All right, welcome back to the podcast this week. We are going to talk about the top 10 reasons that startups fail. And number 10 is going to blow your mind. So sit back, grab yourself your favorite beverage.
Let's get out. All right, welcome back. This week, we want to look at the top 10 reasons why startups fail. But first, I want to highlight some of the great comments that we've gotten from last week's episode on how the things that the top eight things you can do to rock and dominate 2026.
This is the time of year when you start to see these lists come out. When you start to see all the influencers say, you know, make 2026 the year. You make a difference, you know, rock the world, be different, make this year. You go independent, make your startup.
There's a whole bunch of these. What we looked at is what is absolutely within your ability to do. But our moniker is it's free. Absolutely everything on that episode was stone cold free required a little bit of time and effort on your behalf.
There's nothing that can avoid that, but no money. So every one of you out there that in any type of financially restrained position, all of these things are within your ability to do. The choice is yours. You have no requirement to do any of it.
But you also do is can't blame the magical system or oppression or anything like that. That's keeping you or preventing you from doing what you want to do or reaching the goals that you want to do. It's just up to effort. Now, is there ever a hundred percent guaranteed?
No, lots of people. And we're going to talk about a lot of the reasons today why people who have a dream of a startup never are successful, but I'll guarantee you you're a hundred percent chance of not being successful if you don't take a risk and give it a try. And that's the whole point of what we were trying to talk about in the episode is that you've got great opportunity to make a significant influence on your future. The question is whether you want to do the work.
Now, if you want somebody else to do the work for you and expect a different outcome, you're in trouble. If you want to take somebody else's plan and put it on your life and expect the same outcome, you're in trouble. And that's why when we talked about the eight things on that podcast episode, it was just about what you can nail, what you can do, what is free and within your capacity. So we got great engagement across all our social medias on that one.
We really appreciate the feedback and we're going to continue with the listicles. And today, we really want to talk about part of our focus here at Mastering Risk is providing that free advice, that free risk, business continuity and preparedness advice to those of you who are thinking about a side hustle or those of you who have a side hustle and are thinking about transforming that into a full-time affair. Whether you want to turn your solo entrepreneurial venture into your full-time income, whether you want to jump on this passive income train, whatever that may be, or any of those reasons, everybody tries this and not everybody is successful. If everybody was successful, there wouldn't be competition, there wouldn't be an incentive, and everybody would do it.
The whole point is risk management. That's why the podcast is called and the YouTube channel is called Mastering Risk. It's not that you couldn't eliminate it, it's not that you can mitigate it to zero. It's that you understand risk, you embrace it, and you actually leverage it to get ahead of your competitors to deliver rock solid quality to your customers and do so in an environment that is full of political, economic, and natural disasters that are becoming ever more frequency, ever more intensively.
It's getting crazy out there and you want to start a business. And I think this is the perfect time in history for you to start a business. So, top 10 reasons and this is based upon surveys of a little over a thousand different companies who are unsuccessful. The work is produced by CB Insights and Start Genome and a couple of others.
I want to make sure the credit is out there front where the data comes from. But the number one is there's no market need. We 42% of businesses fail because they've identified a wonderful product that does not solve a problem people actually have. If you roll back in basic business, right, the role of business, the role of an entrepreneur is to identify a problem that people have, a severe problem.
They call it the pain point. Finding the pain that people are experiencing, figuring out developing a solution and then getting them to buy the solution for money. That's business 101 at the very small scale or at the multi-billion dollar scale. It's the absolute same thing.
And I did this and I love this list because I made this mistake. The first iteration of this company, Preparedness Labs Incorporated, whose website is PreparednessLabs.ca drop over and pay us a visit. The first iteration of this company, I started and I created an absolute brilliant product to solve a problem that nobody had. And I put tons of effort in it.
I spent well over $10,000 developing a wonderful solution to a problem people didn't have. And that, of course, didn't go anywhere. And it flopped miraculously and famously. The second iteration I did.
I didn't learn well enough from that. So I went back into Hammer again and said, I'll tweak it a little bit until it addresses a problem they kind of have. You know, if I persuade them enough, they'll really understand what I'm trying to get at. And it was OK, but it was so labor intensive that there was absolutely no scalability to it and absolutely no way to make even a reasonable level of income without a Herculean level of effort.
