May 24, 20202 min read

Why startups fail after receiving funding and have products sale?

Updated: Aug 23, 2021

Many startups fail not because they did not compete. A company can have a product and sales and still fail. I will review the top reasons behind that.

Essentially, company can fail only because two things happened:

The company run out of money and has not way of getting new money.
The company founder or board decide to stop the efforts.

Keep in mind that a company really has no "failure" per se. Sometimes the founder is tired after starting a bad business.

Let's break it down. How can company run out of money? there are three reasons:

It can not raise money from investors;
it can not generate sufficient income;
it did not discover sale-value proposition-audience fit.

Let's further break it down. Why does a company fail to raise money? it is because the investor do not see a path for his investment to be returned in multiples in 2 years. In other words, the story of the startup is not exciting. It is not a fat growing business with high ceilings and there is no barrier to prevent followers and copy cats.

What are the reasons that a company can not generate sufficient income? there are multiple sources of reasons:

the incumbent player is awakened and defended the turf strongly, and out innovated the innovator;
the copy cats took the market by different tactics;
the product does not have quality;
the product does not have pricing room. Various players have locked the pricing space.

Most startups failed because they never found buyer. Never found takers of their products.

So what is the reason that founders give up? the founder running out of money is not reason to give up. Smart founders always try again. The only reason that a founder gives up is that he/she realized that even success in business is not that exciting and cool. Namely, the founder lost the passion.