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Why Most Startups Fail: The Truth in Numbers and Facts
- Startup Bell
- May 18
- 16 min read
Updated: May 22
Startups capture our imagination: the scrappy coder in a garage, the visionary team burning the midnight oil, the pitch deck that wows investors… and then—crash. Despite the hype, roughly 90% of startups don’t make it long-term. Nearly 20% fold within twelve months, and only about 10% survive past a decade.
“All I want to know is where I’m going to die, so I’ll never go there.”— Charlie Munger
Charlie Munger’s quote isn’t about morbidity—it’s about wisdom. In the startup world, understanding why most startups fail is the first step to not ending up in the same graveyard.
So what causes these promising ventures to crash and burn? Let’s pull back the curtain—define the jargon, unpack the cold hard data, and learn from real-world calamities so you can give your own startup the best possible chance.
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Why Startups Are Prone to Failure
Startups differ from established companies in three key ways that make them extra-vulnerable:
Unproven Business Model
By definition, you’re experimenting: Will customers pay? At what price? Can you deliver at scale? Until you answer these, every dollar you burn could vanish.
Resource Constraints
Most startups launch with a small team and modest funding. There’s no cushion for R&D delays, hiring hiccups, or marketing flops.
Rapid Change & Uncertainty
Industries evolve, competitors pivot, regulations shift. What seems like a moat on Monday can become a trickle by Friday.
Imagine building a plane mid-flight. That’s what running a startup often feels like. You're assembling the team, testing the product, fundraising, acquiring customers, and figuring out how to scale—all at once.
Interesting Fact: According to a Harvard Business School study, the "liability of newness" is real—organizations face their highest risk of failure in their earliest stages, with the death rate declining as they age. The first 18 months are particularly treacherous for new ventures.
Example: Take Quibi, for instance. Despite raising a staggering $1.75 billion and having entertainment industry veterans Jeffrey Katzenberg and Meg Whitman at the helm, the short-form video platform shut down just six months after launching in 2020. Even with abundant resources and experienced leadership, they fundamentally misunderstood what consumers wanted in streaming content during a pandemic when people were primarily watching at home, not "on the go" as Quibi had positioned itself.
A Snapshot of Startup Failure
Let’s talk about the numbers. About 70% of startups fail within 2-5 years. And more than 90% of all startups eventually fail.
Here’s a rough breakdown:
Year 1: ~20% fail
Year 2-3: ~45% more fail
By Year 5: 70% are gone
By Year 10: 90% don’t survive
75% of venture-backed startups fail
Only 40% of startups actually turn a profit
That means your odds of joining the “1-in-10” club are slim—but not impossible. Success often comes down to understanding why and when failures happen, so you can spot the warning signs early.
Interesting Fact: First-time startup founders have a success rate of 18%.
The timing of failure follows a distinct pattern too. CB Insights analyzed 110+ startup post-mortems and found that the average startup lasted 20 months after raising financing before shutting down.
Example: Consider the cautionary tale of Jawbone, once valued at $3.2 billion. The consumer electronics company raised nearly $1 billion in venture capital over its 17-year existence before liquidating in 2017. Despite creating innovative products in wearable technology and wireless speakers, the company struggled with product execution, quality control issues, and fierce competition from rivals like Fitbit and Apple.
Interesting Fact: Despite facing potential business failure, 84% of founders were willing to form another startup company.
Reasons for Startup Failure
Startup failures don’t just happen randomly. They happen for predictable, often avoidable reasons. Also keep in mind two things. One – there is rarely one reason for a single startup’s failure. And two – across all these failures, the reasons are very diverse.
Following are the top reasons:
Ran Out of Cash (38%) - Poor cash flow management or inability to raise additional capital
No Product-Market Fit (35%) - Building a solution in search of a problem
Got Outcompeted (20%) - Unable to differentiate or compete effectively
Flawed Business Model (19%) - Flawed monetization strategy
Legal/Regulatory Issues (18%) - The rules and laws created insurmountable problems.