So I made all of those. And the key to that is what we call smoke testing. And smoke testing is when you go out and you spend a little bit of ad money, say, $100, $200, $200, and you put it out there and you ask people to sign up ahead of time. You know, free sign up at this website, 20% off the final product if you sign up early, right?
It's what a lot of companies will do to try to understand whether what they're thinking has market potential. When we think about that, to summarize that is the number one reason why they fail, because the small businesses are not solving a problem that actual real people have and a problem that is significant enough where people want to want to spend their money to solve it. Test it, figure it out, find out whether there's any value in it. You spend a little bit of money.
You have it sign up. If you get three, five, seven people sign up and you think you need $100 to make it viable, as a French say, you put it in the garbage, let it out the pasture and move on to the next idea. And you repeat these ideas over and over again until you find one that there's interest in people's stick. The second one is people run out of cash.
You know, near 20% according to the statistics, small businesses and solar entrepreneurs sunset because they run out of operating capital. Most of the time, it's because they don't understand their capital burn or their cash burn. They don't understand the commitment they've made and the amount of money it will take up front. So make sure that when you think about starting your solar entrepreneur, and I'll give you an example of what I did.
Because I laid out what the first year would cost me, all in the way I had designed it. And then I took that money and I set up six months worth of cash burn. And the concept was, and as I said at number one, it didn't work, but the concept was if after six months, I'm not making sufficient revenue to cover the next six months, then my idea has no runway. And as Mr.
Wonderful says all the time on Shark Tank, if after three years it's not making a killer profit, take it out back and shoot it. It's a hobby, not a business. So the idea being is this people run out of cash because often they set themselves up for a high-rated cash burn. And I saw this great example on LinkedIn where this individual started a consulting business.
So he rented an office, rented a phone and set it all up and he committed himself to this large overhead piece of cash, this demand, and then the market didn't fuel it. So eventually his personal line of credit ran out of money. He wasn't generating the revenue and he had to close the business, not because necessarily his idea was poor, but he had decided to set up a company that had so much overhead cash. And he had limited cash reserves that he basically set a three-month runway for himself and he burned through it and it was all over.
Number three is about team. It's the wrong team. And about 23% of businesses will hire for bin their ship that versus experts, right? So often solo entrepreneurs and start up, it'll be me, right?
It'll be just me and you. Like you're just like me. You want to start a business. So you're going to start it.
And there's a great book over my shoulder here called A Company A One by Ritten by Paul Jarvis. And I have that there for a reason because it talks a lot about this problem. Setting up a business, setting it up in a way that is absolutely manageable for you and you alone to run until it gets a position to scale. Then at that point you can decide, hey, I just want to keep it a company of one as Paul Jarvis talks about, or at that point I want to scale and I'm going to have to bring in new people.
And a lot of time when you get to that position, you're bringing in people and it becomes very difficult because this is your baby. This is your bestie. You created it. You don't want somebody else running it and it's very, very difficult.
So just to recap the top three, no market need. You created something. Nobody really has a problem and you're not solving any problem. The two, you set up the system to burn cash way too quick and you ran out of capital.
And the third one is you're starting to expand too quick. You're hiring a bunch of people and the thing turns into a dog's breakfast. Now the fourth one, really interesting. You've been out competed.
This happens when you're a generalist. And I mean this sincerely. The riches is in the niches or the niches, depending how you pronounce it. And the saying is it sounds colloquial, but it's not wrong.
Where the value is is going where nobody else is. So if you think you're going to come on and create a product that mirrors what the market already has, but you're going to have no differentiator. You're just going to try to do it the same as everybody else. At a slightly lower price point, you're in a run to the bottom.
That doesn't work. And a lot of times it happens with this is that people try to be the generalist and they're pushing a rope uphill, which makes it exceptionally difficult. Pick a niche, pick a niche that nobody else is in. And if you go back to that number one, the market problem, you'll find out through market testing whether the reason nobody's in this space is because nobody has that problem, which was what I did, or you're going to realize that nobody's in that space because nobody else has figured it out.
