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Technology is the gold rush of the XXI century. And with a new generation of self-made captains of industry and world’s richest figures high tech inspires thousands of young entrepreneurs to follow their steps. The path is rocky and hard. There are a lot of challenges ahead but we will look closely at the top five.
Of the TOP-50 world richest businessmen tech company founders, co-founders, and employees occupy impressive 30% of all positions with the highest belonging to Bill Gates, the self-made richest person in the world.
Among others we see Oracle, Dell, Amazon, Google, Alibaba, and Tencent founders. The youngest are of course the founders and co-founders of Snapchat, Facebook, Dropbox, and Xiaomi.
The success of these former startups and now global tech giants inspire millions of entrepreneurs all over the world – but the path to the top is rocky and dangerous.
Let’s have a look at the biggest challenges tech startup founders face today – and you bet there are a lot of them.
1. Inability to find a real market need
Even though it’s often impossible to source exact numbers of failed startups as investors and business owners don’t really want to make their failures public, inability to find the market for the product is by far the biggest reason why tech startup products flop.
According to CB Insights, more than a third of 200+ tech startups that published their post mortems cited lack of interest in their product as the main reason for failure. And this is hardly surprising.
Tech startups are mostly founded by technology enthusiasts. Those people are not industry professionals. They often lack deep knowledge of the industry they want to market to and don’t understand the most painful needs of their target audience. Communicating with subject matter experts to validate their product is not one of their strengths.
Correct market validation will always be the number one challenge for tech startups as software engineers would rather pick an interesting problem from a tech perspective than a real market need that could be boring to solve.
Following this strategy startups find themselves in a situation where nobody wants to buy their cool and technologically complex products leading companies to financial ruin.
Flowtab was a mobile drink app startup that aimed at people who frequently visit roughly the same bars and want to order their drinks faster without the need to wait for the next free waiter.
The idea behind the app was neat but in real life nobody actually used the app and not a lot of people even visited the same bar regularly. Flowtab had quite a few other issues, too, but the biggest problem they faced was not enough interest in the app in the first place.
Customers would only use it when there was a Flowtab employee in the bar actively approaching people about the app.
Flowtab didn’t address a big enough “pain” of the potential users and had to be discontinued. Only 12 businesses adopted the service throughout its lifetime.
Treehouse Logic can share a similar story. The startup successfully managed to deliver a quick and flexible configurator ready to be integrated into any ecommerce website. The solution offered better user experience than an average custom developed product and was ready to use out of the box. What went wrong?
Treehouse Logic configurator did not solve a problem that was painful enough, instead it offered a really expensive product to mom-and-pop places that wanted to imitate big brand configurators for cheap.
Small business owners wanted something like Nike – a one million dollar shoe configurator – but for $200 tops!
The company wasn’t ready to sell and integrate their product for what the customers were eager to pay while a few major companies that were interested in the product had extremely long selling cycles and didn’t want to pay a lot for the service, either. What seemed like a good idea could not be converted into a working business model.
2. Mistimed product release
Releasing a product either too early or too late is disastrous for a young company. Inexperienced founders lack clear vision and can’t define or deliver an MVP that would bring in their first customers and secure the much needed cash flow.
And while some teams cut corners to deliver a half-baked product to the market, other developers take their sweet time to polish every single detail of the software spending all their resources until it’s too late.
ArsDigita, an influential database startup developer, lost its fight against Oracle because of poorly handled product management, among other things.
The company was certainly bogged down with numerous other issues like poor management, overhiring, and missed business opportunities, but one of the main reasons for their demise was inability to deliver the new version of their staple product, ACS 4 while simultaneously deprecating customers from using the old ACS 3.4. As the result of product mismanagement ArsDigita lost a significant chunk of their customers and went out of business.
Perhaps one of the biggest disappointments for server enthusiasts in 2013 was Calxeda. The company explored the idea of using low-power ARM SoCs for server hardware in an attempt to deliver the best performance per watt systems. The startup faced fierce competition from Intel and took significant business risks but the interest from such tech giants as Google, Amazon, and Facebook in the technology inspired Calxeda to move forward.
