Why Do Startups Fail? Here’s How Yours Can Avoid the Same Fate

Ready to start your own business but afraid: what if it fails? And how to avoid startup failure?

 

Most of our clients feel the same way when starting a new business.

 

And we completely understand you. It’s absolutely normal to feel nervous when launching a new business.

 

Market research, financial planning, product development, strategy, scalability, and risk management...

 

Wow, that's quite a list!

 

However, there’s a positive point in this story:

 

So many startups have already made mistakes. And now you can learn from their experiences to avoid common pitfalls and set your business up for a better chance to succeed.

 

For years, the Onix team has been working with seed startups that need to realize their product idea and build a strong foundation for future scalability.

 

Using our on-the-ground experience in this article, we:

 

• provide analysis of failed startups and highlight the reasons behind their failures
• share practical tips on how to prevent startup failure based on our experience

 

After reading this blog post, you’ll gain valuable insights on how to keep your startup on track and avoid the same fate.

 

Well, let’s turn those lessons into your success!

Why Do Startups Fail? Lessons from Big-Name Failures

So, how many startup businesses fail?

 

The reality is that 90% of startups don’t survive. From ecommerce to social media apps, most businesses have more failures than success stories. Even more surprising, 10% of startups don’t make it past their first year.

 

Wondering why most startups fail? What’s going wrong?

 

Many founders face the constant risk of startup failure, but understanding common pitfalls can help pave the way for success.

 

Let’s dive into the most common reasons why startups fail:

You’re probably thinking, "Well, this all makes sense in theory, but in practice, it’s not so clear-cut." What causes this?

 

We get it. That’s why, below, we’ll look at examples of how well-known startups failed and analyze reasons for start-ups failing.

 

Rdio

 

• Industry: Music Streaming
• Funding: $125 million

Rdio, a music streaming service

 

Rdio was a music streaming app launched in 2010 by the creators of Skype. Its elegant design, convenient interface, and music catalog impressed early adopters. 

 

However, despite having a great product, Rdio couldn’t compete with Spotify’s growing dominance, leading to its eventual downfall in 2015.

 

Let's analyze why Rdio failed:

 

• Focus on unnecessary features. Rdio invested resources in setting up features that users didn’t need or notice, which took away from more critical areas, like customer engagement.

 

• Poor brand awareness. Rdio’s great product wasn’t supported by effective marketing. While Spotify grabbed the headlines, Rdio remained largely unknown, even though it launched a year earlier.

 

• Failure to adopt a freemium model. Unlike Spotify, which offered an ad-supported free version to attract users, Rdio initially only offered paid subscriptions, missing out on a large potential user base. As a result, Rdio lost potential users who never had the opportunity to experience its product.

 

All these ultimately cause the startup to fail.

 

Friendster

 

• Industry: Social Networking
• Funding: $50 million

Friendster’s home page

 

Friendster, launched in 2002, was one of the first social networking platforms that allowed users to create profiles, upload photos, chat with friends, and join groups. At its peak, Friendster had over 100 million users and received significant venture capital funding. 

 

However, despite its early success, Friendster's downfall came quickly due to a series of critical mistakes:

 

• Poor user experience. The platform suffered from slow loading and performance issues. Pages took 30–40 seconds to load, which annoyed users. Instead of prioritizing performance improvements, the company added unnecessary features that further degraded the experience.

 

As a result, Myspace and Facebook, with their smoother user interfaces and faster loading times, quickly attracted frustrated Friendster users.

 

This leads to the following problem.

 

• Competition. Myspace and Facebook not only emulated Friendster's core features but improved upon them and offered a better user experience. For example, Facebook's news feed kept users constantly engaged.

 

• Inability to scale. Friendster's explosive growth was a double-edged sword. The platform couldn’t scale its infrastructure fast enough to meet the demand for high performance and increased server capacity.

 

As a result, critical features like connection graphs were removed to reduce server load, driving away users who sought a better experience elsewhere.

 

• Leadership instability. Frequent leadership changes led to inconsistent strategic direction, making it difficult for the company to address its core issues and adapt to the changing market.

 

Google Wave

 

• Industry: Collaboration/Communication Tool
• Funding: Internal (Google)

Google Wave platform

 

Google Wave was a real-time collaboration tool that combined email, chat, and document sharing in a single platform. Users created "waves" where they could collaborate in real-time by editing messages, sharing rich media like photos and videos, and even "replaying" conversations to catch up on previous discussions. 