And now you're the lead in that space, which sets you up for great opportunity. And the next one is pricing or cost issues. People often price for the lowest bidder. People often price for I want to be slightly lower than everybody else.
When you get into a competition for price, it's a recipe for the bottom. Now I'll give you an example. Alex Horbote says in one of his main wonderful books, $100 million offers, $100 million leads and it's $100 million money models. Great books.
I have all of them. He talks about when somebody asks the price of your product, look at them at a zero and keep a straight face. Now, for most people, that's outrageous. But the point is the higher you price your product, the more value it's perceived to have.
If your product is $900 and people say, can you do it for less, the answer is always no, but I can do it for more because if you try to compete on price, it's a race for the bottom, where you win in small business and entrepreneurial is competing on value. And when you find customers that see the value in what you do, then the price, it just is what it is and they pay it. They don't worry about it. They don't argue it.
They don't haggle with you. For the price of your product, you wish them a good day and you move on to the next one. The price of your product is the price of your product. Don't try to underprice your competitors.
Don't try to equate your price to the competitors because again, as I said in the previous reason, you need to differentiate yourself and your cost and your offerings from the rest of society. Right? Why does everybody else want to buy from you because you offer value that's not present in other products and therefore your price point is reflective of that. The next one is poor product or poor product fit.
If you think about, and they estimate around 17%, but if you think about the poor product is, it's really difficult to use. And again, in Alex Formosi's book, he's got a great formula about using, about pricing, sorry, about poor products and how you want to make a product simple to use. What the consumer wants, and this is Chris McLeer. What the consumer wants is the least amount of effort to achieve the results.
And he uses a great example. If I told you, if you wanted to get fit, and I sold you a six month gym membership, and you had to go to the gym five days a week and work out for an hour for six months, or I gave you a pill and said, take this pill every day for six months and you'll be just as fit. Consumers will buy the pill 99 out of 100 times because what consumers are looking for is the least amount of effort to get to the desired end state. How easy are you going to make it for them to be successful?
If you create this complex SaaS, by the way, is software as a service. If you create a piece of software or an app, and it's really helpful, but it's inherently difficult to use or whatever product or system you create or offer individuals, again, is difficult and challenging for them to understand, follow the steps and follow the logic, you'll lose them and they're gone. You will fail because people do not want to have difficult products. They don't want, after paying $500 for your product, and they download the digital part of it and they enroll and they start the process, they don't want it to be hard.
They want it to be easy. Whatever problem you're solving, they want it to be easy for them to understand and easy for them to achieve. You will fail if you make a product that is hard for people to do. Always remember, think of your product through your client's eyes.
What is it that you're solving? Is it easy? Does it require very little effort from them? And you will be successful.
All right, to recap the top six, we're talking about people who create no-market need, they create a product nobody wants. People burn cash, they set up a really expensive system. They hire way too many people and the wrong people. They're out-competive because they're not in the initiatives, they're trying to be a generalist and solve everything.
They have really bad pricing and they're racing to the ground and they've created a product that's really hard to use. So as we get into number seven, it's all about bad marketing. And bad marketing sinks about 15% of the companies. That means your avatar, right?
I don't know what your avatar is, but your avatar is your ideal customer. And in business, if I say right there is my avatar, you need to be able to describe that avatar to its team. Verably out loud, so every single other human will go, I can see that. I see that person.
I understand what that person is. I know what that person is. Interest, demographic, profession, all the things about that surrounds the details of what your target avatar is. Two mistakes with bad marketing.
One, you think your product is for everybody. Well then guess what? It is for no one. Pick an avatar, be very, very specific and know them.
And then advertise where your avatar is. So if your avatar is on social media and everybody is to some degree and they're on a certain platform, don't go over to that platform and try to get your avatar to come back to you. You advertise on that. So if your ideal avatar is on TikTok, guess what?
You're doing TikToks, right? You're doing funny, dancing, interesting, laughable, hilarious TikToks because that's where your avatar is, right? Bad marketing sinks companies because they create generic marketing for this wide audience because they think if I try to sell to everybody, the probability of getting a, you know, the number of clients goes up. No, it doesn't.