Pricing/Cost Issues (15%) - Unsustainable business model
Wrong Team (14%) - Lack of essential skills or dysfunctional team dynamics
Product Mistimed (10%) - Too early or too late to market
Poor Product (8%) - Subpar user experience or execution
Disharmony among Team/Investors (7%) - Infighting and disagreements tore things apart.
Pivot Gone Bad (6%) - The change in direction ended up being the wrong move.
Burned Out/Lack Passion (5%) - Eventually, the drive and energy just disappeared.
Interesting Fact: Despite the popular notion that startups fail because they run out of money, this is often just the symptom, not the disease. The underlying reason is frequently a lack of product-market fit, which then leads to poor cash flow and eventual insolvency.
Each Reason Explained—with Examples & How to Avoid
1. Ran Out of Cash (38%)
What it Means: You misjudged your burn rate, delayed fundraising too long, or your revenue never covered costs. Cash flow is the lifeblood of any startup. When it stops, so does everything else.
Case Study: Beepi
Online used car marketplace Beepi raised $150 million and was valued at $560 million in 2015. By 2017, it had shut down after burning through cash at an unsustainable rate. Their business model required massive inventory and operational overhead, while margins remained thin. Despite substantial funding, they couldn't reach sustainability before investors lost patience.
How to Avoid This Failure:
Maintain a 12-18 month cash runway whenever possible.
Create detailed financial projections with multiple scenarios.
Establish clear milestones tied to funding stages.
Focus on creating a path to profitability, not just growth.
Use lean budgeting: prioritize features that directly drive revenue and monitor burn rate to adjust spending proactively.
Interesting Fact: Silicon Valley startups fail at slightly higher rates—more funding but more competition (showing geographic variance).
2. No Product-Market Fit (35%)
What it Means: You’ve created something that nobody wants; it doesn’t solve a pressing problem or delight users enough to pay. This seems obvious, yet it's the most common mistake entrepreneurs make.
Case Study: Juicero
Juicero, once the darling of Silicon Valley, raised over $120 million to build a Wi-Fi connected juicer. But it turned out customers could just squeeze the juice packs with their hands. The product was expensive, unnecessary, and out of touch with real-world demand—sales stalled and the company shut down within 16 months.
How to Avoid This Failure:
Start with customer discovery before building anything.
Launch an MVP (Minimum Viable Product) to validate demand.
Validate willingness to pay, not just interest.
Be prepared to pivot if early market signals are negative.
Measure real usage metrics (e.g., weekly active users, churn rate) before scaling.
Pro Tip: If fewer than 40% of users say they’d be “‘very disappointed”’ if your product disappeared, you likely lack product-market fit.
3. Got Outcompeted (20%)
What it Means: A rival with deeper pockets, faster execution, or a better go-to-market strategy takes over.
Case Study: Sidecar
Founded in 2011, Sidecar was actually a pioneer in the ridesharing industry—preceding both Uber and Lyft with innovations like ride-matching and carpooling. Despite their early start, the company couldn't keep up with the aggressive expansion and massive funding of its competitors. By 2015, Sidecar had shut down after being outmaneuvered by deeper-pocketed rivals who could subsidize rides and attract more drivers.
How to Avoid This Failure:
Develop a sustainable competitive advantage beyond features.
Monitor competitive landscape continuously.
Create barriers to entry through technology, network effects, proprietary data, or exclusive partnerships.
Focus on underserved market segments initially.
Build customer loyalty through exceptional experience.
Iterate on time to market: shorter development cycles beat perfect product launches.
4. Flawed Business Model (19%)
What it Means: Even great products can fail without a viable path to sustainable profitability.
Case Study: Moviepass
The subscription service offered unlimited movie tickets for just $9.95 per month—a price point well below the cost of a single ticket in many markets. While this led to explosive growth (over 3 million subscribers), the company lost money on virtually every transaction. After burning through cash and failing to pivot to a sustainable model, Moviepass shut down in 2019.
How to Avoid This Failure:
Validate your business model with small-scale tests.
Understand your customer acquisition costs and lifetime value.
Identify multiple potential revenue streams.
Ensure your value proposition aligns with your monetization strategy.
Study successful business models in adjacent industries.
Build financial models that reflect realistic market conditions.
5. Legal/Regulatory Issues (18%)
What it Means: Compliance burdens or sudden rule-changes that make your model untenable.
Case Study: Airbnb’s Early U.S. Struggles
In New York City circa 2014, short-term rentals were largely illegal, and the city fined hosts steeply. Airbnb's early legal struggles stemmed from the company's rapid growth and the lack of clear regulations surrounding short-term rentals in many jurisdictions. This led to conflicts with local zoning laws, tax regulations, and licensing requirements. In addition, Airbnb faced legal challenges related to background checks, safety and security issues, and guest complaints. Airbnb spent years in costly legal battles before achieving a workable regulatory framework.
How to Avoid This Failure:
Engage legal counsel early in high-risk industries (fintech, health, real estate).
Build compliance into your roadmap, not as an afterthought.
Lobby or partner with regulators to shape favorable rules.
6. Pricing/Cost Issues (15%)
What it Means: You either charge too little to cover costs or too much to attract customers. Many startups struggle to find the delicate balance between price points that attract customers and margins that sustain the business.
Case Study: HomeJoy
Home cleaning marketplace HomeJoy raised $40 million but shut down in 2015 despite strong growth. Their fundamental problem was unit economics—they spent around $200 to acquire each customer but earned only about $150 in contribution margin from them. With high customer churn and worker turnover, they couldn't make the numbers work.
How to Avoid This Failure:
Calculate unit economics early and honestly.
Test multiple pricing tiers via A/B tests before scaling.
Focus on customer lifetime value, not just acquisition.
Consider freemium models only if conversion paths are clear.
Incorporate value-based pricing: charge in line with the business value you deliver.
7. Wrong Team (14%)
What it Means: Skills gaps, founder conflicts, or misaligned incentives.
Case Study: Theranos
Founded by Elizabeth Holmes in 2003, Theranos claimed revolutionary blood tests from a tiny sample. But internal culture of fear, inexperienced leadership, and board rubber-stampers led to scientific fraud revelations in 2015 and the company’s collapse.
How to Avoid This Failure:
Define roles and OKRs clearly from day one.
Hire complementary expertise—science, operations, and governance.
Foster psychological safety so problems surface early.
8. Product Mistimed (10%)
What it Means: You launch too early—before infrastructure matures—or too late, after the market has moved on.
Case Study: Webvan
This online grocery delivery service raised over $800 million and went public in 1999 at a valuation of $4.8 billion. Just two years later, it had filed for bankruptcy. Webvan's concept was sound (as evidenced by today's successful grocery delivery services), but the infrastructure, consumer behavior, and technology weren't yet ready to support their vision. They were simply too early.
How to Avoid This Failure:
Monitor technology readiness levels.
Pilot in niche segments with existing infrastructure.
Launch with a minimal viable product to test timing.
Scale gradually as market signals confirm readiness.
Have contingency plans for both slower and faster market adoption.
Be ready to pivot within 6–12 months if adoption lags.
9. Poor Product (8%)
What it Means: User experience, reliability, or execution flaws so serious customers churn immediately. A subpar product experience will quickly doom even the most promising startup concept.
Case Study: Amazon Fire Phone
In 2014, Amazon’s Fire Phone launched with 3D “Dynamic Perspective” and deep integration with Amazon’s shopping ecosystem. But its restrictive app ecosystem, lack of carrier support, it's reliance on its own Fire OS, which limited access to popular apps and services, alienated potential users accustomed to the wider selection available on the Android and iOS platforms. Consumers saw little benefit over cheaper Android and iOS options. Amazon took a $170 million write-down and discontinued it in less than a year.
How to Avoid This Failure:
Invest in beta testing with power users.
Focus on solving core user problems before adding features.
Maintain quality control even while moving quickly.
Listen to early customer feedback and iterate accordingly.
