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Lessons You Can Learn From Failed Startups (2021 Update)

We analyzed several lessons you can learn from startups that failed. Let's talk about a few learnings that stood out to us.

People often talk about how entrepreneurs have to be ready at all times to face any potential pitfall. However, nothing seems to be enough when it comes to discussing lessons you can learn from a failed business.

Before diving more into failure lessons, we want to discuss how failure is very common in the startup community. So much so that there is also a joke, “for every ten startups you will see in the arena, 11 of them will fail.”

No entrepreneur will actively think that his business will fail. Regardless, there is no harm done if you learn what you should not be doing while launching your startup. In fact, it is more beneficial if you are well aware of any potential pitfalls and stay prepared instead.

“You may think you know it all. After all, your business is already successful in your mind. Who cares about what others say? Fight that urge every time; you know nothing.” – Jason Huertas, the author of My Startup Failed (1).

There are people in the startup trenches who actively try to understand how and why things go awry. As of writing this story, we read hundreds of failed startup stories; we read a compilation of other authors talking about lessons they learned from their failures. Here in this story, we will talk about a few learnings that stood out to us.

Lessons from Failed Startups:

1. Ensure There is a Big Market For Your Product

startups that failed
Source: CB Insights

According to CB Insights (2), about 35% of startups fail because there is no market need.

“I will assert that the market is one of the most important factors when it comes to a startup’s success or failure,” stated Marc Andreesen, co-founder of Netscape (3).

Meaning, even if you have the best product and best team, your startup can fail if there is no market demand for a solution.

It sounds pretty obvious to you, right? If you look at the history, even recent ones, you will realize that founders worldwide often get this one wrong.

Why does it happen? According to John O’Nolan (4), his travel company with almost everything related to the travel industry, failed because there was no real audience (5).

“At that time, we had no idea about the traction, and at that time, we didn’t even know that we had no data. All we knew was that our first media pack boasted over 10k page views within 48 hours of launch. Our monthly traffic was 3 to 4x higher than any travel blog we knew about. We knew we were a big fish. However, we failed to realize how small the pond was,” stated O’Nolan at that time.

In short, if you are going to put in the time and effort to make a product, first ensure that there is a big market waiting for what you are creating.

2. Trust Data and Active Demonstrations Over Instincts and Personal Opinions

As an entrepreneur, it isn’t easy to find faults in your own product. However, you can trust positive feedback from your potential users alone. It is not to say that your customers lie to you or you should not trust your gut at all. However, just because people say it is a good idea doesn’t necessarily mean it is true.

If you do a deeper investigation, you may often change your decision to launch your startup or new product.

In several cases, potential customers have the issue and want a solution but rarely take any step to solve it. Studies indicate that people often live with a problem if it is not pressing enough and avoid fixing it (6).

In such cases, one key thing you can do is ask your potential customers what they are doing to fix or minimize the issue. If they are doing little to nothing, it is not an issue waiting for a solution.

“The primary lesson, in this case, is that you can not listen to what your customers tell you alone. It is especially true if they seem to be saying exactly what you wish to hear. You will need to get as much data as possible along with an active demonstration. Check whether your customers will invest whatever is necessary to use your product: money, time, or both. In short, don’t call a landing page or friendly phone conversations and total signups as a validation,” stated Marcus Holmes in the post-mortem analysis of Gigger (7).

Yes, your potential customers will say that they like your product. However, in reality, even targeted surveys, beta signup totals, and even email opt-ins don; work. There is a huge difference between people entering their emails on your landing page and paying money each month or so for your product.

That’s because you may find several things different than what your pre-launch research might have suggested after you launch:

  • Most people in your beta list may have not even used your product
  • Those who used the product may not have used it for more than a few days
  • People didn’t use the product every day or at the necessary interval
  • Noone pay for it

Ensure to test your customer behavior rather than their opinion.

Read Also: 15 of the Most Common Myths About Entrepreneurs Debunked

3. Learn to Balance Business, Product, and Finance

Building a business requires perfecting the art of balancing.

You have to find balance in creating your product, building a functional business, raising capital, and eventually turning yourself into a successful founder.

However, several businesses mistake spending too much effort into one of these aspects and eventually miss out on the other two.

Ensure you can balance all of the aspects of a startup business. You can also consider hiring partners who focus on aspects of the business you are not as good at.

4. Success in One Sales Channel Doesn’t Imply Business Success

When starting a business, you will probably start small—for example, support you sell your products at the farmers market. You will probably talk to thousands of people, get their immediate feedback before expanding your business.

However, you can’t consider your offerings market-fit products. You have only validated your product-market fit via selling directly to your customers. However, it won’t be the case if you decide to enter retail.

On a store shelf, you will compete against hundreds of other similar brands, your product will face visibility issues, and people usually don’t go to the grocery store to try new things.

“When I got my product into 70 storefronts and landed a spot in the fridges at the TED2019 Summit Conference in Vancouver, I thought investors would line up to be part of my company. However, it was very idiotic of me to think that way. No one should invest in a business that has not validated its product-market fit, and we hadn’t,” stated Scott Whitley while sharing the failure story of his company LAB Water Kefir, a fermented drink (8).

