Why startups die (5 common pitfalls)

Whether self-funded, bootstrapped, or VC-infused, new businesses that fail (and let’s face it, most fail) usually fall into a few, well-known traps. In no particular order, here are common issues that kill could kill your startup:

0. Running out of money

This is the big one. It’s axiomatic that a business dies when it runs out of money. Cash (and cash flow) means more runway, more at-bats, more chances to fix your product, to try, fail, and try again. Cash buys time, and with sufficient time, you can overcome any obstacle. For your business, money = life.

1. Losing an essential employee

It could be a co-founder, a senior developer, the head of sales, customer expert or perhaps your regulatory liaison. Regardless of the role, your company literally cannot continue without this person’s intimate product knowledge, deep understanding of technical complexity, sales network, or whatever value they uniquely deliver to the business. A replacement must be found, and fast. It can take a long time to find a replacement, get them to come aboard for little (or no) salary, and get them up-to-speed and productive.

2. The 800-lb. gorilla client

A single customer that accounts for the majority of your revenue is never a good idea, and the danger they pose to your business is two-fold. First (and most obviously), losing a significant chunk of your operating revenue will strain cash reserves and shorten your runaway. More insidiously, a single powerful client can have an outsized impact on your strategy, product decisions, pricing, and support. By focusing too much on their particular needs, you ignore other opportunities in the market.

3. Building on unstable ground

A business built on another platform is subject to the whims of that platform. Something is changed. A feature you depend on is killed. Perhaps an API is deactivated or suddenly monetized. Your core feature is built directly into the platform. Or perhaps you are suddenly charged for previously free customer information and your ability to interact with your customers is limited. All of these happen frequently.

4. Misjudging the addressable market

Your hyper-focused product took off. You had good product-market fit. Customers were happy. Things were working great. Until they weren’t. The business hits a wall–your pool of available customers is depleted, or cost of reaching the dwindling prospects becomes too high.

5. Customer acquisition breaks down

You live or die by your ability to acquire new customers. You need regular, new customers to increase revenues, to counteract churn, and diversify your customer base. Constricting–or breaking–the stream of new customers hastens the death of your enterprise.