Don't overengineer solutions or add unnecessary complexity.
Prioritize performance and stability over bells and whistles.
Track retention cohorts: if Day 1–7 retention falls under 30%, pause feature builds.
Interesting Fact: Studies show that 80% of users will delete an app or abandon a website after just one bad experience. In the digital economy, product quality and user experience are more critical than ever.
10. Disharmony among Team/Investors (7%)
What it Means: Infighting, misaligned objectives, unsupportive boards, or sudden funding withdrawals can leave even a healthy startup in tatters..
Case Study: Zirtual
Zirtual was a promising virtual‐assistant service founded in 2013 that paired entrepreneurs with dedicated U.S.-based assistants. By early 2015 it had raised over $4 million and was scaling rapidly. Then, in August 2015, the company abruptly suspended operations overnight—citing cash-flow crunches and a sudden decision by investors to halt funding. The leadership team scrambled to reassure over 1,000 existing clients and dozens of assistants, but the damage was done: trust evaporated, and despite a fire-sale acquisition by Startups.com, Zirtual never regained its footing.
How to Avoid This Failure:
Set clear governance: decision-rights, veto powers, and escalation paths.
Align on milestones and dilution triggers in writing.
Hold quarterly all-hands to surface tensions early.
Quick Tip: If your board or investor group can unilaterally pause funding, build contractual safeguards—such as minimum funding commitments or phased milestones—to prevent sudden liquidity shocks.
11. Pivot Gone Bad (6%)
What it Means: Shifting strategy so drastically that you lose your core audience or expertise.
Case Study: Fabulis → StickK
Fabulis launched in 2010 as a social network for gay men—struggled to find scale, then pivoted in 2011 to StickK, a goal-setting app. While StickK found moderate traction, the pivot stretched the team and investors lost faith, leading to limited success.
How to Avoid This Failure:
Validate pivots with 2–3 months of user testing before abandoning the core product.
Maintain dual roadmaps: one for current MVP, one for the pivot concept.
Communicate openly with investors and employees about rationale and risks.
Interesting Fact: 40% of startup founders pivoted to avoid business failure. And roughly 70% of those founders were confident with their new approach.
12. Burned Out/Lack Passion (5%)
What it Means: Founders and teams stretch themselves thin—productivity and morale plummet.
Case Study: Yoga Panda
Yoga Panda was a Seattle-based on-demand wellness platform (connecting consumers to local yoga and fitness classes). Founder Othmane Rahmouni wrote that after running the company at a frenzied pace he “eventually… [was] burnt out”. He took a break, realized how “burned out [he] was from the previous 12 months,” and concluded the only right choice was “to shut down this venture”. In other words, he explicitly cited his exhaustion and loss of drive as the reason to close Yoga Panda.
How to Avoid This Failure:
Encourage time off: no-guilt vacation policies.
Track team health metrics: retention rates, stress surveys.
Build a scalable org design: don’t let the founders wear every hat forever.
Interesting Fact: Serial Entrepreneurs tend to have 20% higher survival odds on second ventures, thanks to lessons learned.
Failure Rate of Startups by Category
Industry context matters significantly when assessing startup risk. Some sectors are inherently more challenging than others due to regulatory hurdles, capital requirements, or competitive dynamics.
Information Technology
5-year failure rate: 63%
Key challenges: Rapid technological change, low barriers to entry, high competition
Construction
5-year failure rate: 53%
Key challenges: Cyclical demand, high operating costs, project management complexity
Manufacturing
5-year failure rate: 51%
Key challenges: Capital intensity, supply chain complexity, scaling production
Retail
5-year failure rate: 53%
Key challenges: Thin margins, inventory management, changing consumer preferences
Food and Beverage
5-year failure rate: 60%
Key challenges: High overhead costs, perishable inventory, shifting consumer tastes, competitive saturation
Finance and Insurance
5-year failure rate: 42%
Key challenges: Regulatory compliance, trust building, high security requirements
Healthcare
5-year failure rate: 40%
Key challenges: Regulatory approval processes, complex sales cycles, resistance to change
Interesting Fact: Despite the popular image of technology startups being highly successful, they actually have one of the highest failure rates of any industry category. The low barriers to entry and winner-take-all dynamics create a particularly challenging environment.