It's just down. You want to pick some avatar, an ideal customer that there is not that many of them in comparison to the world and that you can identify them and then you can identify where they are, what times a day they're on social media and bam, now you've got your recipe to target them directly. The other one is ignoring customers. I mean, all the top business people will tell you, your customers tell you what's wrong with your product.
Your customers tell you what they want your product to do, whether you set it up that way or not. This is what they want you to do. This is what they want the product to do. Go out there, do it, address that and listen to them, right?
Your customers are going to pay your bills. So if your customer wants it to do X, then fix it and make it do X. It doesn't matter whether you agree with it, right? And I'm being honest with you.
If the person, the avatar who wants your solution wants you to tweak it a certain way or wants it to look slightly differently, then just do it, right? Because you're solving their problem. This is the way they want it. And that's the big thing is that too many business owners ignore their customers because they think they're right.
And if the customers would just understand that the customers would just listen to me, I'll tell them why they need to do it this way, right? It's that inherent overlord, I know more than you, I'm going to push down on top of you and I'm going to just listen to me. I'm the expert. I'll tell you what you need to know and you'll be fine.
Those type of things don't work because that's not what your customer is looking for. So you know what? Talk to them. I got this great advice from another veteran who started a couple of businesses.
One, he was able to sell for just over a million Canadian. And he said, you know, I was talking about the fact that I wanted that I'm selling to small business owners. I was able to do 100. Just pick up the phone or email or talk to 100 small business owners and in your little area of risk management, ask them what keeps them up at night?
What concerns them? Then you understand the world and the mindset of your avatar, then you create that product. But if you're not willing to go out and talk to your customers or listen to them, then you're going to fly all over the place and miss. The other one is pivoting going bad.
And this happens when you hit plateaus. A lot of times in business you'll start out, it'll be really, really slow. You may pound out the social media for two years, nobody's buying. And then you start to rock it up, sales start to go out, go out, go out and they're cool.
They plateau. And when they plateau, business owners have different options. And what happens with a number of them is they decide to pivot their business significantly. When in fact, they should go back to what I just said about talking to their customers or tweak the offering slightly to break the plateau.
Think of it like when you're in a gym. You know, sometimes people doing bench presses, no matter how much they do it, they'll get to a certain plateau. And for some reason, they just can't break through. So they change.
Instead of doing flat chest presses, they do some inclines and some declines and they just start to change it up a little bit, go back to the bench and they find themselves smashing through that plateau. People make the mistake of panicking and pivoting large scale when things aren't going well. Not the cash burn problem, but thinking, hey, you know, my sales were climbing up. My sales hit 100 bucks, 100 customers a week.
And they've been dormant at 100 bucks, 100 customers a week for five weeks. Something must be gone. Something is wrong with my product. I need to pivot dramatically.
I need to change, create whole new offerings. And they start to panic and send of, hey, maybe that market is saturated at to that point. And with another tweak, you can just lift that up to the next mark and then up to the next mark with another tweak. It's throwing the baby out with the bath water, the old saying, when you have his first problem, never is going to work for your business.
And the last one, and this is the one that will blow people away. And this is the one that hilariously but ridiculously catches people legal and regulatory compliance issues. And this is where you start a business, you launch a website, you start advertising and realizing that exactly the words you're using is already copyrighted by another company. Or because of the certain areas, like if you're selling online in the EU and you're a European based company, there are a whole bunch of different rules about AI that's coming out in June that we talked about a couple of episodes ago.
And you break them all. You've turned out, you've broken a whole bunch of regulatory rules. You've produced the whole things that you're not allowed to do. You broke a bunch of censorship rules.
Or you're in an environment where, by the way, you need a license to talk about these things in this country. You didn't do any of it. You didn't talk to a lawyer. You didn't talk to a copyright expert.
You just launched this awesome business that you thought was incredible. And you find yourself knee deep in compliance, regulatory and legal issues to the point where you have to close your business. A hundred percent of it avoidable. I'll give you a fine example.
And when I retooled and rebranded my company, or the company's public facing name, from inside my canoe head as you see over my shoulder to mastering risk, there were a couple of iterations in the middle that I really, really liked. But I ran them through the legal test. I went out there, I tested, I did a bunch of AI driven searches and non-AI driven searches to see who was using it. And it turned out a couple of the phrases that I really wanted to use were currently trademarked by a couple of large American companies.
