How
to Avoid the 3 Most Fatal Flaws for Startups
Here are the key pitfalls you need to
look out for and regularly test your own business model against.
EXPERT OPINION BY HOWARD TULLMAN, GENERAL MANAGING PARTNER, G2T3V
AND CHICAGO HIGH TECH INVESTORS @HOWARDTULLMAN1
Jul 29, 2025
Years ago, I looked at
more than 100 failed startups from my incubator, 1871, and from several other
tech incubators, and tried to categorize each perished business by the primary
cause of its demise. I thought that updating the list of perils and problems
might be useful to new startup founders, especially since we’re seeing a new
and frenzied wave of enthusiasm around all things A.I., even when the new tech
has nothing to do with the proposed business being built.
I excluded in my review
all the wishful thinking stories, bizarre fantasies, and fever dreams where I
thought that calling the proposed enterprise a “business” would have been too
kind a statement. These were cases of the “solutions in search of a problem”
that always make up a not insignificant portion of the business plans and
funding proposals that we see every year at our early-stage venture fund. Many
of these pipe dream projects also appear at the innumerable mini-Shark Tanks
now being held by virtually every college, business school, incubator,
co-working space and non-profit organization in the country. In the pitch
business, success often depends on enthusiasm; in the real world, the most
powerful talent is perseverance.
In many cases, it’s not
as easy as you would think to figure out just what went wrong. To make matters
fuzzier and more difficult, there’s often a lot of blame shifting and whining
that tends to obscure the underlying central causes. There’s also a ton of
“would, coulda, shoulda” in the mix as well of course, reprising Marlon
Brando’s plaintive note in On the Waterfront claiming:
“I coulda been a contender.”
It seems that everyone
has their own pet list of the reasons startups fail, and I’ve been amazed at
the surprisingly wide variances on the compilations. You’d think, for example,
that everyone would understand the Sam Walton observation that “when you run
out of money, they take you out of the game” and, as a result, they would put
conserving your cash at the top of their lists. Apparently not. I think that
one reason for the differences in the views of various “experts” is that the
individual circumstances and the limited experiences of the particular authors
tend to skew their analysis and lead toward recounting, recollecting and
focusing on the pain and problems that they personally encountered. That’s why
broadening the window and increasing the scope and scale of the inquiry makes
for a more accurate result.
So, what are the key
pitfalls that you need to look out for and that you should regularly test your
own business model against in order to realistically assess your prospects and
to permit you to pivot and change course, start over entirely, or abandon ship
in a timely manner? It’s always important to remember that there are rarely
skid marks in a startup’s evolution—one day they’re there and the next day
they’re gone.
1. No market need—A
clear number one (after cash) on my list
Once you get by the
naïve and deluded folks and putting aside the clear killer of running out of
cash and runway, you still find too many smart people who get sucked into the
development and technical weeds and spend months or years perfecting a product or
service without ever making sure there’s material interest and a real market
need for their offering. Anton Marchanka, the CEO of Zing Coach, calls
this “building in a vacuum.” The tech may be great, but the market and the
demand may not be there. I call this the greatest software never sold.
Obviously, getting something simple out there first, watching and learning from
user reactions, iterating and improving the product, and making sure that
you’re focusing on the aspects and features that your audience values and will
pay for is the safest and smartest path. Walk before you run and don’t test the
depth of the puddle by jumping in with both feet.
2. Team troubles—egos,
expertise, experience or patience
No startup springs to
life fully formed with a management team equipped to meet all of its eventual
needs. With luck, you’ll add key players as the business advances and,
inevitably, you’ll also lose some early members of the team for a variety of
reasons. Unsuccessfully managing the development and growth of the team is
among the most frequent causes of failure.
Sometimes there are
competing egos, personality conflicts, and irreconcilable differences which
waste time and resources, distract the team, and dilute both company momentum
and team enthusiasm. Just as often the team will lack the necessary technical
expertise and be unable to attract critical additional talent, which leads to
growing tech debt and loss of competitive advantage.
In other cases, groups
of techies who have bolted in bulk from their prior employer to start a new
business only belatedly discover that there’s a great deal of work and other
mundane but essential matters that make up crucial parts of the business operations
where they have no experience, ability or interest, and no one else on board to
handle these matters.
And finally, especially
about 18 months from inception, it turns out that some critical employees
didn’t appreciate the length and complexity of the journey they were signing up
for and didn’t have the necessary patience or perseverance to stick with the
project. They leave and leave the remaining founders holding a badly leaking
bag and a failing business. Every business is basically a people business and
nothing’s more critical than assembling and retaining the right team.
3. Companies that can’t
reach or connect to target customers
Even if you’ve built a
great product or service and there’s a clear market need, you’ve still got to
deal with four main concerns: (a) getting your message out to the right buyers
through new channels and platforms; (b) busting through the massive noise and
clutter in the digital marketplace; (c) setting yourself apart from the
enormous number of look-a-like competitors; and (d) making it quick, easy and
painless for consumers to access and try your product or service as soon as
possible. Marchanka calls this last obstacle “onboarding friction.” It’s a
problem especially for eager entrepreneurs that’s far too easy to overlook. Overcoming these barriers
takes time and money which are scarce commodities in every
startup.
We’re seeing numbers of
new apps introduced in the primary online stores approaching 50,000-60,000
units per month which are completely overwhelming prospective customers and users. In
addition, virtually every application consumers have on their phones will be
updated four times a year on average (along with operating systems upgrades)
which simply generates more work and confusion for the end users. The truth is
that no one these days is anxiously looking for the next new thing to add to
their phone. The best new app I can imagine would be one that painlessly wiped
all the accumulated zombie and garbage apps off my phone so I could see on one
screen what I actually use on a regular basis and dump all the
rest.
4. The best plan to
protect your business and your sanity
Knowing what the biggest
and most likely survival issues are for your business is half the battle. The
most critical next step is to do whatever you can to protect yourself. Here are
the four most essential guidelines:
1.
Set concrete performance
milestones that the whole team (and your Board and investors) agree to and
stick to them.
2.
Be honest and realistic
with yourself and your team as to your progress and prospects.
3.
Don’t keep going for
someone else – whomever that might be.
4.
Know when to quit
because that is just as important as knowing when to start.