 

However, despite its initial buzz and innovation, Google Wave failed to gain user traction and was shut down less than two years after its launch.

 

Let's consider the key factors that led to Google Wave's failure:

 

• Lack of clear focus. Google Wave tried to be a tool for everything – communication, collaboration, and sharing. They didn't have a clear target or defined purpose. Users were unsure how or why to use it, leading to confusion and low engagement.

 

• Poor usability. Despite its promise, Wave’s user interface was complex and challenging. Many users found the platform overwhelming, and its key features were not intuitive. This lack of user-friendliness discouraged adoption.

 

• Ahead of its time. Google Wave was introduced before users fully grasped the need for such a tool. While modern platforms like Slack or Microsoft Teams thrive on similar features, the market wasn’t ready for such a disruptive shift from traditional communication methods.

 

• Poor launch strategy. Google limited the number of people who could access the platform early on, which prevented it from capitalizing on its initial buzz. The gradual rollout and its incomplete features failed to sustain user adoption.

 

You might think, "Wow, how many startups fail in the first year?" But that’s not the full picture. Let’s continue.

 

Everpix

 

• Industry: Photo Storage
• Funding: $2.3 million

Everpix, a photo storage startup

 

Everpix, a photo management startup, was founded to create an app that seamlessly organizes and integrates photos from various sources. It seemed destined for success.

 

Despite its promising start and an initial user base of 55,000, the company faced significant challenges that ultimately led to its shutdown.

 

What were the causes of startup failure?

 

• Overemphasis on product perfection. Everpix’s team focused intensely on perfecting their app, leading to lengthy development cycles. This obsession with creating a flawless product delayed user acquisition efforts and business growth.

 

• Neglecting marketing. Everpix’s founders concentrated almost exclusively on product development, underestimating the importance of marketing. With little marketing funding and no dedicated sales team, Everpix failed to attract new users and increase visibility.

 

• Financial mismanagement. Despite raising substantial funding, Everpix faced negative operating income. The startup’s operational costs, including salaries and server expenses, exceeded its revenue, leading to financial instability.

 

Vine

 

• Industry: Social Media/Short-Form Video
• Funding: Acquired by Twitter for $30 million

Vine, Twitter’s six-second looping video-sharing app

 

Vine was a short-form video-sharing platform that allowed users to create six-second looping videos. Founded in 2012, Vine quickly became popular, spawning internet celebrities and viral trends. However, despite its early success and cultural impact, Twitter shut down Vine in 2017.

 

So, why did Vine fail? Let's figure it out.

 

• Failure to adapt and innovate. Vine stuck to its six-second format for too long, limiting creators' ability to explore different types of content. Competitors like Instagram, which offered longer videos, provided more flexibility and options for creators.

 

• Intense competition. Instagram's introduction of 15-second videos, later extended to 60 seconds, was a significant blow to Vine. Snapchat also offered more user-friendly video-sharing options, further weakening Vine’s position.

 

• Monetization problems. Vine never effectively provided a way for creators to make money, which led many of its biggest stars to migrate to platforms like YouTube and Instagram, where they could monetize their content through ads and sponsorships.

Big-name failed startups offer valuable lessons for founders. Whether it's

 

• poor market fit
• lack of focus
• frustrating user experience
• failure to adapt to competition

 

understanding the missteps of once-promising companies can help new startups avoid common pitfalls and increase their chances of success.

Practical Tips for Startup Founders to Avoid Common Pitfalls

We asked our tech specialists to share some practical tips for avoiding startup failure, and here's what they had to say:

 

Conduct detailed market investigations

Understanding your market is the key to a startup's success. Before you dive in, invest your time to:

 

• Outline what you want to achieve (e.g., customer needs, market gaps, competitor analysis)
• Determine your ideal customer's demographics, behaviors, and needs
• Create a plan with methods, timelines, and resources
• Use tools like online surveys, analytics, and social media for data collection
• Study competitors' strengths, weaknesses, and market position
• Stay updated with industry news and trends
• Divide your audience based on criteria like age or location
• Use beta testing and feedback for improvement
• Seek advice from industry experts or mentors

