We live in a technological era that it’s constantly evolving and changing. In fact, few of us can keep up with the pace of technological evolution. The reasoning behind this phenomenon is the hundreds of tech startups companies that are being created every year. These startups are usually based on an innovative thought that has the potential to transform into a millionaire idea. But then, why so many tech companies fail? When it comes to running a business, we need more than just a brilliant idea to make it work. In the next few paragraphs, we are going to explain the main reasons why a tech company could fail.

Why so many tech companies fail?

  1. Underfunded: The lack of funding becomes the first and main reason of why a startup tech company could fail. Developing new technology, app, or interface requires a certain period of time to come into market. In this amount of time, expenses, such as payroll and tools, have to be covered from an initial investment that would keep the business afloat while developing and testing the products.
  2. Lack of sales experience: Most of the entrepreneurs that start these businesses are excellent in their field, but they usually don’t have the experience to sell their idea. Therefore, without sales, they won’t be able to deliver the final product.
  3. Lack of direction: Starting a new business it’s never an easy task, and often can get difficult to continue if there isn’t a clear and established road to follow. Often, the lack of direction from experienced advisors, can lead to the failure of any business.
  4. Poor requirement gathering and assessment of customer needs: A very obvious and sometimes overlooked reason is the lack of empathy with what the customers need. Companies need to deliver a quality product that will satisfy the customers demands.
  5. Undefined idea: Often, startups have a million dollar idea, but they fail in developing it because they don’t have an execution plan. It is fundamental for any startup to have a blueprint. No business idea is likely to succeed without one.

General startups statistics

  • 69 percent of U.S. entrepreneurs start their businesses at home.
  • According to the National Association of Small Business’s 2017 Economic Report, the majority of small businesses surveyed are LLCs (35 percent) followed by S-corporations (33 percent), corporations (19 percent), sole proprietorships (12 percent), and partnerships (2 percent).
  • 51 percent of people asked, “What’s the best way to learn more about entrepreneurship?” responded with “Start a company”.

Startup Failure Rate Statistics

Of all small businesses started in 2014:

  • 80 percent made it to the second year (2015);
  • 70 percent made it to the third year (2016);
  • 62 percent made it to the fourth year (2017);
  • 56 percent made it to the fifth year (2018).

Top 10 Causes of Small Business Failure

  • No market need: 42 percent.
  • Ran out of cash: 29 percent.
  • Not the right team: 23 percent.
  • Got outcompeted: 19 percent.
  • Pricing / Cost issues: 18 percent.
  • User unfriendly product: 17 percent.
  • Product without a business model: 17 percent.
  • Poor marketing: 14 percent.
  • Ignore customers: 14 percent.
  • Product mistimed: 13 percent.