Dan Martell - 5 Reasons Why Most SaaS Startups Fail

00:00:00.120 Hi, I'm Dan Martell, serial entrepreneur, investor,

00:00:02.400 and creator of SaaS Academy.

00:00:04.040 And in this video, I'm gonna share with you

00:00:05.480 the five reasons that startups fail.

00:00:08.040 And be sure to stay till the end where I tell you

00:00:10.040 how to get access to my Idea to Exit free mini course

00:00:14.080 to help you start up right.

00:00:30.000 I've been building SaaS businesses for over 20 years and I've seen many reasons startups fail

00:00:38.860 and these are the five biggest ones. Reason number one, market problems. When you're starting off

00:00:45.160 and you're solving a problem, you need to figure out what market has the biggest pain that you're

00:00:49.620 going to introduce that product to and many startups do the opposite where they start off

00:00:55.460 with technology and then they spend time trying to find a

00:00:59.540 problem for it to solve.

00:01:01.940 And what you wanna do is make sure that when you start your

00:01:05.300 start-up that you find the market first, that you validate

00:01:08.940 it first, that you talk to early adopter customers.

00:01:11.580 Early adopter customers are special.

00:01:13.340 They're people that have had the problem themselves and solved

00:01:17.520 it in some unique way internally.

00:01:19.520 It might be putting together some spreadsheet, some scripts,

00:01:22.520 they hire a developer to build like an internal tool.

00:01:25.160 When you find those customers, they're going to be the

00:01:27.760 beginning of the opening of that market to really educate you

00:01:31.800 how you should deploy your product into that.

00:01:34.640 Reason number two, business model failures.

00:01:38.480 When it comes to building a business,

00:01:40.680 there's five different types of financial models that need to

00:01:44.980 be understood, things like the operating model,

00:01:48.080 the financing model, but at the end of the day,

00:01:52.420 as you build your product, you got to figure out what's the

00:01:54.760 price, how do I bring it to market, how do I service the

00:01:58.200 customers, what does it cost me to actually deliver that value?

00:02:01.460 And for many startups, they get hung up on the fact that

00:02:04.760 sometimes they're not charging enough for the size of

00:02:07.400 customers they're going after and that kind of customer

00:02:09.580 requires such an expensive sales process that they're never

00:02:12.640 able to make the numbers work.

00:02:14.540 Or they've got a technology that's just priced in a weird

00:02:18.180 value stream where they're charging maybe a global site

00:02:21.920 license to a company instead of doing a per-user basis.

00:02:25.760 So whatever it is in your product,

00:02:27.800 you gotta figure out what's the business model

00:02:30.060 applied to that market.

00:02:31.760 Not just building the product, which is tough enough,

00:02:34.460 not trying to figure out who has the problem,

00:02:35.960 which is, again, another big area that's ridiculously hard,

00:02:39.240 but figuring out how to structure the model

00:02:42.040 and the business side of things to really make it grow.

00:02:45.080 Reason number three, poor management.

00:02:48.820 As I've gone out there, I've invested

00:02:51.140 in about 30 plus companies, I've met thousands of SaaS

00:02:55.920 and tech founders over the years.

00:02:58.780 One of the things I've seen amongst those

00:03:00.720 that succeeded and failed is the leadership team,

00:03:03.620 the management team, the early founders

00:03:05.320 were just incredible people.

00:03:07.060 They were folks that could execute.

00:03:08.460 I still remember this one time,

00:03:10.460 there was this rising star startup, 18 months in,

00:03:13.020 they had hundreds of thousands of customers

00:03:15.140 and the reason they failed is because

00:03:16.900 of co-founder infighting.

00:03:18.900 Like the business was actually great

00:03:20.560 but the two co-founders couldn't get on the same page

00:03:23.020 in regards to the product roadmap.

00:03:24.440 So when I think of the top reasons, poor management,

00:03:28.740 lack of clear leadership, ownership,

00:03:31.540 the idea of co-CEOs never, I mean,

00:03:34.040 it's so rare that that works.

00:03:35.980 When you have two people accountable for something,

00:03:37.740 you have nobody accountable for it.

