Here at the center of Silicon Valley, InterQ’s headquarters are surrounded by startup fever. We’re often found either mentoring and lecturing at a prominent San Francisco startup incubator or attending various pitch events. To see super-enthusiastic — and very brilliant — founders make huge sacrifices to launch their ideas is not an uncommon sight. They’re passionate, sleep-deprived, and giving it their all to bring their company to eminence.
But, according to statistics, only 25 percent of them will see their dreams become a reality.
Even with such a horridly high rate of failure, every day, new innovators flood into Silicon Valley to create new tech startups. Close behind these innovators are venture capitalists and the money they bring with them. Surprisingly, the 75 percent failure rate of startups has not deterred investment.
It doesn’t have to be this way. Technology startups don’t have to follow such a high failure rate. To make this happen investors and founders need to take early, preemptive measures to ensure that their product is on the right path. Recent findings from the research of Harvard lecturer, Shikhar Ghosh, analyzed over 2,000 tech startups and found some decisive reasons explaining why the failure rate is so high among tech startups. Here’s what he found:
Startups are throwing ideas against the wall, hoping they stick
The spaghetti test:
During college, my roommates and I would throw spaghetti against the wall to see if it was done. If it stuck, the spaghetti was done. Needless to say, our method of checking the spaghetti was grossly unscientific and wasn’t the most reliable.
Yet amazingly, many tech startups approach their businesses with the very same mentality as my spaghetti technique. They will have a product or service, but in reality, they have no clue how people will use it in practice or even whether consumers will buy it. They think their idea is smart and their mom loves it. Their friends think it’s smart too. An investor or two may even buy in. So they go for it.
Ghosh’s research showed large differences between the processes that startups take and the strategies that big, established companies take when bringing products to market. One clear differentiator: Big companies have the resources and time to conduct thorough market research. Serious inquiries are made into the user base before releasing a product.
On the other hand, startups use failure as their means of market research. Startups will “pivot” — a diplomatic way to say that they fail and have to go back to the drawing board. When you look at additional studies of why so many tech startups fail, over half of the problems, including timing, perception of the competition, and even pricing, are all data points that can be easily solved through market research.
All startups should start with market research
Such a consistently high failure rate in the tech startup industry indicates that a new approach is needed. The first step to launching a new product should always be market research. Specifically, startups need to start off with qualitative research. A large number of startups will often 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 in-depth interviews, focus groups, or ethnographic research are fantastic and proven ways to tease out people’s opinions. Startups will be able to brand messaging, test pricing, and even learn about media consumption habits (valuable for any media/marketing plan). Market research provides insightful information that is fundamental to product development and can prevent startups from having to “pivot” later on – saving resources, and energy in the long run.
Here at InterQ, we work with startups and guide them through the market research process. We’ve seen huge successes from our process. After us, startups go from being in the 75 percent “fail” category, to the 25 percent “success” category.
The difference? Market research.