Top reasons why startups end up in the deadpool

The travel industry is littered with the remains of startups that came and went quicker than you can say "great, but please tell us how you're going to make money."

Depending on who you listen to, success rates for new businesses attempting to make a mark on the $1.3 trillion travel, tourism and hospitality sector are somewhere in the region of 15% to 30%.

Even at the higher end of that scale, such failure rates should illustrate to those eager to enter that the industry is a particularly tough one to establish a presence in, let alone thrive.

But perhaps that is what is so fascinating about the world of travel startups: there is a genuine passion from founders to give it a go, armed with an idea that just may be able to break through.

The half-empty analysis is that for every Airbnb, Uber or Skyscanner, there are thousands of others that have simply crashed and burned, often spectacularly.

Alternatively, solid businesses - not just the so-called unicorns - break through all the time, creating value for their users and their backers. There are a lot of victories out there, especially those that position themselves as B2B travel technology providers.

Heading for a brick wall

Business intelligence provider CBInsights recently pulled together a cross-industry list of the top 20 reasons why startups fail, after examining the postmortems of their respective founders.

The results are interesting because they would probably stack up as the primary ones for travel businesses, too.

The figures exceed 100% as the founders gave multiple reasons for their demise.

1. No market need - 42%
2. Ran out of cash - 29%
3. Not the right team - 23%
4. Get outcompeted - 19%
5. Pricing/cost issues - 18%
6. User unfriendly product - 17%
7. Product without a business model - 17%
8. Poor marketing - 14%
9. Ignore customers - 14%
10. Product mistimed - 13%
11. Lose focus - 13%
12. Disharmony among team/investors - 13%
13. Pivot gone bad - 10%
14. Lack passion - 9%
15. Failed geographical expansion - 9%
16. No financing/investor interest - 8%
17. Legal challenges - 8%
18. Didn't use network - 8%
19. Burn out - 8%
20. Failure to pivot - 7%

Travel perspective

The first two explanations are at the core of the issues that impact on new businesses entering the travel sector.

Countless founders have discovered to their disappointment that the great idea they had when traveling or when talking to their immediate circle of friends, contacts and family was not actually something that was required.

This is a notorious problem with consumer-facing travel startups.

As a result, their often substantial efforts in creating a product and assembling a stellar team have fallen short because there's simply hasn't been any revenue coming in the other end because there is no reason to use it.

Remember: most of the core travel "problems" have been fixed - there is little that needs fixing.

As satirist David Thorne famously put it, rather unkindly:

"Your last project was actually both commercially viable and original. Unfortunately the part that was commercially viable was not original, and the part that was original was not commercially viable."

Moving down the list, many travel businesses often find themselves quickly on the receiving end of a hard slap of reality when it emerges that other businesses are trying to do the same thing, and can do it more efficiently.

Worse still, competition from existing players - especially the big ones - can be the quickest way to a crisis meeting in a travel startup.

If marketing is going to be the only way to attract customers to a business, it's reasonably safe to say that established businesses are generally better at it (through experience or have an existing customer base) and have the funds to outspend a new company.

The classic other reason

Numerous travel startups have announced their intention to pivot away from the original idea behind the business.

This has happened when both consumer-facing business have realised their product might be useful to other, established brands as a tool (white labelling) or when a B2B startup has found that the core technology has a better application in another part of the target sector.

Interestingly the list by CBInsights cites the wrong type of pivot marginally higher than failing to do one to save the company.

The issue with the "pivot" is that it is compounded by many of the other reasons in the list, sometimes being too late, not with the full backing of the team or investors (causing disharmony) or not being adequately thought through.

* The full CBInsights analysis.