00:03:39.540 So really think about how you build the operating model

00:03:42.320 from a management point of view, who leads,

00:03:44.580 who's accountable, who's managing certain business areas,

00:03:47.580 and make sure that you empower them to be successful

00:03:50.320 because poor management is a key area

00:03:52.820 and one of the top reasons that startups fail.

00:03:55.260 Reason number four, running out of cash.

00:03:58.620 Now yes, you're probably going, duh,

00:04:00.960 not having money is obviously gonna be a reason

00:04:03.200 I'm gonna fail and that's why I need to raise funding

00:04:05.060 or that's why I'm so scared

00:04:07.040 because I only have so much in savings.

00:04:09.880 When you think about it,

00:04:11.000 it's not about how much money you have,

00:04:13.100 it's about how you deploy that capital

00:04:15.340 and in what timeline.

00:04:16.840 one of the biggest decisions a startup's gotta make

00:04:20.480 is what's the constraints?

00:04:21.740 If you only have so much money,

00:04:23.220 what's the timeline constraints?

00:04:24.640 What's the resource constraints?

00:04:25.780 What's the feature set constraints

00:04:27.360 that we could possibly build in that timeline?

00:04:29.680 So it's not about capital, it's about capital management.

00:04:32.760 It's understanding what are the milestones

00:04:35.300 that we need to get done over the next 90 days

00:04:37.420 to allow us to unlock either the sales growth

00:04:40.400 or the funding opportunity for us

00:04:42.800 to continue investing in this startup.

00:04:45.800 So, running out of cash, yes, is the reason that you're

00:04:49.060 gonna fail, but how you get there is a decision that every

00:04:52.380 founder gets to make.

00:04:53.800 So, be sure to manage those milestones, hit those goals so

00:04:58.540 that you can unlock the next level of growth in your startup.

00:05:01.620 Number five, product problems.

00:05:03.680 I've seen startups that have an incredible customer list.

00:05:07.320 They have all the opportunity.

00:05:08.520 They've got the management team.

00:05:10.260 They've got everything going for them, but for some reason,

00:05:13.800 They can't figure out how to get the simplest of features

00:05:17.200 built and even worse, they might actually have customers

00:05:20.040 spending hundreds of thousands a month on their product

00:05:22.280 and they're still deploying buggy software.

00:05:25.380 At a core level, a software business, a SaaS business,

00:05:28.720 a tech business is code and if you don't build a product

00:05:33.320 management system and a continuous integration

00:05:36.520 deployment system and the ability to manage your customer

00:05:40.960 support and pay back some code debt and fix those bugs,

00:05:45.100 then you're always gonna be fighting a tidal wave.

00:05:47.300 So I've seen over the years tons of startups fail,

00:05:50.940 not because they didn't have the opportunity,

00:05:52.780 not because they didn't figure out the business model,

00:05:54.380 not because they didn't have the right leadership,

00:05:56.740 although you could argue a lack of leadership is the reason

00:05:58.840 why a product process doesn't work,

00:06:00.740 but the product problems will be the reasons

00:06:03.140 that your startup will fail.

00:06:04.520 To recap, number one, market problems.

00:06:07.380 Number two, business model failure.

00:06:10.680 Number three, poor management.

00:06:12.840 Number four, running out of cash.

00:06:15.280 And number five, product problems.

00:06:18.780 As I mentioned at the beginning of the video,

00:06:20.160 I want to share an incredible resource

00:06:22.400 called the Idea to Exit mini course.

00:06:24.760 It's a three part series.

00:06:26.020 The link is below in the description for you to download.

00:06:28.700 I cover ideation, prototyping, team structures, fundraising.

00:06:33.200 It's all there for you.

00:06:34.880 Just click the link and get access to that.

00:06:37.300 And if you like this video, be sure to click the like button.

00:06:40.140 share it with your friends and subscribe to this channel.

00:06:43.440 As per usual, I want to challenge you to live a bigger life

00:06:46.380 and a bigger business and I'll see you next week.

00:06:50.380 Kinda weak, eh?

Dan Martell - March 12, 2018

5 Reasons Why Most SaaS Startups Fail

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