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Our framework around entrepreneurship is broken. This may sound dramatic, but it's true.
Just look at the stats from Exploding Topics if you don't believe me:
The failure rate for new startups is currently 90%.
10% of new businesses don’t survive the first year.
First-time startup founders have a success rate of 18%.
The average cost of launching a startup is $3,000.
Payroll is one of the highest costs a business incurs.
34% of small businesses that fail lack the proper product-market fit.
22% of startups that fail don’t have a sound marketing strategy.
The average venture capital firm receives more than 1,000 proposals per year.
Approximately 30% of startups with venture backing end up failing.
Around 75% of all fintech startups crash within two decades.
Startups in the technology industry have the highest failure rate in the United States.
You might think that a 90% failure rate is just the way it is for entrepreneurs.
But we choose to be hopeful. We choose to believe there's a better way.
In this 2-part blog, we are going to cover why this failure rate is so high and 2 fundamental flaws that mean most entrepreneurs will never succeed.
We will break down these fundamental flaws and what you should do instead.
Let's dive in!
But First, Why do Tech Entrepreneurs Fail?
There are often many complex reasons that a startup fails. Many of which are out of our immediate control. If we have an event business and a global pandemic occurs, it's pretty hard to succeed.
But this is the point - much of business success is out of our control.
We need to be able to adapt to changing markets, trends, and users.
There are also problems that lead to failure that are much more in our control. These include:
Not finding a product-market fit
Running out of cashflow
Not enough experience as entrepreneurs
We run into operational and legal problems.
I would argue that all of these problems, even someone of the ones that are out of our control, can be mitigated with experimentation, calculated risks, and some elbow grease. Much of this comes from Product Management!
Why Does Product Management Work For Entrepreneurs?
Product Management is the art and science of building products that solve problems for users. They are at the heart of innovation and growth. They Identify a customer need and business objective to achieve, articulate what success looks like, and how it can be measured. They empower teams to bring that vision to reality through technology, product, services, and people. Product Management practices reduce risk and increase the likelihood of success for any technology product. Product Managers prevent the 70% of technology failures that are due to usability and value errors. Product Managers achieve these outcomes by taking calculated risks, building small experiments, iterating and learning along the way.
So why don't entrepreneurs take this methodology into their businesses?
Because we have 2 fundamental flaws in how we look at entrepreneurship.
Fundamental Flaw #1: Building for Funders
One of the first question entrepreneurs are asked is "where's your pitch deck".
Not "how many sales have you made?" or "who is your target audience" or "what problem do you solve"?
Even when describing our businesses, we are expected to have a "pitch" as if we are talking to a potential investor.
Being investor-ready is a great thing, but it shouldn't form the foundation of entrepreneurship.
The foundation of entrepreneurship should be solving problems in ways people are willing to pay for.
When we focus on funders above users, we lose sight of who we are truly solving for and we miss opportunities to make money from them. We build products that users don't want but funders do.
A Perfect Storm
A perfect example of what happens when we focus on funders above users is the current real estate crisis in Toronto. In the spring of 2024, there is a flood of tiny condos on the market in Toronto that are not selling. You might be wondering how on earth there are condos sitting empty when there is a housing crisis. Let me explain!
These condos were not made for end users. They were made for investors who want a small investment property. They were attractive because they are small, cheap, easy to maintain, and have low holding costs. Sounds great right!? Well sure, except that no one wants to live in them long-term! Now that the market has changed and renting them out is no longer profitable, investors are offloading their homes and no one is buying. This is because people who want to buy to live in won't purchase a shoe box!
This is a small example of what happens when we build for investors above end users. It can work for a while but eventually, SOMEONE needs to purchase the product for real. And if we've been ignoring that end user, that final purchase will never happen.
The Funding Myth
Another issue is that most startups never receive funding. This is surprising considering that when you enter any accelerator or startup program, they are essentially designed to get your funding. But the truth is, only 0.05% of startups get funding (source).
That's right, only 0.05% of startups get funding!!
And if your a woman or a visible minority, these stats are even worse!!
If the vast majority of startups don't get funding, WHY are we wasting our time building for funders!?!
This belief that funding is available is providing a false sense of security. It makes people think that all you need is an idea and the funding will flow.
This could not be further from the truth.
What funders really want
So how do we overcome this fundamental flaw?
FOCUS ON USERS. If we solve problems for users and prove that they or someone else will pay for this problem to be solved, we have a business.
And the funny thing is, when you do this, the funders will come!
So in part 2, we will talk about HOW to focus on users and the second fundamental flaw that gets in the way.
See you there!
Unlock your path to product greatness with Tacit Edge! Our tailor-made product management training & certification programs are designed to elevate your skills and propel entrepreneurs toward success.
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