Build a strong business plan

A well-structured business plan acts as a roadmap for your startup that helps you stay focused and makes it easier to attract investors:

 

Here are some practical tips you can use:

 

• Write a clear and concise overview of your business, including your mission, product, target market, and goals
• Outline how your startup will make money (e.g., sales, subscriptions, services) and ensure it's scalable
• Provide details about what sets your startup apart
• Clearly describe the products or services you offer, their value, and how they solve customer problems
• Detail how you’ll attract and retain customers, including marketing channels, tactics, and your sales approach
• Create Specific, Measurable, Achievable, Relevant, and Time-bound goals to guide your startup’s growth
• Specify your startup costs, operational expenses, and how much funding you need to get started
• Highlight the key team members, their roles, and their relevant experience
• Identify potential risks (financial, market, operational) and your strategies to mitigate them

 

Hire a reliable development team

Your team is one of your most valuable assets. Hire individuals with the right skills and who complement your strengths:

 

• Clearly identify the technologies, programming languages, and skills your project requires (e.g., front-end, back-end, mobile, etc.)
• Choose developers who can think critically, solve problems efficiently, and are creative in finding solutions
• In a startup, flexibility is critical. Look for developers who are full-stack or can handle multiple tasks and adapt to changing needs
• Expand your talent pool by considering remote developers, giving you access to skilled professionals from different locations
• Ensure your developers can build scalable solutions that grow as your startup expands, both in terms of technical skills and mindset
• Developers who contribute to open-source projects often demonstrate initiative, problem-solving, and collaboration, which are great startup qualities

 

Develop a minimum viable product (MVP)

We recommend starting with an MVP. 

 

"The biggest lesson is that startups fail when they don’t adapt fast enough. Our strategy is to keep our clients agile, starting with a cost-effective, MVP-centric approach that helps them pivot when needed without wasting resources."

 

Volodymyr Katarovskyi

PMO at Onix

 

This approach lets you:

 

• quickly validate your app concept with minimal resources
• speed up the development process and reduce time to market by focusing on essential features and functionality
• gather user feedback and identify areas for improvement.

 

 

Once you validate your idea and gather feedback from users, you can improve and refine your app using real-world insights.

 

"At Onix, we kicked off our work with an MVP for a white-label healthcare solution designed for at-home use. This approach helped us really get to know what the target audience needed and bring the product to market much faster."

 

Volodymyr Katarovskyi

PMO at Onix

 

During MVP development for a white-label solution that enables healthcare at home, our experts:

 

• Reviewed provided materials
• Negotiated on MVP scope & provided estimation to fit the deadline
• Created roadmap
• Wrote specification
• Worked on UI design
• Developed platform architecture
• Developed backend and frontend development
• Provided QA assurance services
• Prepared for app release
• Ensured app publishing

 

As a result, we completed the product's feasibility study, did all background work required for successful MVP development, and moved the product under Onix support after the app release.

 

Now, our specialists work on changes and updates based on customer needs and user feedback.

 

Focus on customer experience 

Customer satisfaction should be at the core of your business strategy. Remember: a positive customer experience enhances retention and generates valuable word-of-mouth referrals.

 

Here is what you can do:

 

• Make onboarding simple and intuitive to ensure easy product use
• Personalize communication based on customer data like preferences and purchase history
• Provide multi-channel support (email, chat, phone, social media) for easy access
• Collect and act on customer feedback to improve your product
• Be transparent about product expectations, timelines, and costs
• Address problems quickly and offer effective solutions
• Provide self-service options like FAQs and tutorials
• Regularly refine your product’s design for better usability
• Follow up post-purchase to check satisfaction and offer help
• Build customer communities through forums and social media
• Show appreciation to loyal customers with rewards and offers
• Use analytics to find areas for customer experience improvement
• Engage customers with updates, new features, and valuable content

 

Read also: ChatGPT for Startups: Revolutionizing Business with AI

 

Keep your startup strategy on track and adapt as needed

Be prepared to pivot or adjust your strategies in response to new information or changing circumstances.

