According to the United States' Small Business Administration report in 2019, the failure rate of startups was around 90%. The research concludes 21.5% of startups fail in the first year, 30% in the second year, 50% in the fifth year, and 70% in their 10th year. The question is, why do so many businesses fail? The reasons run deep, but according to Tom Eisenmann, Professor at the Harvard Business School, a "false start" is a common cause

"As I dug deeper into case studies of failure, I concluded that many entrepreneurs simply fail to research customer needs before commencing their engineering efforts, entrepreneurs end up wasting valuable time and capital that is likely to miss their mark," says Eisenmann. "entrepreneurs are like sprinters who jump the gun: They’re too eager to get a product out there. The rhetoric of the lean start-up movement—for example, “launch early and often” and “fail fast”—actually encourages this “ready, fire, aim” behavior" he concludes. Here are three critical steps that Eisenmann suggest to avoid false starts:


Problem definition

"Before commencing engineering work, entrepreneurs should conduct rigorous interviews with potential customers—at which they resist the temptation to pitch their solutions. Feedback on possible solutions will come later; instead, the focus should be on defining customers’ problems" says Eisenmann . It is also important to interview both likely early adopters and “mainstream” prospects who may be inclined to purchase later. Success will hinge on attracting both groups, whose needs may differ. If their needs do vary, entrepreneurs will have to take the differences into account when formulating a product road map.

Additionally, "entrepreneurs should conduct a competitive analysis, including user testing of existing solutions, to understand the strengths and shortcomings of rival products. Likewise, surveys can help start-up teams measure customer behaviors and attitudes—helpful data when segmenting and sizing the potential market."

Solution development. 

Only when "entrepreneurs have identified priority customer segments and gained a deep understanding of their unmet needs, the team’s next step should be brainstorming a range of solutions," says Eisenmann.  "The team should prototype several concepts and get feedback on them preferably through one-on-one sessions with potential customers." Most teams start with two or more "crude prototypes", reject some and iterate, and then refine the ones that seem promising, gradually producing “higher fidelity” versions that more closely resemble the future product in functionality and look and feel. Prototype iteration and testing should continue until a dominant design emerges.

Solution validation. 

To evaluate the demand for the favored solution, the team then runs a series of minimum valuable product (MVP) tests. "Unlike the prototype review sessions during step 2—conducted across the table with a single reviewer—an MVP test puts an actual product in the hands of real customers in a real-world setting to see how they respond." suggests Eisenmann. To avoid waste, the best MVPs have the lowest fidelity needed to get reliable input—that is, they provide no more “looks like” polish and “works like” functionality than are strictly necessary. According to Eisenmann, an early MVP test may take things further, assessing demand for a planned product through a Kickstarter campaign or by soliciting letters of intent to purchase from business-to-business customers.

Success with the product design process may require a shift in the founders’ mindset. At a venture’s outset, many entrepreneurs have a preconceived notion of the customer problems they’ll address and the solutions. They may fervently believe they’re on the right path. But during the product design process, they should avoid being too emotionally attached to a specific problem-solution pairing. Entrepreneurs should stay open to the possibility that the process will uncover more-pressing problems or better solutions.