5 Reasons Why Tech Startups Fail

Nov 16, 2011

These 5 reasons why tech startups fail may interest you; whether you’re an investor looking for your next tech startup to fall in love with, or maybe a visionary plotting out your roadmap.  Or even an engineer, rethinking your tech startup’s site architecture.

At a conference in Washington state, reasons why tech startups fail were discussed from market leaders all around.  So today, I’m pulling out some of the key pieces in that conference to here in my blog post.  It’s a lot to think about for anyone involved with tech startups.  Enjoy.

1.  Lack of Market Focus

Not having a clearly defined market segmentation was one of the top issues.  Too often (and it’s not just engineers, entrepreneurs don’t like to limit themselves either), tech startups will not focus on any targeted market for fear of limiting their cashflow.  There is a reason why advertisers pay more for targeted marketing channels, it’s because targeted customers & marketing produces a higher ROI for their clients.

Tech Fail Lesson: Focus on a market niche.

2.  Incomplete Products 

This is a big issue and a cause of why tech startups fail, it’s the number one complaint of customers who buy technology: incomplete products.  I know how hard it is to get a complete product to market, 100% ready for commercialization, I’m going through it now…so you have my genuine empathy.  But there is a difference when you know the product is not ready for commercialization, and when you think it is…but it’s really not.

Many tech startups will release a beta or prototype to the general public before the technology is finished.  This is done to gain insight into the customer’s needs, and fix the product.  But (and this is just my experience), it often doesn’t work (unless you are targeting other techs) because the majority of customers don’t know what a beta is; or how to provide honest beta feedback (hense customer responses of “incomplete products”), and so they won’t interact with the product at all.  Tech startups that are aware of this, will usually beta test privately where they can have one-on-one relationships with customers needed to get that honest feedback.

Tech Fail Lesson: Commit to quality before pushing your product to a customer in an open market.  Don’t assume every customer is familiar with a tech startup lifecycle.

3.  Too Focused on Functionality, Not Customers

Many tech startups make the mistake of thinking more is better.  In some cases, yes, convenience & bundled services can be a value proposition.  But not unless you can simplify it.  Techs and engineers can often forget they may know how something functions because their mind is built for technical understanding; but the majority of consumers and businesses aren’t.  Customers shouldn’t have to take training courses to figure out how to use it.  If they do, you inconvenience them and it creates a roadblock in purchasing your product.

Tech Fail Lesson: Invest in good UI and customer experience.

4.  A Bad Marketing Strategy

Let’s start by saying every marketing strategy is a bad one, if the product or service isn’t built with a customer in mind as we addressed in the above points.  Aside from that, and if you’ve done your job, a bad marketing strategy can still remain..via ADVERTISING.  Which most tech startups turn to as their marketing channel.  Advertising is a reason a tech startup can fail (if your product or focus on functionality hasn’t killed it first).

Advertising is for established brands, reminding customers they are there.  It rarely works for a new tech startup coming into the market looking to gather early adopters.  Instead, focus on cost effective marketing strategies and company culture building; because ROI and brand positioning are more important to a tech startups survival at this stage of the game.

Tech Fail Lesson: Tech startups should stay away from advertising.

5. Cost & Replacement

Many tech startups fail due to the market pace.  Technology innovation moves very fast, and before you can even get it off the shelf something better has come out.  No problem for Entrepreneurs and a lot of techs…they tend to predict these market changes before they happen.  But this creates a big roadblock for customers and early adapters.  By the time they begin to net an ROI on the first technology purchase, some other tech sales guy is knocking on their door with something better.  The cost & time to replace needs to make sense to that customer.