its normal level.
Win over customers through earned media and you’ll likely retain them. However, if you send them to a product that’s buggy, unstable or overloaded and you could end up damaging your reputation among people that could have become loyal customers.