5 Reasons Why Most Tech Startups Fail

There are many great tech startup ideas out there, and if all those ideas would be successfully executed, the percentage of business failure rates would be low.

Unfortunately, in reality, not all business ideas survive today’s demanding startup environment. It’s a fact that starting a business involves a lot of risks and only a few are successful.

Statistics show that nine out of ten tech startups launched will fail within a span of less than three years, and those with the highest failure rates are usually in the information technology and communications industries.

Why do these companies fail?

If you ask entrepreneurs whose startups have failed at one point, you are likely to get many different answers, every one of them telling their stories from their personal experiences.

The following are 5 common reasons why tech startups fail.

1. Team

A great management team is very important in determining the success of a company. Businesses in their early stages often encounter difficulties, setbacks and all sorts of limitations.

A good management team will be smart enough to identify strategies and solutions that ensure a company’s success in the market place. Weak teams add very little value to the company and are usually the ones who could ruin the company. T

hey’re often weak in executing successful strategies, have a tendency to hire the wrong people and lack a long term vision for their company.

2. Marketing

It’s not uncommon to hear new start up entrepreneurs make statements like

“I designed this amazing product but no one will buy it. Some don’t even know it exists. ”


”I’ve made no sales so far”

I once heard a confession from a tech entrepreneur who said his startup failed because he and his founding team saw no need for a sales and marketing team.

Oh really?

Oh really

So, how will you get customers to purchase your products or services?

A world known, management guru, Peter Ducker states the following in one of his books;

"Because the purpose of business is to create and keep a customer, the business enterprise has two -- and only two -- basic functions: marketing and innovation. Marketing and Innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business” - Peter Drucker

Understand that it pays to pay attention to your customers and have a proper marketing and communication strategy in place in order to survive the competitive business environment.

New startups facing financial struggles may opt for affordable and cost effective marketing tactics to get a word out there about their products.

3. Limited Finances And Poor Cash Flow

“Cash is king”

Nobody starts a business with the intention of entering the insolvency zone due to the inability to pay off debts.

A shortage of finances is one of the worst things that can happen to a startup. This is one of the common reasons start up companies quickly go out of business. And most start ups run out of money as soon as they launch and encounter difficulties in finding additional financing.

Typical reasons why companies run out of money include, poor management, the lack of sales and revenues, poor budgeting, etc.

The inability to pay bills, suppliers and employees, can be a challenge to an entrepreneur.

To avoid the problem of shortage of finances, it is important for companies to ensure that they have enough operating funds.

If possible, find additional external funding. Also, ensure that customers with outstanding debts, pay on time. For the cash management team, it advisable to keep track of your finances and when it comes to spending, have a budget!

4. Bad Idea

Not every idea is a good idea and companies founded on ‘bad ideas’ are likely to fail.

I once had a discussion around this issue and some people disagreed with me. Some said it depends on how one looked at it. One entrepreneur went on to tell me "There’s always a market for everything”, he is right.

So how do you know if an idea is indeed a bad idea? There is no particular definition about what really counts as a bad idea. However, there are many examples from entrepreneurs point of views about what may be a ‘bad idea’. A few of the following questions will help you figure it out-

  • Is your business idea clear enough? Do you know what it’s all about?

  • Is there an available market for your products/services? How big is it? It is too small that you can’t cover up all your costs?

  • Would people pay for your product/services?

  • How excited are you about your idea? Are you passionate enough about it to pursue it?

“We believe people with Passion CAN change the World for the Better." - Steve Jobs

Not Knowing Your Industry And Your Competitors

Know the industry you are in and who your competitors are.

I’ve heard entrepreneurs confess they quit their businesses because ‘there were too many players in the market, all doing the same thing.’

Although that can be quite discouraging to some new entrepreneurs, it’s advisable to know who your competitors are and use that knowledge to your advantage. Learn to differentiate yourself from your competitors to gain a competitive edge.

By all means, it is not advisable to copy an already established brand.

Just try to be unique.

Cover Image, by Feans