This is the no. 1 reason why startups fail. Learn how you can avoid it.

The no. 1 reason startups fail is because they end up building the wrong thing. Now one would wonder why would someone build something nobody wants. Its actually not that nobody wants it but very few people do.

There have been many startups that lost big money building the wrong things. According to CB Insights, they have identified 260 of the most expensive startup flameouts in history, which includes companies that failed due to an inability to generate sustainable revenue, bad product-market fit, losing to competitors, and other reasons[1]. Inc.com reports that almost half of startups that fail do so because not enough people want the product or service they were producing[2]. There is much to learn from other people’s mistakes, and a new business owner is likely to make mistakes, but it is not necessary to make the same mistakes that led to the downfall of other startups[3].

Common challenges at the start

When creating a product, one starts with an overarching goal to help your customers solve a problem. To facilitate this, crafting an offering comprising various components or, in the case of a software product, compelling features is imperative.

For numerous startups, the pain experienced is personal to the founders themselves, who wholeheartedly identify with their target customers. However, before investing valuable time and energy into transforming it into a lucrative business, it is crucial to ascertain if a substantial market exists and if potential customers are willing to invest financially.

Founders encounter three doors at this juncture: Some opt for a line of thinking that goes along the lines of, “With 7 billion people inhabiting this planet, if even 1% were to embrace our offering, we would acquire 70 million customers.” They plunge headfirst into execution, fueled by the assumption that they possess an innate understanding of the product’s solution, stemming from their own experiences as consumers or customers.

Others stumble upon a problem that genuinely boasts a sizable, targetable market and embark on execution under the presumption that they already possess the ideal solution, thanks to their shared affinity as consumers.

A select few encounter a problem with a substantial addressable market and proceed to engage with potential customers extensively, actively seeking their input to arrive at a truly customer-centric solution.

Undoubtedly, the first door poses the greatest danger, as it is where the founders unknowingly operate under a veil of delusion.

Technically speaking, any of the three doors could afford success. However, choosing the third door proves both cost-effective and expeditious, as it facilitates the validation of the pain point and substantially increases the likelihood of crafting a solution that customers are willing to pay for.

Understanding the Costs of Software Development

It is not a straight line to the finish. Costs are going to become a function of the curves you end up having. Getting started and getting the start right is the easy bit. Where does it cost you money

Every single feature eats up time doing these

1. Product and Project Management
2. Design
3. Engineering
4. Testing and QA
5. Bug fixes
6. Release management
7. Maintenance and updates
8. Infrastructure
9. Building newer iterations

Given the effort involved you can see why this can be time consuming and costly especially if you are building something that you will end up throwing away.

Feature Prioritization - Doing What Matters Most

One of the biggest pains from numerous conversations I’ve personally had with product managers is the challenge of aligning all stakeholders around the roadmap. When there is mis-alignment people are solving for different objectives and that ends up impacting the product roadmap as a unit. No amount of ownership can fix misalignment.

There are tons of things people to do ensure they are working on something they’ve prioritsed and is aligned. Given how critcal this is to keeping costs in check descipline and consistency is critical. Often objectivity goes out the window at the face of lack of resources, bias from the involved stakeholders, copying or chasing what the competition is doign instead of focusing on the customer.

To get things consistent it is important use some sort of framework. There are many people use including Kano, RICE, Weighted shortest job first, ICE, MoSCoW and more..

The power of a clear roadmap

The cost implications underscore the paramount importance of meticulously crafting a precise roadmap while vigilantly gauging customer pain points and continuously realigning roadmap items with the North Star of your company.

Having a clear roadmap allows you to

1. Better solve for customers
2. Have visibility across teams and communicate better
3. Be efficient as a unit
4. Can save your startup millions

Future proofing

It is very easy to relent to adding an item because of internal team dynamics and lose track of the alignment of the item to the long term goal. Plus at startups it is very common to hire for talent, ambition and drive often at the expense of experience. Whether it is the lack of experience or to eliminate the stakeholder bias it is good have regular input from an advisor.

Outside perspective is all you need at times as people don’t see the issues when they are in the weeds.

TL;DR

740 tech companies have laid off about 201,776 staff so far this year, compared to 164,411 layoffs last year[4]. Globally, more than 105,000 workers lost their jobs at 364 tech companies in 2023 alone[5]. There are many reasons why startups fail but quite a few can do better by working on items that will sell:

1. Building with a few customers
2. Have one or two advisors
3. Constantly align the roadmap with the mission
4. Focus

Citations: [1] https://www.cbinsights.com/research/biggest-startup-failures/ [2] https://www.inc.com/kimberly-weisul/what-went-wrong-failed-startups-tell-all.html [3] https://tms-outsource.com/blog/posts/failed-startups/ [4] https://www.computerworld.com/article/3685936/tech-layoffs-in-2023-a-timeline.html [5] https://www.kron4.com/news/bay-area/tech-layoffs-is-silicon-valley-headed-for-another-dot-com-bust/