42 Percent of Startups Fail for This 1 Simple Reason (It's Not What You Think)

CBI Insights recently analyzed 101 startup post-mortems (reports they wrote after they failed). The researchers extracted the top reasons startups fail, including things like a pivot going wrong; legal challenges; disharmony within the team or with investors; poor marketing; and of course the one frequently cited: running out of cash money.

But the number one reason was none of those.

It was far simpler: the startup didn't solve a big enough problem.

In the words of the report, "Tackling problems that are interesting to solve rather than those that serve a market need was cited as the No. 1 reason for failure, noted in 42 percent of cases."

One of the startups in question, Treehouse Logic, put it more baldly: "Startups fail when they are not solving a market problem. We were not solving a large enough problem."

People get into the startup game for all kinds of reasons: wanting to make money; wanting to make a difference; wanting to quit their 9-5; or just wanting to be in control of their own career and destiny.

But not all companies are not created equally, and the biggest mistake you can make as a startup founder is to create a product or service that doesn't solve a big enough problem.

I've been struck by this fact at every single startup competition I've ever attended. I can't count the number of times I've watched a pitch and thought, "Cool idea... but it's not that big an issue for me to find sustainably sourced wooden sunglasses." Neither do I need an app to make it easier for my friends and I to coordinate in real-time on a Saturday night (yes, it's annoying texting everyone, "We're going to that other bar; meet us there," -- but not so annoying that I need another app). 

If there's no real pain, there's no real pain point.

One of the best ways to discover whether there's a real pain point is to have actually experienced the pain yourself.

For example: you know when you're traveling between cities and you've got those annoying hours between when you arrive and your hotel is open? You could be out exploring, but you don't want to awkwardly carry your suitcase up and down metro stairs while you do. You feel like you're missing out because of your stupid bag.

Knock Knock City co-founders Selin Sonmez and Niko Georgantas kept having that problem, too.

In Sonmez's words, "Niko and I always ended up schlepping our luggage around on the first and last days of our Airbnb stays. Similarly, we oftentimes wished to go to an event or go shopping but decided against it to because carrying bags around is a hassle. We hoped someone would find a solution to rid us of the burden. For months we wished. In the beginning of 2017, we decided to CREATE the solution."

Knock Knock City partners with shops so travelers can drop their bags at convenient places for $2/hour. It's win/win -- the shops get to use their space for even more revenue, and travelers get to stash their stuff safely for a few hours while they explore.

Earlier this year, Knock Knock City was featured in the The New York Times.

Here's another one: When one of Jack Dell'Accio's family members was diagnosed with cancer, he became aware of how critical it was to live in a safe, non-toxic home--especially the bedroom, where you breathe in any toxins that are in your room all night long. A lot of mattresses do something called off-gassing, a nasty term for emitting toxins into the air.

Dell'Accio had a really hard time finding a natural, safe, comfortable memory foam mattress for his loved one--at a time when it was vitally important for that person to be safe and comfortable.

So he created one.

"The frenzy of the bed-in-a-box has reached absurd heights today, yet nothing has changed as far as health and wellness of the products being offered," Essentia's CEO Dell'Accio said. "Essentia stands alone, providing products made with natural and organic components ... People everywhere are quickly realizing the importance of healthy, natural choices during the 16 hours they're awake. We're determined to fill that same need for the eight hours they're asleep."

Essentia has been featured in Forbes and on Dr. Oz, and its mattresses are used by elite athletes.

One final example: Avni Patel Thompson knew, as many parents do, the stress of having a childcare provider cancel at the last minute. There's the mad scramble spouses have to make, either attempting to find someone else or coordinating it themselves ("OK, if I switch this meeting, I can pick the kids up, but I'll have to take a call later to make up for that; can you take care of dinner?").

Thompson is now the CEO and Founder of  Poppy, an app that pairs parents who need childcare with vetted professionals--even at the last minute. It's a problem that doesn't need a lot of explaining, which means the solution doesn't take convincing. People just get it. 

If you've got to convince other people the problem you're solving is an actual problem, you've got a problem.

If, on the other hand, you've actually tried to find a solution for the problem and been unable to, you may be on the right track.

In Sonmez's words, "When you find yourself wishing for a solution to a recurring problem, go create the solution."