blog page
UX Strategy

Why startups fail

7
Dec

Why startups fail

Monday, December 7, 2020

Why startups fail and how UX design can help avoid these mistakes

We have all read the statistic that 92% of startups fail! That seems unreal, but as the many fallen companies of Silicon Valley will confirm it is a truth.

But why do they fail?

Running my business UserXD I have worked with lots of start-ups over the years from really successful ones to ones that never made it past proof of concept and in that time I have taken note of a few key reasons on why they might fail. That combined with industry knowledge allows me to have a good view of what to look out for. 

I want to go over those pitfalls and then talk about how UX and CX strategy is a major safety net for many of them and can increase your chances of a successful start-up launch and continued growth. 

1. Market problems

Many start-ups don’t validate their market well enough and get their product in front of real users. You need to know your value well and understand is it solving a problem that users are crying out for, or is it just a nice to have? Get that wrong and you will spend millions on a product solution that no one really wants or needs enough.


How can UX design help with market problems?
Understand the value of your product to users

With a clear product and UX strategy in place, you would create a well-defined value proposition and test that with your users in the market before you spend lots of money on creation.

Google glass is a good example of a poor value proposition

Google Glass was very much ahead of its time, the value of this product was not there for its users as it had a very high price point. People didn’t seem to need or want it. 

User testing and prototyping

Getting early low fidelity versions of your product out to your target audience means you can see and evaluate just how they want to use it and how well it’s working. I recommend user testing often in the early stages to validate all design work and help define your value and features that are important.

Ship too soon and not meet at least the desirable needs then you might fail before you even leave the starting line. Ship too late and you may have spent mega money on development and realize you focused on the wrong areas. 


“If you’re fully happy with your product then you probably didn’t launch soon enough”


User testing prototypes that then lead into a story mapping of your product and a Beta launch is the best approach to iteratively improve and test and not sink before you can swim. 


2. Not understanding your CAC and a poor business plan

Another key reason start-ups and businesses fail is that they don’t understand their CAC (Cost of acquiring a customer) and how that maps to the LTV (lifetime value). You need to make more money from a customer than it costs to acquire them. Many businesses seem to miss this important metric which is critical to success.


One simple rule - CAC must be less than LTV


How can UX design help with CAC?
A/B testing

By running A/B or multi-variant testing on your advertising and websites you can continually adapt and learn how to achieve the best CAC possible via your creativity. Combine that with a good marketing company that can test keywords and platforms and you will have a good handle on your cost of acquisition.

Customer journey mapping

By understanding the key stages your users go through, starting at awareness, consideration, and decision through to onboarding and first use gives you an in-depth view of the entire experience. You can then use that view to map specific pain points to each stage of the user's journey and life cycle in your product. This will then allow you to see critical times that users have difficulty and how fixing those will improve your customer's LTV. 


Improvements in a user’s first 5 minutes can drive a 50% increase in lifetime value. Your customer journey should be the most important artifact that drives your work and the core of your UX foundation. 


Customer feedback loops

Using on platform (Quantitative) and in person (Qualitative) user interviews are critical to understand pain points and problems in your experience. Having survey tools and a clear strategy on how to do that is key to success. There are many tools and approaches that can be used that depend on your market and product. The most important thing is that it is done with regular cadence and that you do both quantitative and qualitative research to validate your hypothesis and assumptions. 


3. Poor management

Poor management leads to poor business decisions across the board. Often corners get cut where they should not be and poor strategy plans are put in place.

A famous example in the start up world of this is Beepi. They secured a $60 million series B funding round only to go bust 4 years later. There are reports they had high staff turnover and were burning through $7 million a month!


How can UX strategy help poor management?

A good manager should have a clear UX and CX strategy in place to test and learn at every key stage of the business, making sure they have this then will lead to improved management of the product. It won’t fix all poor management choices but it will at least lay a strong foundation of best practice. 


A good idea with bad execution is a recipe for failure. 


4. Product problems

Often a product will fail because it fails to effectively meet the needs of the market. Normally when a new product launches it takes a few iterations to find the correct fit. So the initial testing and feedback phase is critical to success. 


Sometimes you need to do a full pivot and rethink which usually means the team did not get the product out to real users and validate it properly before launch. 


An example of this is Yik Yak - Yik yak was a popular messaging app that was once valued at over $400 million in 2014 and was set to be the number one messaging app. It failed to understand its users' needs and did not adapt quickly enough to them, leaving the likes of Snap chat to soar at the time. 


How can UX strategy help with product problems?
MVP and product launch strategy

Effectively launching and testing your minimal viable product, but actually, I like to change that to an MDP - minimal desirable product. Making sure that you have your user testing done and understand your market then means you need to create the minimal desirable product required to get it live and in front of users to test and learn. Having a clear strategy on how to deliver that and what the required features needed are is critical to success. 


Often I see founders that have a feature they love or a technical requirement they insist is critical to the product's success, but once we test the prototype in front of real users is seen to not be important at all. 


Prioritization workshops

Using priority grids to off set features based on effort, customer value and business value helps define what to work on and also helps define what still needs more discovery and research. Having a clearly defined backlog then gives you a roadmap for your MDP. 


5. Running out of cash

The final problem is a very real one, so often startups over spend and end up running out of cash. Large evaluations and lots of investment can sometimes lead to poorly planned spending and as those companies find out, the money does eventually run out if you are not making a profit. 


How does UX help with cash flow?

A good UX strategy combines many of the techniques mentioned above to firstly understand your users, understand their pain points, and then solve them in a way that meets your business objectives. The by-product of that work is that you understand the value of different features and know what to work on next. You also test these assumptions every time with low cost easy to use prototypes, this means you are not spending 100's of thousands of dollars on development to build the wrong things. 


Conclusion 

Many start-ups are doomed to fail before they even get going due to poor UX, CX, and product strategy. When you look at the winners in tech in many different verticals such as Uber, Airbnb, and Peloton they all have very strong UX and customer-centric design and strategies. 


So if you want to give your startup or digital product the best chance of success speak to a UX and product professional, get the foundations of a solid UX strategy in place and then continue to use it as you grow your business. 


I'm always happy to have a chat and collaborate at dan@userxd.co 



Further reading

https://e27.co/these-9-famous-startup-failures-have-a-lesson-for-you-20181218/

Posted on:

Monday, December 7, 2020

in

UX Strategy

category

The Blog