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Don’t Found a Startup That Nobody Needs

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42% of startups fail because they built something nobody wanted – don't be one of them.

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Last month, CB Insights released the findings of a study that cataloged post-mortem analyses from the founders of 135 failed startups. The authors of the study identified 13 different reasons for failure that were each sited by at least 10% of founders. However, one explanation dominated the field: ‘No Market Need’. ‘No Market Need’ was a critical factor in the failure of 42% of startups. For context, the tried-and-true ‘Ran Out of Cash’ was the second-most sited explanation at 29% of founders surveyed.

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Shocked? If yes, proceed directly to the end of this paragraph. If not, let’s quickly walk through the implications of that finding. ‘No Market Need’ means that no matter how much better they made the products, no matter how much more cash investors had given them to advertise their products, no matter how many connections they might have been given among potential customers, no matter what resources of any kind were placed at their disposal, the products that these folks built their companies around were never going to be adopted by the market. And not because they failed to anticipate some competitive offering or execution risk; rather, because of a totally identifiable lack of demand that they either failed to investigate or willfully ignored. (Thanks, Steve Jobs.) Shocking stuff, right?

There is a lot of advice out there on how to avoid this particular predicament. The importance of using minimum viable products, rapid iteration, and customer-centric product development to achieve ‘product-market fit’ is so well documented that it has become almost trite. Yet despite the startup world’s sworn allegiance to this school of thought, 42% of startups are still failing due to ‘No Market Need’ in 2015.

Finding true market fit is too critical to be addressed only as a component of your product development process. It needs to be part of your founding ethos. Rather than seeking a cofounder who can code you a beautiful piece of software (17% of startups failed due to ‘Poor Product’), find yourself a cofounder who challenges your ideas and has plenty of his or her own. Instead of selling your prospective cofounder on a specific product already blueprinted in your Steve Jobs-like mind, sell them on a perceived problem and a potential solution that you can work on proving and productizing together. Make sure that you and whatever team you assemble is excited about solving a particular problem for you customers, not just about building the tool that is currently in the pipeline.

The silver lining to this founders’ dilemma is this: if you can manage to stay humble, stay flexible, and identify a true market need to build your company around, you are already 42% of the way there. Now all you have to do is raise some money, build a team, develop a product, make some sales, raise more money, eat the world, cash out, and start all over again. But hey, congratulations – you’re an entrepreneur.

3 thoughts on “Don’t Found a Startup That Nobody Needs

  1. Great post, Jay! While this statistic is certainly unfortunate, it’s gotta be a little unsurprising. While we spent a year of FIELD learning the “importance of using minimum viable products, rapid iteration, and customer-centric product development,” most people don’t have the benefit of our experience. Beyond a great idea filling a customer need, a founder’s determination is also key determinant of a start-up’s success. And I think that determination can come hand in hand with a blind commitment to an idea, as unfortunate as that might be in leading to these scenarios.

  2. Jay, this is really interesting. While I would have expected “No Market Need” to appear on the list of why startups fail, I don’t think I would have expected it to be first on the list and the reason for the demise of almost half of all startups! While things like running out of cash, losing to a competitor, or poor product development are either somewhat out of the control of the founders or the results of mistakes made during execution of the idea, determining whether there is in fact a market need seems like it should be a founder’s number one priority and the difference between a “go”/”no go” decision. I am sure there is an element at play here of founders convincing themselves that the market “doesn’t know they need it yet”, because they are so wrapped up in what they think is a truly revolutionary idea. Any other suggestions as to how to get founders to take a step back and assess whether their idea is really a good one? How do you challenge someone who is so convinced they are right? Is this statistic really just a reflection of ego?

  3. Great post Jay! I am really not surprised to see the statistics. In the age of abundant capital and media hype for entrepreneurship, it is easy to imagine many founders join the ranks because it is the “hip” trend of the day. One of the core success factors for any company is solving a painful customer problem and yet I set through countless of pitches last summer listening to ideas that were based on trends rather than problems. In one example, a founder sought funding for a picnic basket delivery business (the baskets would have been delivered empty) founded on the premise young people are “into the whole sharing economy stuff”. I would venture to say the success of such endeavors is questionable.

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