Dear SaaStr: What Are The Top Reasons You See Startups Fail?

Dear SaaStr: What Are The Top Reasons You See Startups Fail?

I haven’t failed as an entrepeneur, at least not yet. But I’ve made 30+ investments, and while many have been big wins, some haven’t.

Here’s what’s caused startups I’ve invested in to fail, or at least, not to thrive and succeed:

  • Founder conflict. This really can kill some startups. I’ve had one where 3 co-founders forced the CEO founder out. The problem was, the CEO was the only one who could sell, or really understood the customers.
  • Unable to control the burn rate. This hasn’t driven any startup I’ve invest in 100% to failure, but it’s driven them to unoptimal exits. Even if you raise a big round, it’s never infinite. Hire too many expensive VPs especially, that can’t deliver … and your burn rate can quickly grow 3x-5x bigger, or more.
  • Counting on a bailout from the VCs.  Related to the prior point.  You just can’t count on more VC money magically coming in.  Especially if you are struggling.
  • Not willing to iterate enough. I’ve invested in 2 startups where they initially got to millions in revenue, but the market then told them they had to do … even more. And the founders just didn’t want to do all that.
  • Too much churn. This is almost always solvable by the best founders, but too much churn will destroy you just as you start scaling.
  • Too slow to iterate.  Markets change.  Not everyone can keep up.

What hasn’t killed startups I’ve invested in:

  • Small TAM.  The best founders just add so much value to their product, they increase TAM over time.
  • One Bad VP Hire.  It’s tough, but one terrible VP hire on its own doesn’t wreck a startup permanently.  Even if it feels that way sometimes.
  • Competition Raised Far More Venture Capital.  Yes, this can bite a bit.  But I haven’t seen it lead to failure. In SaaS, at least, your fate is in your hands.

I have to say, and I know it’s a bit controversial, but the best founders I’ve invested in — 0% of them failed. They just push through. All of them.

(image from here)

Published on November 13, 2022

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