Why Tech Startups Fail: 6 Problems to Deal with
January 14, 2022 Edwin Kooistra
One of Gartner’s top tech CEO analysts Neil McMurchy used to say, there is 0% relevance between a great product and market success. But what does that mean?
If you’re the founder or CEO of an emerging tech provider, this article will guide you through the main reasons behind the growth and success of some tech organizations. We will also discuss the reasons behind a slow-growing, or even diminishing businesses of why startups fail and what you can do to prevent it.
The first customers for new tech providers are usually existing relationships; these initial revenues are then invested in marketing and sales with very high expectations to get more customers on board.
With lots of pulling, pushing, and hard direct sales work, still many organizations’ growth either flattens or grows at a <10% at most. Others may not even reach this and start to decline or failed. Now let’s have a closer look at what is happening at these organizations and why high expectations can turn into a situation full of frustrations.
Getting traction in the market
Following the initial success of the first customers the marketing engine starts, organizations launch their new website, they set their social channels and some begin sponsoring events. Nevertheless, they barely get any leads so the next step is usually consulting from a product marketing agency. The first thing it does is relaunch a fancy new website and work on a strategy that exaggerates the capabilities of your organization.
In many cases, this still doesn’t do it, and you blame it on the digital agency and maybe even start looking for a replacement.
Winning new clients
At the same time, the newly hired salesman has started hunting down the market, either through his existing relationship or by outreaching to potential clients from various industries. Again, despite the lengthy conversations and all the pushing and pulling, clients still seem hesitant, and avoid putting any deals on the table.
During the first year, organizations give second chances to the sales, but if the organization still haven’t achieved its targets by the end of the second year, founders and CEOs replace the sales. Is it true that hiring salespeople can be one of the most challenging tasks? Is it really a matter not being able to find the right talent?
Whether you are hiring sales talent or outsourcing your sales department, sales effectiveness consultants can help you devise a strategy that can fill your funnel with new clients every month.
The product development team are working with much pressure and frustration to facilitate the growth of the company. From one hand, the founders and creators have specific needs and requirements, while POC’s prospects have other needs so that they can turn into clients. Fitting and aligning all of these at the same time can be very frustrating. Different things are important to different people and it seems impossible to keep everybody happy.
What are the Real Failed Startups Problems?
These same steps seem to repeat themselves in the majority of new and upcoming organizations, this is what’s causing it:
1. A missing product-market fit: the problem.
The lack of a robust, competitive and a market fit product is the number 1 reason for organizations not to reach their growth objectives after the introduction phase.
Even if the product has been built on a great idea, selling the product to people you already know isn’t enough, as this will not give you a push and increase your credibility as they already trust and like you. Also, if the product doesn’t solve a real problem for the customer, it won’t be worth buying.
Another reason could be a very narrow and super targeted client spectrum. If you intentionally created your product for a specific set of customers, then the opportunity of building and maintaining a sustainable business becomes very difficult.
Another reason is the lack of focus on a specific segment when planning to enter a new market or when launching a new product. The early majority market can be skeptical by nature, risk-averse, and therefore not easily convinced; so when trying to market and sell to everybody, you end up with nobody.
2. A missing product-market fit: the root cause
So why are tech CEO’s not making these strategic decisions? We have identified the following three reasons:
- The lack of understanding of the need to choose a target market segment. During the start-up phase, you pursue every possible opportunity which is right, but it’s not enough since on the long run this won’t help you grow and scale beyond your initial success.
- Lack of sufficient information and knowledge on data points that would help you make an informed decision
- The fear of missing opportunities, and instead of focusing on one segment, you focus on everything at once. We often hear “I can’t afford to focus on one segment” and “what if the chosen segment is not the right one?”
3. A missing product-market fit: the solution
To overcome the gap in product-market fit and successfully grow in new markets, you will need to identify a target segment or ideal customer based on your strengths, the customer needs and the competition. The segment also needs to be chosen strategically, so its success will be reference-able to adjacent markets.
Read more: How a product marketing agency can help you find the right buyer persona for your product.
Once validated the next step is to have sales, marketing and the product team all working closely aligned to serve the specific needs of the potential target organizations.
4. A missing message-customer fit: the problem
After we have identified the right target and Sales and Marketing goes out to the market, we face the second problem that is impacting the business. Marketing and Sales messages are mostly focused on the features, specifications and technology, rather than on how the product solves a customer’s problem. It is often not clear why do customers need this specific product and why do they need it now. When this is not clear for the buyer, they will abandon their buying cycle resulting in a lost opportunity.
5. A missing message-customer fit: the root cause
One of the reasons for not being customer centric in their messaging, is that Technology providers tend to be more product focused than other businesses. New technology often comes with a hype, like we currently see in the market with AI. Tech providers remain in the Hype and talk about Machine Learning for example but without a clear use case no customer will buy this. That is except those existing relationships that contributed to your initial success off course.
The second reason for a lack of focus on the customer is both Sales and Marketing comes back to the lack of focus on a target segment as discussed below. If there is no clear target segment identified then there will be simply too many different types of customers to focus on and understand. When you are unaware of the best practices, gaining the required customer understanding can be a time-consuming job.
6. A missing message-customer fit: the solution
With the limited resources available to emerging tech providers it is clear that only a narrow focussed approach could lead to a message that resonates well with your buyers. Being relevant to your target customers is more important than ever. This relevance requires a deep understanding of your target market and organizations, the buyers, and the buying process.
Read more: How a product marketing agency can help you find the strategic fit and right messaging for your product.
You must act as an expert in their field and educate your clients to provide all answers to questions that may arise throughout the different buying stages.