“Why do startups accelerator fail?” Here we will learn from successful startup accelerators, what are the do’s and don’ts.
So we identified the top 7 reasons startups fail so you don’t do. Since many startups offered multiple reasons for their failure, you’ll see that the chart highlighting the top reasons doesn’t add up to 100% (it far exceeds it).
Why do startups accelerator fail?
Following the chart is an explanation of each reason and relevant examples from the post-mortems.
There is certainly no survivorship bias here. But many very relevant lessons for anyone in the entrepreneurial ecosystem.
It’s worth noting that this type of data-driven analysis would not be possible without a number of founders being courageous enough to share stories of their startup’s demise with the world. So a big thank you to them.
1. Burned out/lacked passion
Work-life balance is not something that startup founders often get, so the risk of burning out is high. Burnout was given as a reason for failure 5% of the time. The ability to cut your losses where necessary and redirect your efforts when you see a dead end — or lack passion for a domain — was deemed important to succeeding and avoiding burnout, as was having a solid, diverse, and driven team so that responsibilities can be shared.
What can make conversations about burnout difficult, especially in Silicon Valley, is the widespread belief that building a successful company will always involve some degree of possibly hazardous overwork. As former Uber board member and CEO of Thrive Global Arianna Huffington puts it:
“The prevalent view of startup founders in Silicon Valley is a delusion that in order to succeed, in order to build a high-growth company, you need to burn out.”
Amid the pandemic, burnout became even more prevalent among tech workers: 68% of tech employees said they felt more burned out working from home, according to a survey by Blind.
Various founders have spoken up about how damaging burnout can be. Former Zenefits CEO Parker Conrad said,
“I think people are unprepared for how hard and awful it is going to be to start a company. I certainly was.”
2. Pivot gone bad
Pivots like Burbn to Instagram or ThePoint to Groupon can go extraordinarily well. Or they can start you down the wrong road.
As The Verge reported on Inboard Technology‘s failed pivot:
“The startup was one of the highest-profile competitors to top electric skateboard company Boosted, and last year announced plans to enter the electric scooter market — a push that seems to have doomed Inboard.
Founder (and now-former CEO) Ryan Evans told The Verge his team had locked down ‘a very large order’ from ‘one of the largest European scooter operators,’ which explains why the company quickly pivoted away from trying to sell its first e-scooter directly to consumers earlier this year. But Evans said the development timeline for Inboard’s e-scooter ‘outstretched’ its financial runway.”
After investors refused to inject more funds, the company was forced to shut down.
3. Disharmony among team/investors
Discord with a co-founder was a fatal issue for startup post-mortem companies. But acrimony isn’t limited to the founding team, and when things go bad with a board or investor, it can get ugly pretty quickly, as evidenced in the case of Hubba.
Douglas Soltys writes for BetaKit:
“Considered for most of the decade one of Toronto’s hottest startups, Hubba hit choppy waves in 2018, as the company lost its chief technology officer and chief marketing officer in an three-month span, in addition to two rounds of layoffs which saw headcount reduced by almost half.
It is unclear to what extent the COVID-19 pandemic had hampered Hubba’s growth and customer base. However, one source BetaKit spoke with claimed a months-long battle between [Hubba CEO and founder Ben] Zifkin and Hubba’s board of directors regarding the ongoing viability of the company.”
At Pellion Technologies, the end came more quietly, as its major backer Khosla Ventures lost faith in the company’s ability to execute:
“According to former employees, all of whom requested anonymity, Khosla Ventures lost confidence that Pellion could make enough money serving a niche market. The lithium-metal technology worked for products like drones, but the big money in the battery world is in the automotive sector. Investors weren’t willing to sink the money needed to develop the battery for electric vehicles.”
In March 2019, Khosla decided the company would be shut down and removed Pellion’s name from its online firm portfolio.
4. Poor product
Sometimes, it all comes down to the product — and a flawed one was enough to sink companies in 8% of cases.
According to a Forbes investigation into finance and accounting platform ScaleFactor
“ScaleFactor used aggressive sales tactics and prioritized chasing capital instead of building software that ultimately fell far short of what it promised, according to interviews with 15 former employees and executives. When customers fled, executives tried to obscure the real damage.”
Bad things also happen when you ignore what users want and need, whether consciously or accidentally.
Here’s what Shoes of Prey wrote about its vision to enable consumers to personalize their own shoes:
“We learnt the hard way that mass market customers don’t want to create, they want to be inspired and shown what to wear. They want to see the latest trends, what celebrities and Instagram influencers are wearing and they want to wear exactly that — both the style and the brand.”
5. Product mistimed
If you release your product too early, users may write it off as not good enough, and getting them back may be difficult if their first impression of you is negative. And if you release your product too late, you may have missed your window of opportunity in the market.
As Stefan Seltz-Axmacher, CEO of autonomous trucking tech startup Starsky Robotics said,
“Timing, more than anything else, is what I think is to blame for our unfortunate fate. Our approach, I still believe, was the right one but the space was too overwhelmed with the unmet promise of AI to focus on a practical solution. As those breakthroughs failed to appear, the downpour of investor interest became a drizzle.”
6. Not the right team
A diverse team with different skill sets was often cited as being critical to the success of a company. Failure post-mortems often lamented that “I wish we had a CTO from the start” or wished that the startup had “a founder that loved the business aspect of things.”
At Fieldbook, which shut down after failing to build a sustainable business model for its database product, co-founder Jason Crawford wrote in his post-mortem blog post that the company’s inability to make key hires was one of the reasons for its downfall:
“I was blindsided by the difficulty of hiring. Hiring was something I’d done successfully for years, including in the early days of Fieldbook and in a previous startup. But at a time when every engineer wanted to work on AI, self-driving cars or cryptocurrencies, a SaaS startup with modest, sporadic growth wasn’t very attractive. I knew that investors would need to see strong, consistent growth before our Series A, but I didn’t expect that engineers would need to see it to even join before Series A.”
Lack of experience, combined with mismanagement, was one of the factors behind the downfall of Katerra, the high-flying construction startup which raised nearly $1.5B in funding. As The Information summarizes,
7. Pricing/cost issues
Pricing is a dark art when it comes to startup success, and startup post-mortems highlight the difficulty in pricing a product high enough to eventually cover costs but low enough to bring in customers.
Hey Tiger struggled to find the right balance in its effort to produce high-quality chocolate and address inequities in the cocoa industry, writing,
“But like any start up, there comes a time when you need to take a hard look at the company’s long term viability. Although we designed a business that customers absolutely love, it proved hard to scale into the profitability it needed to be a sustainable social enterprise. As the scale of our chocolate production grew, so did the tensions between the very things that made Hey Tiger special. Ultimately while succeeding in one goal, we couldn’t make the other.”
The 2019 shutdown of genetic testing and scientific wellness startup Arivale came as a surprise to many partners and customers, but the reason behind the company’s failure was simple: the price of running the company was too high compared to the revenues it brought in.
And learning from the succesfull startup accelerator, those things 11 Tips for Succeeding in a Startup Accelerator
1. Be Open to Mentorship
Angela Ruth You’ll succeed in an accelerator program when you’re open to the advice of the experts running the program. Even if this means pivoting your startup or making significant changes to your business model, it’s important to listen and consider what these experts are telling you. They have the knowledge and experiences that can help ensure your idea becomes a sustainable business. –Angela Ruth, eCash
2. Befriend Others
Rather than brushing off other companies in the program that you think have bad ideas or won’t be successful, you should befriend those founders. If their companies don’t end up working out, they’ll be looking around for new opportunities, and could be great resources for you and your company once hiring talent becomes your biggest problem (which tends to happen after accelerators). –Mattan Griffel, One Month
3. Focus on Progress
Julien PhamOne great advantage of an accelerator is the opportunity to have intense, focused attention on your company in a short period of time. No more call-backs, reschedules, and meetings months out. But you will also hear contradictory advice–lots of it. Take everything with a grain of salt, focus on building lasting relationships, and don’t forget to make time for actual progress. –Julien Pham, RubiconMD
4. Take Advantage
David CiccarelliKnow that your time at the accelerator will fly by, and you only have a brief period to make the most of the resources available to you. This means attending all the sessions and workshops; meet with your mentors and take them out for lunch to glean even more advice from them. In short, throw yourself into the entire experience. Soak it up while you can, because one day, it will be over. –David Ciccarelli, Voices.com
5. Do the Work
As with any mentorship, it’s important to dedicate yourself fully to the experience. If your program gives you assignments, be prepared to do the work. Attend any meetings fully prepared to ask targeted questions. Take coaching calls seriously by having a goal set for each session. Don’t over-invest yourself in anything else while enrolled in the program; make the time to make it work. –Nicole Munoz, Start Ranking Now
6. Check Your Ego
Zac Johnson It’s easy to think you know a lot about what you do, but this mentality can be a huge disadvantage. When participating in groups or accelerator programs, check your ego at the door and look at everything as a learning experience. As the saying goes, “If you’re the smartest person in the room, you’re in the wrong room.” Learn from others, participate as often as possible, and take notes! –Zac Johnson, How to Start a Blog
7. Build Your Network Aron Susman Tap into all the networking opportunities. Accelerators bring together the best minds across many different industries, so take advantage of the unique opportunity to connect with as many people as possible. With these new connections, you’ll be able to build relationships that can help your business, or even help you identify problems that have hindered others in the past. –Aron Susman, TheSquareFoot