# Why Do Startups Fail? The Most Common Causes and the Early Warning Signs

- URL: https://girisimcikafasi.com/en/blog/why-startups-fail/
- Published: 2026-11-09
- Updated: 2026-11-09
- Category: Entrepreneurial thinking and action
- Publisher: Girişimci Kafası

In July 1698 five ships and about 1,200 people sailed from Leith, the port of Edinburgh. According to the Oxford Companion to British History, the captains learned where they were going only when they opened their sealed orders at sea. The holds carried wigs and woollen goods. The destination was Darien, on the tropical coast of the Isthmus of Panama.

Behind the voyage stood the Company of Scotland, founded in 1695. When pressure from the English East India Company drove out English and Dutch investors and the Hamburg subscriptions had to be refunded, the company raised four hundred thousand pounds in Edinburgh. Estimates of what share of Scotland's capital that represented range from a fifth to a half. A country had put a large part of its savings into a single venture.

The ships arrived on 2 November 1698. The settlers named the colony Caledonia and built a fort with fifty cannon; it had no fresh water. The local people would not buy the combs and trinkets on offer, and there was no demand for the wigs or the woollens. Malaria and yellow fever set in, and according to Wikipedia ten settlers were dying a day. King William, keen not to anger Spain, told the English and Dutch colonies not to help the Scots. When the colony was abandoned in the summer of 1699, about 300 of the 1,200 were still alive.

A second expedition that left the Clyde in August 1699 found, as the Oxford Companion puts it, "deserted huts and hundreds of graves". It surrendered to the Spanish in 1700. Historians count the collapse of Darien among the reasons for the union with England in 1707.

No single mistake sank Darien. Goods nobody wanted, capital spent in one go, a door closed by politics and a fort without water were all there at once.

## Why do startups fail? What the numbers say

You will often hear that nine out of ten startups fail. Failory reminds us to read that figure, which goes back to Startup Genome, in context: according to the US Bureau of Labor Statistics, about 20% of new businesses close in their first year and 50% by the end of their fifth, but most of those businesses are not trying anything new. A startup testing an untried assumption carries more risk.

From interviews with the founders of more than 80 failed startups, Failory drew up a breakdown: marketing problems 56%, team problems 18%, finance 16%, technology 6%, and operations and legal 2% each. The leading marketing problem is the absence of a market that wants the product.

The Startup Graveyard tells a similar story. As of October 2026, among the 335 records with a full story, the most common main cause is [a business model that did not work](https://girisimcikafasi.com/en/startup-graveyard/cause/business-model-failed/) (84 records), followed by [running out of cash](https://girisimcikafasi.com/en/startup-graveyard/cause/ran-out-of-cash/) (63 records). Each record carries a single main cause; in reality, as at Darien, several usually pile up.

## Five signs that show before the fall

### Customers try it but do not come back

The wigs in Darien's holds were a product chosen without asking anyone. Today's equivalent is the user who does not return after the first try. If your retention curve never flattens, go back to [product-market fit](https://girisimcikafasi.com/en/blog/what-is-product-market-fit/) before you put money into growth.

### The cash will not cover a second attempt

According to the Startup Genome finding cited by Failory, startups need two to three times longer than their founders expect to validate their market, and those that change direction once or twice grow better than those that never do. Scotland's capital went into a single voyage. Does your plan leave enough runway to correct at least one mistake?

### Someone else can close the door

A single instruction from the king cut off the colony's entire supply line. Businesses that depend on one platform, one customer or one licence carry the same risk. Records that closed because of [regulation and law](https://girisimcikafasi.com/en/startup-graveyard/cause/regulation-and-legal-issues/) often show that the dependency was visible in advance.

### The team does not see the same thing

According to Wikipedia, leadership on the second expedition was divided and one of its leaders deserted the colony. In Failory's interviews team problems come second, led by a lack of domain knowledge and friction between co-founders. If it is not written down who makes which decisions, everyone rows in a different direction when the crisis comes.

### The company does not die, but it does not live either

Failory calls this a zombie startup: some revenue, no growth, no new funding, yet nobody shuts it down because costs are low. [Clinkle](https://girisimcikafasi.com/en/startup-graveyard/clinkle/), which never shipped a product despite a record seed round, is one example. A quick closure at least leaves a clear lesson and time; a slow fade eats both.

## A copper coin at the root of bankruptcy

The Turkish word for bankruptcy, iflas, comes from the Arabic verb aflasa: to be down to your last copper coin. The root, fils, is the name of a small copper coin; according to Wiktionary it came into Arabic through Aramaic from the Greek phollis, which in turn came from the Latin follis. In Latin, follis first meant a pair of bellows and a money bag, and only later the name of a small coin.

The English bankrupt comes from the Italian banca rotta, a broken bench. According to the image Wiktionary records, the bench of a moneylender who had gone out of business was broken, so that everyone knew he could no longer pay. In one language bankruptcy is the last coin in your pocket; in the other, a bench broken in front of everyone.

The Anna Karenina principle, popularised by Jared Diamond in Guns, Germs and Steel (1997), connects here too. Tolstoy's novel of 1877 opens by saying that happy families are all alike, while every unhappy family is unhappy in its own way. The principle says that for a complex endeavour to succeed, all the essential conditions must be met together, while one missing is enough for it to fail. That is why successful startups resemble one another, and each failed one fails in its own way.

## The time between diagnosis and cure

In the third chapter of The Prince, Machiavelli compares the ills of a state to a creeping fever described by physicians:

> "nel principio è facile a curare, e difficile a cognoscere, ma nel corso del tempo, non l'avendo nel principio cognosciuta nè medicata, diventa facile a cognoscere e difficile a curare."

At the beginning it is easy to cure and hard to recognise; but in the course of time, having been neither recognised nor treated at the start, it becomes easy to recognise and hard to cure.

Darien's wigs could have been diagnosed while they were still in the harbour. Which sign in your company is still hard to recognise today, but easy to cure?

*If you are curious about the stories and causes of startups that closed, the [Startup Graveyard](https://girisimcikafasi.com/en/startup-graveyard/) is worth a visit.*