Failure Rate of Startups Based on Startup Stages
The risks facing a startup evolve as the company progresses through different development stages. Understanding stage-specific challenges can help founders navigate these treacherous transitions.
Seed Stage
Failure rate: 60-80%
Primary challenges: Validating market need, building MVP, finding product-market fit
Average runway: 12-24 months
Key milestone: Demonstrating user adoption and engagement
Case Study: Secret
The anonymous social networking app raised $35 million but shut down after just 16 months. Despite initial viral growth, they couldn't sustain engagement as novelty wore off and cyberbullying concerns grew. They failed at the seed stage challenge of creating sustainable user engagement beyond initial curiosity.
Early Stage (Series A)
Failure rate: 30-40%
Primary challenges: Scaling customer acquisition, building team, establishing repeatable processes
Average runway: 12-24 months
Key milestone: Achieving predictable growth and unit economics
Case Study: Gilt Groupe
The flash sale site raised a $40 million Series A and grew rapidly but couldn't sustain its business model as competition increased and the novelty of flash sales diminished. After raising $280 million total, Gilt sold for just $250 million—far below its former $1 billion valuation.
Interesting Fact: The "Series A crunch" is real—the transition from proving concept to proving scalability represents one of the most significant hurdles in a startup's journey.
Growth Stage (Series B/C)
Failure rate: 25-35%
Primary challenges: Maintaining growth rate, international expansion, operational scaling
Average runway: 2-4 years
Key milestone: Path to profitability and market leadership
Case Study: LeSports
The Chinese sports streaming platform raised over $1.7 billion in funding but collapsed in 2017 after overextending with expensive broadcasting rights purchases and rapid international expansion before establishing a sustainable core business.
Late Stage (Series D+)
Failure rate: 10-15%
Primary challenges: Maintaining innovation, defending market position, preparing for exit
Average runway: 18-36 months
Key milestone: Sustainable profitability or clear path to acquisition/IPO
Case Study: Powa Technologies
The mobile payment company reached a $2.7 billion valuation and raised over $200 million before collapsing in 2016. Despite reaching late-stage funding, the company spread itself too thin across multiple products without perfecting any single offering, while burning cash at an unsustainable rate.
What Happens When a Startup Fails?
When a startup fails, the aftermath extends beyond mere business closure—it creates ripple effects that impact numerous stakeholders in different ways.
For Founders
The emotional toll of startup failure can be significant. Many founders report experiencing symptoms similar to grief, including denial, anger, depression, and eventually acceptance. After pouring years of their lives into building their companies, the psychological impact shouldn't be underestimated.
Financially, founders often face personal debt, depleted savings, and sometimes damaged credit scores, especially if they personally guaranteed business loans.
Interesting Fact: Studies show that failed entrepreneurs are more likely to succeed in their next venture. First-time entrepreneurs have an 18% success rate, while entrepreneurs who previously failed have a 20% success rate. Experience, even negative experience, has value.
For Investors
For investors, startup failure is an expected part of their portfolio strategy. Most venture capitalists operate on the assumption that the majority of their investments will fail, with returns coming from a small percentage of big winners.
When a startup fails, professional investors typically:
Write off the investment for tax purposes.
Conduct post-mortem analysis to extract lessons.
Maintain relationships with talented founders for potential future ventures.
Sometimes recover a small portion of capital through asset liquidation.
Interesting Fact: The average venture capital firm receives more than 1,000 proposals per year.
For Employees
Employees often face the most sudden disruption when startups fail, frequently with minimal warning or protection.
Common challenges for employees include:
Sudden job loss: Often with limited severance due to the company's financial constraints.
Worthless equity: Stock options that employees sacrificed salary to obtain become worthless.
Salary gaps: Some failed startups miss payroll in their final months.
