Why 90% of Startups Fail - and How to Beat the Odds Early
Synthesizing Insights From the Data
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90% of Startups Fail because of Team Issues
Admittedly, we recycled the headline from a DDVC post earlier this year about how to use social media posts to predict founder personality trade. But it equally fits todayās episode as we dive into team dynamics in founding teams.
Those individuals roll up their sleeves and take the company from 0 to 1, tackling the challenges of building something entirely new. But as a startup evolves, so does the team.
Roles and responsibilities shift, and in many cases, even the people sitting around the table may change. According to research and recent studies, turnover in founding teams is more common than you might expect, and knowing how to navigate these changes is key to long-term success, and making sure youāre one of the 10% of survivors.
Alignment is critical. Founders must share a clear vision, mission, and set of priorities to stay on track. While disagreements about strategy or tasks can spark innovation, interpersonal conflicts are far more damagingāthey create rifts that can erode trust and stall progress. When unresolved, these tensions can quietly undermine the partnership, eventually spilling over into the broader organization.
The culture of a company is often a reflection of its founders. Positive dynamics at the top foster collaboration, creativity, and open communication throughout the team. But poor dynamics can have the opposite effect, seeding dysfunction and even toxicity.
This matters not just internally but externally, tooāinvestors carefully evaluate the cohesion and trust within founding teams. At the earliest stages, those dynamics are among the most reliable indicators of a startupās potential.
Solo foundersāyou donāt have to sit this one out. While we focus on teams of 2 or more founders in this episode, many of the learnings translate to the relationship with your first hires (e.g., a founding engineer) too.
The Contributing Factors to Dynamics in Founding Teams
Research consistently points to the value of diverse skill sets and experiences among team members, which result in adaptability and drive innovation (Ye, 2018; Zhou, 2023). However, assembling a team isnāt just about variety; human capital, networks, and experiences of individuals are clear determinants of success (HonorĆ© & Ganco, 2020; Almeida, 2019).
Communication plays a central role in ensuring that these diverse talents align. While informal communication often flourishes in high-pressure startup environments, enhancing flexibility and rapid problem-solving, it can sometimes lead to misunderstandings.
Structured communication practices are essential to minimize conflicts and ensure cohesion (Hernandez et al., 2018; Saad et al., 2023). Striking this balance is vital, especially as larger teams, while brimming with ideas, can face increased coordination challenges (Agarwal et al., 2016).
Conflict is inevitable in fast-paced, high-stakes environments. Differentiating between task-related disagreements, which fuel innovation and better decision-making, and interpersonal conflicts, which can undermine morale, is key (Kożusznik et al., 2020; SeppƤnen, 2020). Effective conflict management strategies not only mitigate stress but can transform disputes into opportunities for growth.
Underpinning all these dynamics is psychological capitalāhope, resilience, efficacy, and optimismāthat strengthens a teamās ability to navigate uncertainty. High psychological capital has been shown to enhance knowledge sharing, boost innovation, and foster adaptability, all of which are crucial in the unpredictable world of startups (Kemell et al., 2020; Cico et al., 2020).