5. Invest in a Business that Makes a Meaningful Difference and Get Things Going for Real

If you find yourself putting efforts into low-leverage activities, offering almost no return, you are making a big mistake. You will not make enough money. Instead, allocate your time and energy into things that can make the needle and make an actual difference.

Read Also: Evergrande Crisis: The Chinese Infrastructure Giant is Set to Collapse

6. It is Easier to Save Money Than Making Some

Instead of always focusing on the next funding round or the next paycheck to help you run the business, focus more on saving money (9, 10).

Why? Several obstacles in the startup world can stop you from making money. Including:

  • Poor product
  • Inept business model
  • Below par online presence
  • Poor allocation of resources
  • Poor execution
  • Pivot going bad
  • Legal hurdles
  • Over expansion
  • Ignoring customer feedback

Simultaneously, there are also numerous ways you can think of to save money.

The key is to keep an eye out on how much you spend, where you spend and find ways to spend less.

In addition, businesses always need to walk their path thinking of the presence of bad times around the corners.

Try being cost-efficient as much as you can during the good times so you can weather any bad time more effortlessly.

7. Appreciate Your Loyal Team Members

As a startup, you may consider hiring a budget employee over a well-deserving candidate. However, it is a big mistake.

As a new business, you would rather have a loyal and passionate team member over someone who can complete tasks at a low price.

You will be thankful for hiring passionate and loyal people who would remain with you even during tough times (10).

Read Also: Explained: How Greensill’s Business Empire Collapsed

8. Consider How Much You Will Need to Educate the Target Market About Your Product Before Starting Your Business

You can build one of the most efficient products in the market. You can also train your sales team to promote it the best way possible. However, what if your customer doesn’t know how to use your products to their full potential? What happens if your customers don’t know how to utilize the most value from your offerings?

“It doesn’t matter how many customers you have; each is an individual. The day you start thinking of them as an amorphous ‘collection’ and stop looking at them as people is when you start going out of business.” Dharmesh Shah, Co-Founder of HubSpot (11).

In the modern business era, companies pay little to no attention to customer education. Despite companies releasing more technologically advanced and innovative products, it can leave most customers scratching their heads.

The simple fact is that even your customers need to gain new knowledge and skill to use new and exciting products. And if your target audience is not educated enough to use it, they won’t recognize or utilize its full value.

No surprise that customer education is often also considered customer empowerment. In other words, your offerings should help your customers do what they intend to do the best way possible!

And it will not help your customers alone. No matter where your customers are, there are some excellent rewards of customer education:

  • Improved customer satisfaction
  • Boosted customer engagement
  • Increased brand loyalty
  • Fewer minor complaints to customer support, leading to higher-quality assistance from your customer support team
  • Improved brand reputation

In short, the benefits of customer training range from improving everyday customer satisfaction to increasing trust in your brand, boosting your reputation (12, 13).

Educating your customers can be a key to finding success across all phases of a customer lifecycle. Potential and newly acquired customers and even existing customers should get education on using the product, added features, and new upgrades.

9. Don’t Stop Making Tough Choices Because of Fear of Disappointments

If you realize that your business is failing or not growing fast enough, it is time for you to make a tough choice.

If you don’t decide to wind down your company soon enough, you may find yourself deep into the hole. Don’t make that mistake.

Of course, that decision can be pretty difficult. After all, you had invested all the time and money in your business. And how can we forget about the emotional attachment most entrepreneurs have with their businesses.

You may feel aimless or like a failure. However, make this decision as soon as possible. The faster you will make this thought decision, the less pain you will experience in the future.

“I believe that deciding to close your business is a bit of a sentimental choice. Since the business is like your child, you become reluctant to decide about winding it down faster and limiting your losses. You may find yourself tricking into believing that everything will be fine even while everything is falling apart,” explained Pawel Brodzinksi, a blogger and CEO of Lunar Logic (14, 15).

You will feel a heavyweight being lifted off your shoulder as soon as you make that decision. And at that moment, you will know that you have made the right choice.

Read Also: The story of Doodhwala and its tragic downfall

10. You Don’t Waste Your Time If You Fail in Entrepreneurship

Contrary to what you may feel at that time, your failure will teach you more about life, business, and the shape of the world than any college degree ever will (16, 17).

You will gain so much from the entire experience that we can even go as far as to call it a crash course in sales, inventory management, marketing, communications, etc. In the end, everything makes money and time well spent.


With each new business you start, you will learn something new and useful despite whether your startup is a success story or a failure.

However, you will always end up learning more from businesses that have failed than those finding success.

There will always be something to learn as an entrepreneur. And we believe that it is one of the most important entrepreneurial lessons you will learn.

“In my opinion, each failure has the seeds for your next success, but only if you decide to learn from it.” – Paul Allen, co-founder of Microsoft (18).

It would be hard to accept this. Listening to feedback and criticism is particularly difficult when you are in a founder’s mindset. As a founder, you probably focus on qualities like being an independent, decisive, confident, quick thinker, and more. However, don’t forget to learn and listen.

You will find it amazing to realize how much you can learn from those who have experienced a failing business.

Are you interested to know more? Read our previous story on startup failure, Why startups fail in India? Explained [2020 Updated].