Many startup employees accept below-market salaries in exchange for equity and the excitement of building something new. When the company fails, they lose both the financial upside and their jobs simultaneously.
Skill Diversification: Ex-employees frequently start new ventures or join competitors—spreading learned lessons (and sometimes IP risks).
For Customers and Partners
When startups shut down, customers may lose access to products or services (paid tools, data or content) they've come to rely on, sometimes with little or no warning.
Business partners can face disruption to their own operations, especially if the failed startup was an integral part of their supply chain or service offering.
Case Study: Munchery
When the food delivery service Munchery shut down in 2019, they gave customers less than 24 hours' notice. Many had prepaid for monthly or annual subscriptions, losing hundreds of dollars. Even worse, the company left many of its food suppliers with unpaid invoices totaling tens of thousands of dollars, creating financial hardship for small businesses.
Legal & Financial Cleanup
The formal process of shutting down typically involves several steps that must be carefully managed to minimize additional liability:
Board vote to dissolve: The company's board must formally vote to dissolve the entity.
Stakeholder notification: All employees, customers, partners, and creditors must be notified.
Asset liquidation: Remaining physical assets, IP, and customer lists are sold to generate final cash.
Interesting Fact: Startup failure doesn't always mean complete loss. Approximately 10% of failed startups are acquired in "acqui-hire" deals where the technology may be discontinued, but the team is kept intact and hired by the acquiring company.
Navigating the Path to Success: Lessons from the Graveyard
After examining why startups fail, some clear patterns emerge that can guide entrepreneurs toward better outcomes.
The Power of Pre-Mortems
Smart founders conduct "pre-mortems"—imagining their startup has already failed and working backward to identify potential causes. This exercise helps identify blind spots before they become fatal.
Practical Steps:
Gather your team and imagine it's 18 months in the future and your startup has failed
Have everyone independently write down the most likely reasons for failure
Compare notes and look for recurring themes
Develop specific mitigation strategies for the top failure risks
Focus on Product-Market Fit Above All
The data is clear—lack of market need is a big startup killer. Founders must be ruthlessly honest about whether they're solving a real, urgent problem.
Warning Signs of Poor Product-Market Fit:
Low user engagement metrics
High customer acquisition costs
Difficulty articulating customer value proposition
Long sales cycles
High churn rates
Dependence on heavy discounting
Cash Management as a Core Competency
Running out of cash is rarely a sudden event—it's the culmination of poor financial planning and unrealistic projections.
Best Practices:
Maintain 12-18+ months of runway whenever possible
Develop detailed cash flow projections with multiple scenarios
Create clear financial KPIs and monitor them weekly
Understand and optimize unit economics before scaling
Align spending increases with concrete milestones
Interesting Fact: A Harvard Business School study found that startup founders consistently underestimate the time required to reach positive cash flow by 2-3x. Building in financial buffers is essential for survival.
Conclusion: Embracing Calculated Risk
The high failure rate of startups shouldn't discourage entrepreneurship—it should inform it. By understanding the patterns of failure, founders can make more calculated risks rather than blind leaps of faith.
Success in entrepreneurship isn't about avoiding risk entirely; it's about taking intelligent risks based on evidence rather than optimism alone. The most successful founders balance visionary thinking with pragmatic execution, continuously testing their assumptions against market realities.
As Reid Hoffman, co-founder of LinkedIn, famously said:
"An entrepreneur is someone who jumps off a cliff and builds a plane on the way down."
The statistics on startup failure suggest that many never complete their aircraft. But by learning from those who've crashed before them, today's entrepreneurs can build more effective parachutes and assemble their planes with greater precision.
The next time you hear about a unicorn startup's billion-dollar valuation, remember that behind that success lies the lessons of countless failures. In the unforgiving landscape of entrepreneurship, those who study the terrain carefully before setting out have the best chance of reaching their destination.
90% of startups fail. Want to learn how not to? Subscribe to our newsletter for weekly insights, tips, and stories to help you stay motivated and achieve your goals!