Top 10 Reasons why Early-Stage Startups Fail

1. Verifying your Product Market Fit (PMF) 

90% of companies fail because they need to address a market need or solve a real problem adequately. Many of these failed companies shouldn't exist at all, and the reason they "shouldn't exist" is that they haven't validated the market need, solved the real problem, validated the PMF, or run through the 0 to 1 stage. This lack of validation can lead to failure, even after securing funding from angel investors or a round of venture capital venture round.

Successful companies, on the other hand, prioritize solving a problem rather than simply executing an idea. As an entrepreneur, it's essential to resist the temptation to prioritize growth over finding PMF.

Without a solid foundation, growth can be detrimental to the long-term health of the business. The main focus at this early stage should be on finding PMF. In general, the companies that have succeeded have done so because they have achieved the most critical thing: Choosing a problem to solve, not an idea to build.

Once the PMF has been achieved, and a company sees positive returns, it's common for entrepreneurs to encounter the challenge of uncontrolled growth. To avoid waste and potential crises, it's crucial to have a logical, well-planned approach to growth that is aligned with the company's resources and goals. However, many entrepreneurs at this stage are spreading themselves thin by pursuing multiple lines of business concurrently, which can be unsustainable and lead to problems.

2. Managing the Pace of Financing

The value of a company's financing often depends more on market trends and the value of the industry rather than the value of the company itself. For example, if a consumer goods company is experiencing 2x annual growth, but the consumer goods industry is experiencing an 80% decline in valuation, founders need to focus on timing rather than the relationship between their company's growth and valuation.

This trend can also be seen in many other industries, and the primary market sectors tend to rotate frequently. However, it's worth noting that this rotation can sometimes resemble a "locust economy," where a group of people rapidly consume all available resources before moving on to the next opportunity.

As an entrepreneur, it's essential to be aware of these market dynamics and try to align with the financing rhythm to optimize your chances of success.

3. Avoiding Overambition and the Temptation to Make a Big Impact All at Once

Many entrepreneurs make the mistake of being too ambitious and trying to make a big impact immediately. However, it's important to remember that early-stage entrepreneurship should be focused on disruptive innovation, using minimal resources to achieve maximum leverage. It means taking small steps, testing low-cost ideas, continuously communicating with users and learning from external experiences.

It's easy to get caught up in the "big picture" and try to expand too quickly, but this approach is more characteristic of larger companies. As an entrepreneur, it's important to stay focused on finding a disruptive solution to a specific problem rather than trying to solve every problem simultaneously.

4. Developing the Ability to Cooperate and Work with External Resources

Entrepreneurs need to value cooperation and learn to work with external resources. This means recognizing that not everyone is trying to cheat or take advantage of you and being open to sharing profits and making others successful.

While it's important to be a strong negotiator and protect your interests, it's also important to approach business relationships with trust and goodwill. Many successful entrepreneurs are willing to share their profits and be transparent in their dealings, recognizing that a thriving business ecosystem benefits everyone. By creating a comfortable environment for others to succeed, you can ultimately create a better outcome for yourself as well.

5. Avoiding Vanity and Focusing on Substance Over the 'Entrepreneurial Experience

As an entrepreneur, you are responsible to your shareholders, employees, and yourself to make smart financial decisions for the company. This means avoiding unnecessary expenses, like renting luxurious offices or buying expensive software, simply to create an "entrepreneurial experience."

One way to ensure that you make responsible financial decisions is to view the company's money and the losses as your own. If you don't make a particular expenditure with your own money, then it's not a wise decision for the company either. By approaching financial decision-making with this mindset, you can avoid overspending and set the company up for success.

If entrepreneurship is an experience, the most precious experience in it is the days of suffering together.

6. Don’t Confusing Timing and Industry Growth with Personal Ability

It's common for entrepreneurs to mistakenly attribute their success to their ability and hard work rather than recognizing the role that timing and industry growth play in their success. It's important to remember that even if luck and opportunity present themselves, it's important to have the skills and experience to take advantage of them.

For example, the SaaS industry can experience rapid fluctuations, with valuations going from 10x to 50x or even back to 1x quickly. The industry's overall momentum heavily influences a company's performance in this industry. Entrepreneurs need to recognize this and be confident in their own abilities.

7. Analyzing the Industry and Company realistically: Balancing Top-Down and Bottom-Up Thinking

To position your company for growth and success, it's important to adopt a top-down approach, consider the overall industry environment, and track opportunities. This helps you identify potential growth opportunities and plan for the long-term success of your company. Remember that geometric growth opportunities often come from external changes rather than from the company itself.

However, it's also important to balance this top-down thinking with bottom-up thinking and focus on the details of your operations. As an entrepreneur, you need to be able to translate ideas and concepts into action and achieve the initial stages of development, known as "0 to 1." By combining both top-down and bottom-up thinking, you can successfully navigate the industry and grow your company.

8. Maintaining Sharp Attention to Key Data and Industry Changes

Being sharp and highly attuned to key data, industry changes, and other important issues is a key attribute of successful founders. On the other hand, a lack of knowledge about data related to their company and industry can be a major drawback for founders.

Entrepreneurs need to stay informed and aware of key data and developments in their field to make informed decisions and drive the success of their business.

9. Dare to Recruit Stronger Team Members and Building a Solid Team Structure

A key indicator of strong management skills is effectively managing a diverse team of individuals with different strengths and abilities. As an entrepreneur, it can be tempting to avoid hiring more capable employees out of fear of feeling insecure, but there are more sustainable approaches.

Instead, it's important to actively seek out and recruit people above the team's average ability level and who excel in specific areas. This requires building a team with specialized skills and individuals you can trust and communicate effectively. While it's important to be mindful of the size of the team, especially in the early stages of a company, it's also crucial to have the right people in place to support the growth and success of the business.

10. Maintaining a Positive Mindset, and Being Decisive in Decision-Making

As an entrepreneur, it's important to be able to define priorities, delegate tasks, and get to the heart of the matter. This can be difficult if you get bogged down in details or worry excessively.

Honesty is also crucial in business. Lies are easily exposed and can damage your reputation in the small, tight-knit business community. It's important to value your reputation and always be honest.

Ultimately, the ability to make timely and correct decisions in the face of uncertainty is what sets people apart. As an entrepreneur, it's essential to cultivate this skill and maintain a positive mindset.

Remember also to prioritize your physical and mental health. Entrepreneurship is a marathon, not a sprint, and it's important to take care of yourself to sustain the long-term success of your business.

Written and edited by: Yuanwei Zong

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