Market research if why your startup is failing (not capital or market fit even)

According to research firm CB Insights, a lack of market fit or no market need is the top reason that startups fail. Followed by a lack of capital. Their report was published in November 2019. The results don’t shock me. Because for years I’ve heard of those two reasons as the main problems for startups. But, they are wrong in my opinion. Because of all the startup founders that I have talked to the main reason they fail is a lack of market research on the front end.

A lack of market research is why you are failing

The CB Insights report goes on to list many of the reasons that the startups they reviewed failed.

Without questions the list is a litany of mess ups that I see startup founders make. But, in my opinion, many of those mistakes could have been avoided if the founders had taken the time to do a significant amount of research before running off to start their business. Think about it. If your startup is struggling to find a need in the marketplace that is likely something you could have avoided by performing market research. If your startup runs out of cash, #2 on the CB Insights report, it is likely because either you didn’t manage your cash well (shame on you!) or you weren’t making enough revenue, i.e. selling enough of your product or service. If you aren’t selling enough of your product or service it is probably because you didn’t take the time to understand the market, the consumers real pain points, what they would be willing to pay for a solution, etc.

Just look further down the list and you will see more reasons for failure that market research could have helped avoid.

Even simple market research is being ignored

I can’t tell you the number of startup founders that I consult with who have an idea and are already in the process of spending money to produce their first prototype without having done even the simplest of market research. Just yesterday I was working for a former client who is excellent at building mobile apps. Unfortunately, he usually builds the app without having done any research at all. Once the app is built and ready to be launched into the market he will call me and ask me to help him determine market fit for the app. Each time he calls me I remind him that we need to do the research before he builds the app.

This time he was launching a new app that did provide a timely solution to what is going on in the world. He asked me to build him a pitch deck in order to start seeking investor funding. As part of our contract I agreed to do some front-end market research for him. Without less than an hour I had found some very, very large and established competitors that were doing virtually the same thing. Obviously that was bad news for my client. But the flip side, the good news, is that he had saved himself from spending tens of thousands of dollars building out an app that would be fighting a losing battle. Unfortunately for my client the research I did was something he could have easily have done himself. All it took was a Google search.

Which is what I see happening with a lot of startup founders. They ignore even the simplest of market research such as scouring the internet for competitors. I don’t this is a matter of being lazy. I think there are other reasons founders avoid market research.

Reasons founders are avoiding research

Performing market research can feel like a daunting task. But I don’t think that is why so many founders avoid it. I believe there are other factors at play. For example, one of the reasons is that I think founders get so excited about their idea that they rush ahead full speed into the creative process of launching their business. I get it. That phase of a startup is super exciting. But rushing ahead can be costly. Another reason is that some founders are actually scared of what they will learn. They are so enamored with their idea that they don’t want to learn that it is already being solved by someone else. Remember, no competition equals no demand. I have also heard founders say that they don’t know how to perform market research. Certainly there are more advanced methods of research. But the simplest one is just to do an internet search. You will be surprised what you can learn by surfing the internet.

Regardless of the reasons I am firmly suggesting that you take a moment to breath and do some research on the front end. Even if you pay someone else to do the research, the money spent will be far less than the money you lose launching a business that is doomed from the startup.

Written by

I’m a former C-level banking exec. and 3x startup founder leading a corporate innovation/product team and have helped companies raise over $500M in funding.

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