InterQ’s headquarters are in Silicon Valley, and we’re surrounded by startup fever. We attend pitch events, and we’re even involved with mentoring and lecturing at a prominent San Francisco startup incubator. We constantly see super-enthusiastic — and very brilliant — founders make huge sacrifices to launch their ideas into a reality. They’re sleep-deprived, passionate, and giving it their all to put their company amongst those that are successful.
Sadly, if the statistics bear out to be true, only 25 percent of them will see their dreams come to fruition.
A 75 percent technology startup failure rate is pretty abysmal, yet the innovators keep coming in hoards to Silicon Valley, and perhaps even more interesting, the investors keep throwing money at them.
If there is a silver lining, it’s this: It doesn’t have to be this way. Technology startups don’t have to follow such a high failure rate, but the founders (and investors) need to take steps early on to ensure that their product is on the right path. Research conducted by a Harvard lecturer, Shikhar Ghosh, looked at 2,000 tech startups and he came to some clear-cut conclusions about why they’re failing. Let’s look at what he found.
Startups are throwing ideas against the wall, hoping they stick
In college, my roommates and I (disclosure – we didn’t care much about getting our apartment deposits back) used to throw spaghetti against the wall to see if it was done. If it stuck, we called it al dente and turned off the stove. It was a very unscientific process for testing the doneness of our spaghetti.
Amazingly, many tech startups take this same approach with their companies. They have an idea, but in reality, they have no earthly idea whether consumers will buy it or how people will use it in practice. They think it’s smart. Their friends think it’s smart. Their mom loves it. An investor or two may even buy in. So they go for it.
In Ghosh’s research, he saw clear differences between the strategies that big, established companies take when bringing products to market and the processes that startups take. One clear differentiator: Big companies have the budget and time to invest in market research. They do some serious inquiries into the user base before releasing a product.
Startups, on the other hand, use failure as their mode of market research. They “pivot” — a euphemistic term used to mean that they fail initially and have to go back to the drawing board.
Furthermore, when you look at additional studies of why so many tech startups fail, over half of the problems, including pricing, perception of the competition, and even timing, are all data points that can be easily solved through market research.
Market research should be step 1 for any startup
An industry that has such a consistently high failure rate owes it to itself and its investors to try a different approach. Any startup should begin the process with market research. Specifically, they need to start off with qualitative research. Many, if not most, startups will include market studies in their business plans, but this is very, very different from the kind of market research we’re referring to.
In qualitative research, startups will conduct product concept testing with their actual target audience. Methods such as focus groups, in-depth interviews, or ethnographic research are amazing ways to tease out people’s opinions. Startups will be able to test pricing, brand messaging, and even learn about media consumption habits (super valuable for a media/marketing plan). The lessons that startups can learn through actual market research is absolutely fundamental to the product’s development, and it can prevent the dreaded “pivot” later on.
At InterQ, we work closely with startups, guiding them through the market research process. We’ve seen huge successes from our process, and instead of being in the 75 percent “fail” category, we see startups fall into the 25 percent “success” category.
The difference? Market research.
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