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Why Startups Fail and How Venture Studios Can Fix It

The odds are stacked against startups. From competing with deep-pocketed enterprises to convincing customers that it’s worth going with a market newcomer, new businesses face serious challenges. In fact, with 90% of most startups failing — and even 66% of the most well-funded venture-backed businesses going under — these obstacles can be fatal.

For founding teams looking to succeed where others have failed, it’s important to analyze startup postmortems and understand how to avoid common mistakes. In fact, research from CB Insights ranks the top reasons why startups fail, such as running out of cash (29%), not having the right team (23%), getting outcompeted (19%), and pricing and cost issues (18%).

However, at 42%, one reason is far and away the most common: no market need. Thankfully, a novel approach to the startup ecosystem — the venture studio — aims to address this problem and save founders, their teams, and their investors critical resources along the way.

Building a new business from scratch is tough, and even the most well-funded startups struggle to succeed in the survival of the fittest. From leadership and talent to funding and marketing, there’s a lot that founding teams have to get exactly right at the perfect time in order to capitalize on their market niche before others beat them to it.

In the headlong rush to get all of this in order, most founders follow a well-worn path. They come up with their idea, they put together a deck to raise initial funding, and they use that funding to build their MVP and hire their core team. After they launch their full product, founders plan (and hope) to raise more money from positive feedback, expand their teams, and scale their business.

Following this plan is challenging, even if startups have developed an easily commodifiable product in an untapped market niche. But it’s not enough just to follow these steps, especially if founders fail to ask a critical question: does anyone actually want this?

The process of researching and answering that question is market validation — and it’s something that most startups get wrong. In fact, many don’t even bother with it. Market validation determines if there’s enough need for a product to set out on the steps outlined above. If there isn’t, you either need to adapt your idea or move on before you commit too many resources to a product no one wants.

As one startup postmortem from CB Insights’ research notes, “Startups fail when they are not solving a market problem. We were not solving a large enough problem that we could universally serve with scalable solutions.” And as another business owner from the same study writes, “I realized, essentially, that we had no customers because no one was really interested in the model we were pitching.”

Without proper market validation, startups won’t be able to make it through key steps to secure funding, build their teams, and launch successfully. And even if they do, they likely won’t have enough of a market to sustain operations and maintain the kind of growth they need to survive in today’s increasingly competitive marketplace.

However, a novel approach to the startup ecosystem is changing that: the venture studio. Like accelerators and funds, studios provide critical support to startups as they work to build out their business. But the venture studio model differs in how early studios get involved and how much support they provide.

While accelerators and funds generally work with startups that have already launched, studios get involved even earlier at the ideation stage. This means that studios emphasize market validation and ensure there’s enough market need in order to invest further in a given concept.

From there, studios act like startup manufacturers, building and launching new companies with standardized processes ranging from legal and sales support to software development and executive leadership. In fact, research shows that studio-based startups consistently outperform the competition, with 84% making it to the seed round and 60% making it to Series A.

By investing in market validation first and providing critical resources for validated ideas internally afterward, studios are disrupting the venture ecosystem. For investors and founders alike, now’s the time to consider how venture studios are fixing — and transforming — the way that startups are built, launched, and grown.