The Number One Reason Most Tech Startups Fail

Most Startups Fail

Tech startups fail for many different reasons. But some recent research suggests that there’s one overwhelmingly simple reason that leads to nearly half of these tech startup failures.

Venture Capital Database CB Insights recently went through more than 100 post-mortem essays written by founders or investors after their startups went south. They found that 42 percent of these startups cited a lack of market or need for their product or service as a reason for the failure.

It seems like a pretty simple concept. When starting a business, make sure you are offering something that people actually want. But many startups think they can build a product or offering that they can later convince customers to buy.

There have been examples of such products over the years that succeeded. People didn’t know that they wanted mobile phones, for example, until they actually saw what they could do. But for every truly innovative product that has stood the test of time, there are plenty of others that have failed.

In its article about the research, CB Insights included excerpts from some of the post mortem essays it studied. Many of them include more specific lessons and insights about creating a product or service that customers really want and will actually pay for. For example, the post mortem for politically focused social media monitoring app VoterTide stated:

“We didn’t spend enough time talking with customers and were rolling out features that I thought were great, but we didn’t gather enough input from clients. We didn’t realize it until it was too late. It’s easy to get tricked into thinking your thing is cool. You have to pay attention to your customers and adapt to their needs.”

Other startups can learn a lot from these post mortem essays. Startups that failed did so for a reason. And their founders almost certainly learned some lessons in the process. So startups that want to succeed could improve their chances by doing some research beforehand. It isn’t foolproof, as so many startups fail for different reasons. But in the startup world, minimizing your risk of failure in any way possible seems like a worthwhile effort.

While clearly an important factor, lack of market wasn’t the only reason for tech startup failures cited by these founders. For example, 29 percent of startups in the CB Insights study said they ran out of cash. And 23 percent said they didn’t have the right team. Meanwhile others claimed they were simply bested by competitors, had pricing issues, or had poor marketing strategies.

Team Photo via Shutterstock


Annie Pilon Annie Pilon is a Senior Staff Writer for Small Business Trends, covering entrepreneur profiles, interviews, feature stories, community news and in-depth, expert-based guides. When she’s not writing she can be found exploring all that her home state of Michigan has to offer.

8 Reactions
  1. Getting potential customers to like/buy your product when it’s not what they (think they) want is definitely the harder route to take, and I commend any business that chooses to go down that route. Saying that though, yes, a helluva lot of research (and soul-searching) has to go into an idea like that before deciding whether to pursue it.

    • It’s definitely the more difficult route to take. There are some companies that have become really successful, but it’s rare. Better to do all of that research and soul-searching before going all-in.

      • I guess in some ways, it becomes a success whether you ‘fail’ or not at what you choose to go forward with, because of the lessons gained along the way.

  2. Not talking to customers is a grave mistake. You should make it a point that the features you’re rolling out is useful to your customers. If you don’t do that, then you’re just wasting money on new features.

    • I agree. You can like what you have to offer all you want, but if your customers don’t like it then you won’t be successful.