Dear SaaStr: What are some common reasons for the failure of startups? How can these mistakes be avoided to increase their chances of success?
My experience across leading 30+ seed investments, including 4 billion+ exits so far, on why startups fail:
- Not 200% committed to winning no matter what. Even the smartest founders aren’t always 200% committed. Sometimes, they’re more in a “I’ll give it a shot” mode. So far, I’ve always lost my money here.
- Good But Not Great CEO. It’s just too competitive out there for a nice but not great CEO to win.
- Refusal To Manage / Deal With The Burn Rate. Some founders just hide from burning too much cash. That might be OK for a few months, but beyond that, startups fall into a decay curve they don’t recover from.
There are other reasons startups something do “Good But Not Great” or just OK, but that don’t lead to failure IMHE:
- Great CEO, Merely Good CTO. I don’t see these producing big category winners, because they can’t keep up on the product side. But they often can still be a decent #2 or #3 in the space and product a good exit. Just not a huge one.
- Growing, But Never Getting Efficient Enough. This is a subtle point, but some startups grow pretty quickly but never quite get their unit economics under control. Some fail, yes. But more often in my experience, they just end up selling for an OK but Not Great price.
- Loss of Founder DNA. This can happen for a lot of reasons, but I haven’t had a truly great outcome where all the founder DNA moved on. A company run 100% by non-founders can struggle to really get ahead of change, even if they can manage the current environments pretty well.
- Can’t Recruit a Great VP Team / Only Able to Recruit Mediocre VPs. Some founders can do a lot on their own with a small team, but just never recruit great VPs. They often can get to $10m, $20m, $30m+ ARR somehow this way, but at least in SaaS, never scale past that.
(good but not great image from here)