And I knew that was just asking for a rat, you know what, full of trouble if I decided to go down that range. So number 10 is clearly, you set yourself up for failure. If you don't do a bit of an investigative work to check out the regulatory and legal requirement in your field, don't get burned by something you could have read for 10 minutes before you launch your business. Now, to recap, the 10 in order of the things, reasons why startups fail according to the graveyard analysis of over a thousand businesses.
Number one, no market need. You created a product that didn't solve a problem people had. Great idea, fabulous. Nobody cares.
One is you ran out of cash and you ran out of cash because you set up this really expensive overhead that cost you way too much money and burned your initial startup capital way too quickly. I did a podcast on how to do it for $78 a year. Just looking up on mastering risk, it's their fabulous little podcast episodes about how to spend just that here in Canada, $78 a year and run your entire company on that. And then the other one is similar to the book over my shoulder is you just hired the wrong team and you went too quick and hired a bunch of people around you and then you couldn't make payroll and you collapsed the company.
The next one, number four, is you were out competed because you tried to go up against the big guns, you weren't in the niches where the riches are and you were just a generalist trying to compete. The next one is pricing, number five, pricing and cost issues. You had a high market cost and you were in an environment where you were trying to underprice and undercut your competitors. Trying to undercut your competitors is a recipe for failure because you'll keep driving each other down.
And if they're an established company, I promise you, they have a longer cash burn cycle than you do. They can take that to the ground, you go away and then they go right back to where they were and your entire world is collapsed. The number six was a poor product. You created something, solved the problem, but it's really hard and difficult for your customer to use.
Your customer just gets frustrated with it, slams on Google and Yelp, gives you a poor review, four or five of those and then people just turn around. If trust pilot doesn't say you're trustworthy, you're out of there. The next one is bad marketing. You don't either have an avatar or you don't advertise where your avatar is or you try to come across as an absolute expert.
Listen to me, I know better than you, stop talking because the next one, number eight, is you ignore your customers, right? You ignore them. The very people who are going to buy your product are going to make suggestions and they're going to give you feedback. I'd probably listen to that, right?
I'd listen to the people who are buying your product, who are interested in it. If you're not sure why you may have hit a plateau or something, ask your customers. They're out there, they're buying from you and believe them when they tell you that there are product improvements to make and they'll offer them to you. And number nine is just what I said, it's pivoting on bad.
You get to a plateau, things aren't working the way you thought they would. You panic and you think your business needs some type of Herculean miraculous change, some new course new this, new that new turn, new avatar. And all you needed to do was simply be patient, make a couple of small tweaks, change your advertising up a bit and keep going. Or as number eight says, talk to your customer and number 10, the one that gets people repeatedly and I don't understand why is legal and compliance issues.
You started a company in a field that needed a bunch of regulatory compliance and you didn't do it. You needed a bunch of permissions, you didn't do it. You're using somebody else's copyright material. Now you're facing cease and desist letters.
Whatever it may be, spend the time up front, do the copyright research, sit down, even if you want to spend a couple hundred bucks on the business lawyer to make sure that your idea is not just legally worthwhile, but legal. And you're in compliance with the rules and regulations because the government doesn't care whether you have five bucks in the bank or five million. It will come crush you for violating the rules. And that's your fault for not knowing them.
So hopefully you've had this informative today. Top 10 reasons why startups fail. This is here for all of you who are thinking about starting your solar entrepreneurship or starting a new business. You drop over to preparedness labs.ca.
We got a couple of courses for this that teaches this. We got a whole bunch over it. We got over 300 podcast episodes, a thousand YouTube videos and shorts and all this other free material you don't have to necessarily pay for things. It's all there to help you figure it out as somebody who wants to dip their toe in entrepreneurship, wants to try a side hustle or wants to turn that side hustle into an actual business where you are the boss and you can earn a living.
I think that's brilliant. I make all the content on here because I made all the mistakes before. So everything that I'm putting on the list is for you, stuff that I've made or friends of I have. I've seen it with real life.
And this is free advice. Drop over to our website, www.preparednesslabs.ca. Follow us across our socials. Thank you very much.
Take care.