Customer Discovery and Market Research are Key Elements for a Startup Viability

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(Last Updated On: December 7, 2015)

Top 20 reasons for startup failure in 2015

CB Insights provides analytics, metrics, benchmarks to investors, startup, venture capital funds regarding startup environment, what’s trending, and what’s now. For several years, they have been publishing the reasons behind startup failure and they have just releases another batch in 2015, after analyzing 146 startups that have failed by 2015. It’s interesting to observe that failure reasons have not changed from 2014 to 2015.

Ill product-market fit, i.e. the lack of market itself remains the number one reason for a new business failure. Most of them failed because they couldn’t retain customers, keep them engaged. Seed round of $1.5M helped them get off the ground, but ultimately most of the startups that failed did so because they couldn’t grow their customer base quickly enough to be attractive to venture capital investor and Series A round. (These are metrics that venture capital investors are looking for in 2015). Startups that have been widely successful raising money on crowdfunding platforms have found themselves in trouble because they have never developed operational processes to actually execute customer orders (Quirky is a good example). Homejoy got into trouble when California required businesses to clarify 1099 contract workers as W-2 employees and pay them benefits.

Top 20 reasons for startup failure in 2015
Top 20 reasons for startup failure in 2015

Top 20 reasons for startup failure in 2014

CB Insights have analyzed over 100 startups and the underlying reasons for their business failure; you can read their research in 101 startups failure postmortems article. They have succinctly summarized their findings in the chart below:

42% startups fail because of “no market need” for the product

Top 20 reasons startups fail in 2014
Top 20 reasons startups fail in 2014

We are not surprised that over 40% of technology startups have failed because they didn’t find the market need for their product. In our work with startups and small businesses, we often find that business owners don’t understand their target market well or their ideal customer. Because many entrepreneurs are eager to launch the new product, they shortchange themselves by cutting corners and doing only minimal amount of work needed to understand the market place. A product launch is operationally and financially expensive endeavor, while comprehensive market research is not, even with a help of an external consultant. Because of that, I highly recommend all entrepreneurs to spend significant effort on market research and customer discovery to see if the market they are targeting is large enough and attractive enough before they spend too much time, money and energy chasing a dream.

 

% Problem Suggested Solutions

42%

No market need Do market research and costumer discovery

29%

Run out of cash Have significant personal savings; be an investor-ready startup

23%

Not the right team Establish functional roles and hiring practices

19%

Get outcompeted Do annual competitive analysis

18%

Pricing/Cost issues Market research to determine customer’s willingness to pay, operational efficiencies to keep cost down

17%

Poor product Improve product development process

14%

Poor marketing Do not underestimate time and money required for good marketing team

14%

Ignore customers Implement best practices for customer service

ANAGARD, LLC business consulting firm mitigates the most common reason for a business failure (no market need 42%, pricing/cost issues 18%, lack of business model 17%, poor marketing 14%) for its clients by offering market research, customer discovery services and business model design. We analyze the industry, current market conditions, identify target customers, their preferences, estimate the addressable market size, and  compare the client’s strengths and weaknesses against current competition. Armed with this comprehensive report, business owners can take the best course of action and be financially successful.

About Dragana Mendel 85 Articles

Dragana Mendel is a President and Principal Consultant at ANAGARD, LLC. In her role, she provides management consulting services to small and medium size businesses on the best strategy to achieve their short and long term goals.