What’s the Number One Cause of Startup Death?

Why do startups fail? I’ve been reading through the Startup Genome Project to understand the patterns of why some startups succeed while others crash and burn.

The project is based on data from over 3,200 high tech startups and describes the similarities of successful startups. It also describes common factors in startup failure or mediocrity.

The biggest cause of failure is moving too fast and scaling prematurely.

I’ve seen first-hand how companies fail by moving too fast through the first two early stages of the lifecycle: Discovery and Validation.

Startups on the path to failure move prematurely through the Discovery stage by starting to build a product without having validated the problem/solution fit. They start building a product that nobody wants.

In the Discovery phase, startups should be discovering real problems worth solving, not jumping ahead to validating and developing the solution. According to the Startup Genome Project, startups destined for failure typically will be writing more code and adding “nice to have” features.

Startups on the way to failure then move too fast through the next stage of Validation. They are more likely to be streamlining their overbuilt product and prematurely making their acquisition process more efficient. In a nutshell, they start executing on the irrelevant.

In the Validation phase, startups should be testing demand for a product. Can they actually sell what they are building in a repeatable way?

Through my years of doing Customer Development and product management for software products I’ve learned what the Startup Genome Project confirms: Startups need 2-3 times longer to validate their market than most founders expect.

But there’s often pressure from investors and others to move fast and scale. The best founders and executives moving in a disciplined way through the stages of the startup lifecycle. And that brings great dividends: According to the report, startups that scale properly grow about 20 times faster than startups that scale prematurely.

You can benchmark your startup against more than 10,000 Internet startups using the Startup Genome Compass.