Why Tech Startups Fail | Global Shared Services

April 24, 2019

90% of startups fail.

It’s a hard statistic to swallow, especially when you’re on track to accomplish your dream of running your own tech startup. But before you convince yourself you’ll be in the 10% that make it, it’s important to take the time to understand why most startups fail and how you can avoid making the same mistakes.

As the owner of an outsourced accounting services firm, I’ve worked with tech startups for the past 16 years. In that time frame, I’ve seen some startups succeed— and others fail. Here’s what we’ve learned are the top five reasons why tech startups fail.

Bad Business Model

Your business model defines everything from how you run internal operations, to client interactions, to product positioning. If your product (or service) is what you’re selling, your business model is how you create, sell, and position it. A great business model can mean smooth sailing for your company as you find a great market, have internal operations flow effortlessly, and set a great standard for client interactions.

However, a bad business model can mean failure.

When your tech startup is working off of a bad business model, your internal operations aren’t smooth, but instead have no rhyme or reason. Employees are constantly confused, leading to more management time spent answering questions, and less time meeting your company’s goals. Bad or unclear client interactions lead to dissatisfied customers and less money for your startup.

If you think you’re working off a bad business model, check out these tips.

The Wrong Market

You wouldn’t sell Justin Bieber tickets to 60-year-old men. You wouldn’t sell business suits and ties to 5-year-old girls.

Some markets are easy to pick for your product. But tech products and services are a little harder to place – and if there are nuances and subtleties involved, it can be harder to identify and appropriately target your market.

There’s lots of different ways to position your product. The tech market tends to move quickly as new products come out, audience needs change, and laws and regulations shift. As a tech startup, you need to be prepared for that tricky market from the start. Test ideas before deployment and collect sufficient data on what your audience truly wants.

If you’re selling your product to the wrong market, you won’t have enough demand to sustain your company. Worse, you’re wasting your money attempting to get the wrong people to buy a product that would have value to someone else.

Misguided Leadership

We’ve all had great bosses. And we’ve all had a boss that we just didn’t get along with. Bad leadership can quickly tank a tech startup.

Bad leadership can lead to demoralized employees, decreased productivity, low motivation, and a general bad attitude in the office. Without clear leadership, employees will be unclear on goals and processes. Unnecessarily tough bosses can lead to demoralized employees who aren’t productive, motivated, or thrilled to be at work. A great boss is able to get the most out of his/her employees.

However, it’s not just a bad boss that can cause a tech startup to fail. Having the wrong people on your team can also lead to a fast failure. Startups require a lot of hard work and long hours. If you hire someone who’s just looking for a calm 9 to 5, then you’ll likely end up with an overwhelmed and unproductive employee who can’t help you reach your goals.

Tough Competition

Before you got started, you most likely did some research on your competition. What you don’t want is to underestimate just how much competition is in your niche. The last thing you want is to launch your product only to find you’re too late – someone else is providing the exact same service/product.

Unfortunately, tough competition is a common enough reason for the failure of tech startups – so much so that 19 percent of startups that fail are due to competition. It’s important to position your product to avoid competing with a large amount of other businesses. If you are entering a field with plenty of competition, then you need to ensure you have a very strong unique selling proposition.

Not Enough Cash

How much thought have you put into your product, market, marketing, and leadership team? Now, how much thought have you put into your finances?

Outsourced accounting services can help you keep your tech startup in the successful ten percent by taking finances off your plate

There are many different ways to handle cash flow in startups. Many startups rely on help from investors, venture capitalists, or even friends and family to raise enough funds to get started. But what happens if you run out of cash after you’ve already started? Now you have loans to investors or family and no cash to pay them off. Unfortunately, lack of cash flow is the second highest “cause of death” for startups.

As any outsourced accounting services firm can tell you, cash flow is the life blood of your tech startup. Outsourced accounting services can provide you with reports, full-service solutions, cutting-edge technology, and the access to experts that you need to avoid cash flow problems. At Global Shared Services, we believe everyone should have access to the expert financial knowledge that comes with outsourced accounting services.

Avoid cash flow issues. Scale your technology firm with accounting and financial services you can trust. Contact us today.

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