In order to create a successful startup ecosystem it’s important to first understand the causes that lead to startup failure.

A recent study by CB Insights analysis provides some interesting insights into the reasons for startup failure. They interviewed startup founders from 156 companies about why their companies failed and the top reasons for failure were conclusive.

1. No Market Need

This is by far the most prominent reason why startups fail – the product or technology that a startup is developing does not solve a market need. The value proposition is simply not strong to induce a buyer to make the purchase decision. The key to creating a great value proposition is offering something that solves a pain point for your target market, the greater the pain point the greater the chances of success.

Another reason for the lack of market acceptance is timing. As the saying goes timing is everything and a startup may be entering the market too late or offering a solution the market is not ready for. Bill Gross, founder of Idealab, investigated some of the biggest startup successes and failures of the past 20 years and the number one contributor to success was timing. Timing proved to be even more important than the team or the idea. Airbnb and Uber are two great examples of startups that entered the market at the perfect time. You can watch his Ted Talks on this topic.

To overcome this challenge startups must offer something that provides value and solves a problem. This requires startup founders and entrepreneurs dedicate serious research to the markets and industries they intend to pursue. A good understanding of the market will allow a startups to identify the pain points and offer solutions the market is looking for. The more valuable the solution, the greater the revenue generating opportunity.

2. Ran out of Cash

Running out of cash is the second biggest reason that causes startup failure. Most startups are underfunded at the beginning stages and it is very easy to run out of capital. Even if startups are able to raise significant funding in the seed stage they might not be able to raise funds for their subsequent rounds of funding. The faster the growth the more funding required to keep up with the demand.

Most of the startups I work with face the challenge of raising the necessary capital to launch and accelerate their startups. Banks tend to not lend money to startups and the angel and venture capital networks are not as well developed in Canada as in other countries, such as the US and Israel. Canadian investors are also more risk averse than their foreign counterparts, which makes the process of raising capital more difficult and also more time consuming.

The key to overcoming this challenge is to be able to bootstrap in the early stages and generate revenues as quickly as possible. As Mark Cuban from Shark Tank says, “Sales cures all”. Growing sales early is crucial to generating revenue and attracting subsequent funding.

3. Not the Right Team

The third most common reason for startup failure is not having the right team. This can mean having a weak management team that is poor on strategy and execution or having a team that lacks crucial components, such as a CTO or CFO.

The team must have the necessary skills and experience to create something that provides value and give investors confidence to invest in their idea. As a company grows it’s important that the right people are brought in to fill the critical roles in the company. It is not uncommon for the original founder to step down from the role of CEO as the company reaches a certain scale.

Creating the right team is very challenging because there must be a shared vision of what the startup wants to achieve and how to get there. It’s very important that team members share the same values, work ethic and burning desire to succeed. One of the roles I play in supporting startups is identifying the gaps or weak links in the team and providing possible solutions for strengthening the team. One way to achieve that is attracting additional talent by offering shares in the company.

In order to maximize their changes of success startups must service a market that has a need, find creative ways to bootstrap and raise capital and assemble the right team of people.