If you are Amazon you are not going to stand up a big farm of ARM servers if nobody's running a big load of software on ARM.
In 2013 the company had to shut down due to a failed attempt to deliver 64-bit ARM SoCs to market in 2014. While the company was successful in manufacturing 32-bit ARM systems on a chip it failed in introducing 64 bits to the market.
Bad timing of new 64-bit parts combined with a lack of sustainable software environment cost this startup everything.
3. Inability to deliver the right user experience
Lack of flexibility and a strong personal vision can be both a blessing and a curse for new businesses. A company that stays out of touch with the customer base and does little to improve user experience risks going out of business.
Bad user experience buried a lot of good projects. eCrowds demonstrated this perfectly well. The founders of the short-lived startup introduced in November 2008 an advanced web content management platform but failed to test it on real users early on.
We spent hundreds of hours trying to speed up the app with little success.
The system ended up with a UI that was too complex and unwieldy to use which made the solution unpopular. eCrowds closed in the summer of 2010.
Flud, a promising next generation news reader, was plagued with similar problems. Despite positive reviews both from industry influencers and tech reviewers the initial version of the app was full of bugs and missing features which stalled future growth.
Flud would get press, users would overload the app, the system crashed, and when the team finally got it back up, there were still too many bugs left.
Instead of extensive QA and beta testing the team focused on developing optional features and didn’t do the research to find out what really was important for their users. Flud raised more than $1 million dollars in seed funding but failed to deliver and its users left for greener pastures.
4. Lack of critical expertise and skills
A lack of crucial expertise – either technological prowess or strong business skills – can ruin a startup for good. Make sure you have enough skills to create an MVP, market it to your customers, and secure the cash flow.
Exec, later renamed to Exec Errands, was a house cleaning online-to-offline service where users could book “errands” they needed using a smartphone app. Even though on the surface the execution looked pretty simple, the new company encountered multiple challenges that it was unable to overcome.
Exec struggled with high turnover of errand runners, unpredictable volume of orders, and a shaky business model. All those factors made Exec easy pickings for the competition and the startup was eventually acquired in 2014 by Handy.
PostRocket was founded in 2010 with the idea to improve social media marketing using Facebook. The company targeted social media experts that wanted to have better control and visibility over their campaigns.
Our product had many issues, (...) down-time and bugs.
Even after 3 years of active development the team could not get rid of many technical issues that plagued the service. PostRocket software suffered from various bugs and extensive periods of downtime. Unable to deliver on the initial promise the company decided to close its doors in August 2013.
5. Lack of money
Pricing the product too low or too high or running out of money before creating a working company is one of the most common reasons of business failure. There are a lot of variations of this issue, too. While some companies overspend on business development or hiring, others tend to focus on the product and ignore other aspects entirely.
Groupspaces, a promising British startup aimed at making group management easier, fell the victim of premature scaling and lack of funds. In the end the company managed to survive and slowly grow back its strength but the initial development was crippled from disproportionate distribution of resources at the cost of a large part of the runway.
Today Groupspaces is a small sustainable business with a modest user base. After more than 7 years of gradual development, the last of the two initial cofounders left the company.
Another good example of this mistake is SMSNoodle. This Singapore-based startup targeted the local market with its SMS-based entertainment service.
Even though the idea itself was relatively simple, it took the company more than half a year to release the first working version of the product.
Simpler websites should not take more than 2-3 months to develop. You can always iterate later. Wet your feet ASAP.
Instead of building an MVP in quick iterations and closely collaborating with potential customers and early adopters the team concentrated on secondary features and perfecting existing functionality. Taking too long to go live cost this startup the last of their funds.
Learning from the mistakes of others
According to Statistic Brain two thirds of all tech startups fail in their first 3 years of operation. Even though some bite the dust silently, many are eager to share their story with the world. And I strongly believe it is more valuable to look at post mortems than at success stories to better navigate the murky waters of the business world.