There are a lot of reasons startups fail. Many fail because they just don’t find product/market fit. However, if a startup never finds product/market fit, two things are possible.
Perhaps there really wasn’t a problem at all. The startup is a hammer looking for a nail.
They found a market, but the market wasn’t big enough to sustain the startup. It might still be a good company. Except, it’s a cash-flow or lifestyle business, not a business that can be venture backed.
One of the great things about startups is they seem to fill a lot of gaps. Is there anything it can’t do?
The real danger is trying to do too much. When you sell a startup to early investors, you have to sell a roadmap. But, you don’t have to accomplish that entire roadmap in the first round of financing. Startups that are successful focus on one thing and do it really really well. Amazon bought Whole Foods. For the first few years of its life, all it did was sell books.
A real landmine for startups is seeing something that is close to what they are doing, and entering that market. Maybe they are selling software to banks, and see that it would also work in insurance. Even though banks and insurance companies are financial institutions, they are different enough that the selling process and problems they encounter are different. Or, maybe you could sell to insurance companies, but it might be a bit too soon. The company can’t legitimately support the effort and both fail.
I remember when I was trading. I traded one product. I focused on one product, and often focused on a microsegment inside that product. In Eurodollars, I traded spreads and at first specialized in one kind of spread. I did it over and over again. When I tried to add different products to the mix, I lost focus and I lost money. Eventually, I could trade multiple spreads within one contract. But, I never was really able to trade a lot of contracts at once. When I moved to Hogs, I traded hogs. I didn’t trade Cattle, or S&P’s, or Forex. Sticking to my knitting made me successful.
In every startup that I have seen fail, one of the problems has always been trying to do too many things at once. Focus on the one true thing that can make your company.