Leading Cause of Startup Failures

Issue 2

Dear Reader,

Hope you and your family are well and safe!

CB Insights, a tech newsletter, did post-mortem on 100+ startup failures in 2019. They were trying to figure out the leading causes of product failures. They found that ‘no market need’ was the #1 cause of startup failure. About 42% of the startups they interviewed told them that they didn’t have the product need in the market.

Top 5 reasons of startup failure. Source : CB Insights

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To understand how lack of product-market fit led to these failures, let’s start first by defining the term. I got the best definition of product-market fit from Marc Andreessen, founder of Netscape and a16z, who defined it as

Product/market fit means being in a good market with a product that can satisfy that market.

There are two key terms in the definition - first one is ‘good market’ and the second one is ‘product that can satisfy the market’. A good market is the one that is big in numbers and still growing, both in terms of customers and spends.

A product that can satisfy the market is the one that solves a market need and makes money while doing so. For example, social networks like Facebook has a huge market in a sense that anyone with a smartphone can become their user. They satisfy the need for social connection and thrive on vanity, one of the seven sins of human species.

Without further ado, here are the best articles/essays on Product-Market Fit for this week.

  1. Why Startups Fail by CB Insights. An In-credible study ;)

    From the article,

    42% of the 101 startups they interviewed told them that they didn’t have the product need in the market.

  2. The Only Thing that Matters by Marc Andreessen, founder of netscape and a16z.

    From the article,

    In a great market -- a market with lots of real potential customers -- the market pulls product out of the startup.

    The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along.

    The product doesn't need to be great; it just has to basically work. And, the market doesn't care how good the team is, as long as the team can produce that viable product.

  3. How Superhuman Built an Engine to Find Product-Market Fit by Rahul Vohra, founder of Superhuman. I love this one because of couple of reasons. One, it provides a very good framework for subscription products to measure PMF. Second, it tells how segmentation can help in identifying the right market in the early days of the product.

    From the article,

    That’s because the descriptions of product/market fit I found were immensely helpful for companies post-launch. If, after launch, revenue isn’t growing, raising money is tough, the press doesn't want to talk to you and user growth is anaemic, then you can safely conclude you don't have product/market fit. But in practice, because of my previous success as a founder, we didn’t have problems raising money. We could have gotten press, but we were actively avoiding it. And user growth wasn't happening because we deliberately choosing not to onboard more users. We were pre-launch — and we didn’t have any indicators to clearly illustrate our situation.

    The descriptions of product/market fit all seemed so post hoc, so unactionable. I had a clear understanding of where we stood, but I had no way of conveying that to others — and no plan for the part that should come next.

  4. 12 Things about Product-Market Fit by Tren Griffin. A good synthesis of things written around product-market fit.

    Product/Market Fit Myths: 

    Myth #1: Product market fit is always a discrete, big bang event

    Myth #2: It’s patently obvious when you have product/market fit

    Myth #3: Once you achieve product/market fit, you can’t lose it

    Myth #4: Once you have product/market fit, you don’t have to sweat the competition.

Wishing you a great week ahead.

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Take care,

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