 

Here are practical tips to avoid startup failure and ensure your startup remains agile and responsive to changing conditions:

 

• Define key performance indicators (KPIs) and metrics to measure your progress and success
• Leverage analytics platforms to gather data on user behavior, sales, and market trends
• Keep an eye on your competitors' activities and strategies. Understanding their moves can help you identify opportunities and threats
• Be ready to pivot or adjust your strategy based on new information, market changes, or feedback
• Track your financial metrics, including revenue, expenses, and cash flow
• Keep abreast of industry news and emerging trends to ensure your strategy remains relevant and competitive
• Experiment with new tactics or approaches on a small scale before rolling them out broadly. This helps in identifying what works best

How Onix Can Help to Build a Successful Startup

Our team provides comprehensive services tailored to support startups in building scalable, user-centric products from concept to launch.

 

NowWhat. We created an MVP that allowed us to reduce the time and money invested in launching the product.

 

Our team:

 

• tested the client's idea with minimal investment,
• gather feedback from real users, 
• and further develop and refine the product based on market research.

 

VR medical training solution. Onix’s specialists developed an MVP, which is a basis for further development of the training program for healthcare professionals.

 

• The MVP was delivered in the shortest possible time – two weeks – and worked stably on the intended device. 

 

Digital health company. We built a minimum viable product that allowed us to understand the target audience's needs and reduce time to market.

 

• We successfully completed the product's feasibility study and did all the background work required for successful MVP development.
• Today there are already six applications based on this digital health white-label solution. 
• Now our specialists work on changes and updates based on the customers' needs and users' feedback.

 

Here’s a look at the key services we offer:

 

Idea Validation

 

• Market research. We conduct thorough market analysis to ensure your idea meets market demand and addresses actual customer pain points.
• Feasibility studies. Our team assesses your product concept's technical and financial feasibility to minimize risks.

 

MVP Development

 

• MVP. We help design and build an MVP to test the core functionality of your idea quickly.
• Iterative improvements. We gather feedback from early users and make data-driven enhancements to the MVP, ensuring it meets market expectations.

 

Custom Software Development

 

• Mobile and web applications. Our experienced developers use advanced technologies to create intuitive, high-performing apps for mobile and web platforms.
• Backend development. We provide robust backend architecture to ensure scalability, performance, and security as your startup grows.

 

UI/UX Design

 

• User-centered design. Our design team focuses on creating seamless, user-friendly interfaces that enhance the customer experience.
• Prototyping and wireframing. We offer visual representations of your product to map functionality and improve design before development begins.

 

Advanced Technologies

 

• AI and machine learning integration. We help startups implement artificial intelligence and machine learning to automate processes and provide more innovative solutions.
• AR/VR solutions. Onix delivers immersive augmented and virtual reality experiences for healthcare, education, and retail industries.

 

We help you plan for future growth, ensuring your product is ready to scale as your startup expands.

FAQ

 

What are the main reasons for startup failure?

The main reasons for startup failure often include a lack of market need, where the product or service doesn’t solve a significant problem for customers; inadequate funding, which can lead to cash flow issues; an ineffective business model that doesn’t sustain long-term growth; and execution issues, where operational challenges prevent successful implementation of the business plan.

 

What can be done to avoid startup failure?

To avoid startup failure, you should:

 

• conduct thorough market research to ensure there’s a genuine need for your product or service
• secure adequate funding and manage it wisely
• build a strong, cohesive team with clear roles and good communication
• develop a sustainable business model
• focus on effective execution by regularly reviewing and adapting your strategies.

 

Additionally, seeking mentorship, prioritizing customer feedback, and continuously learning and improving can significantly enhance the chances of success.

 

Why is customer feedback important, and how should startups use it?

Customer feedback is vital as it provides insights into how well your product or service meets customer needs and highlights areas for improvement. Startups should actively seek and act on feedback to refine their offerings and enhance customer satisfaction.

 

What is the hardest thing about a startup?

The hardest part of starting a startup is navigating the uncertainty and risks of building a new business. This includes securing sufficient funding, validating market demand, and executing a viable business model while managing limited resources.

 

Founders often face challenges such as maintaining cash flow, adapting to market changes, and overcoming operational hurdles, which require resilience, flexibility, and strategic decision-making.

 

How can Onix help me build my startup?

Onix offers end-to-end software development services, from idea validation to product launch. With expertise in creating scalable, user-focused solutions, we assist in market research, MVP development, and the implementation of reliable technologies.

 

We support you through every stage of the development process, ensuring the product meets market needs while providing strategic guidance to help navigate common challenges and scale effectively.