This study of why startups fail blew my mind. Top reason why startups fail: “No market need” which is just a nice way of saying “No one wanted to buy your useless shit”.
Of the 1,100+ startups I’ve evaluated in the past year, there were two times I was curt towards the founders. Both times, it became painfully clear during the pitch that I knew more about the nuances of their business than they did.
Disappointed, I asked them how many customers they’ve talked to. Both times, single digits. I asked to stop our conversation because we were wasting time. Sure, wasting mine but I’m just an investor — I get paid to listen.
They were wasting their time — time that they bought with sleep deprivation, depleted savings accounts, and social capital of raising a “family and friends” round. Doing a startup is costly.
So before deciding to quit your job and go “full-time entrepreneur”, talking to customer should be your part-time job.
For consumer startups, you should talk to hundreds of consumers both within and outside of your segmentation. For enterprise, a couple dozen end buyers working at your target companies.
When you buy a home without inspecting it only to discover that it’s puffing out asbestos, you’re going to feel stupid. Probably a little sick as well. Pouring your soul into a startup without the idea validation from customers will have similar side effects.
Let’s pause here for a second. As a founder, you’re thinking, ‘That’s not me. I’ve done my homework.’ As an investor, I’ve also found that most founders do their homework…yet the #1 reason for failing is still “no market need”.
Something doesn’t fit.
Here’s the likelier scenario: many founders are so enamored with their ideas that they ask leading questions during their idea validation which give them the answers they want to hear (i.e. “you’re idea is interesting!”).
As an investor, I find myself do it when I conduct due diligence calls on a company I really like. I can only imagine that founders do it even more — it is your baby. No matter how ugly it is, it’s gonna look like the cutest thing.
Look, I can’t spit out the specific list of non-leading questions that you should ask. Nor am I going to spout some non-actionable Business Insider article about “understand the pain point of the customer” and “make sure you’re solving a market need”. None of that will save you from yourself from asking leading questions.
Although I can’t provide the cure itself, what I can provide are the diagnostic tests of when you’re doing customer validation right.
You can articulate the difference between Interest vs. Intent.
In my interview with the CEOs we’ve invested in, Josh Feast, the CEO of Cogito, voicetech growth-stage startup out of MIT, had advice for first-time founders:
“One of the hardest thing for first time founders is distinguishing between interest and intent. A lot of people…want to be educated about your ideas but you can mistake that for wanting to do business with you.”
Customers who are fully ready to buy your product will say they’re “interested” in your idea.
But a little secret: so will some customers who will frankly never buy your product. “Interest” in your product is a necessary but a far-from-sufficient condition.
So here’s the test. Articulate what interest vs. intent looks like in your vertical and customer set:
- Have you talked to founders who have sold to your customer set, or better yet the individual end buyer in your customer set?
- Do you know what the specific process looks like to sell to your buyers in your vertical?
- Which actions, committees, or decisions actually signal intent to buy?
If you can’t articulate the answers, maybe you’ve only been asking questions you know the answers to.
You have a list of “intent to buy” customers.
But the truly best diagnostic test is having customers from the target market actually lining up to buy your product.
On consumer side, you can create a landing page that funnels people towards buying, ending with a credit card info page and at the very end put up “Coming Near You” page. Look at the conversion rates from landing page to buying page and benchmark it against those of similar players in your vertical (and if you don’t know those conversion rates, you’re probably not ready).
On enterprise side, LOI (Letters of Intent) allow enterprise customers to provide the necessary signal to buy without the legal binding obligations. Otherwise, if you find champions within an enterprise who’s wanting to work with you to develop the solution, that can also serve as a good substitute.
I’ve always believed that disagreeing is the best way to stress test a decision. Founding a startup is one of the biggest decisions you’ll make.
So disagree with yourself. Prove yourself wrong. Test if you actually meet these diagnostic tests of proving out if your product is actually needed or if it’ll be just another statistic in the bin of “another startup making another useless shit”.
Because I can guarantee you that if you don’t try to disprove yourself, the market will do it for you.
This post was an excerpt from my Joey Venture’s Study Group, a weekly e-mail based study group where bunch of folks and I pool together ideas, articles, and recommendations. If you wanna join, you can sign up here: