Why 90% of AI Startups Fail?

Jan 19, 2023

Connect Sparks Advising

As tech executives, founders, and investors, we understand the importance of the details that can make or break a business and how essential it is to focus on operational issues and address them promptly to avoid failure.

Our 2023 survey of 100 tech founders in the US confirms 2020 research from CB Insights and the SBA – 90% of AI Startups and Tech startups fail. 36% fail due to launching products with no market; the remaining 54% fail or struggle due to operational challenges.

We identified five key areas where startups often stumble: Lack of focus and poor product-market fit, Misunderstanding customer obsession, Monetization issues, Inadequate key performance indicators, and Team experience and diversity.

Unlocking Growth Potential: Navigating 5 Operational Issues for Startups and Investors

Let’s take a closer look at each of these issues.

Lack of Focus & poor product-market fit:

Lack of focus can lead to overreacting to market feedback and launching too many products with too many features in too many markets. Fragmentation and lack of focus in execution lead to unclear product-market fit or focusing on false positives with traction in a small and non-viable market.

Confusing Customer Obsession with Pleasing Everyone:

The critical element of customer obsession is focusing on the customer’s needs and preferences and delivering on them efficiently. Struggling founders try to please every customer, even if the way to please them is not economically viable or if said customer is part of a vocal minority not representative of the larger market.


Monetization issues arise due to cost and pricing issues and a poor understanding of unit economics. The wrong strategy caused startups to dig deeper into debt with every newly acquired customer.

Stage Appropriate Key Performance Indicators:

It is essential to have a healthy combination of forward-looking and rear-view-looking KPIs and proper benchmarking. These KPIs will change depending on the company’s stage, while others will stay for the long term. Many struggling companies focused on customer growth (but are they active?), number of contracts growth (but will they renew?), or revenue growth (but is the revenue coming from profitable customers based on well-established unit economics?)

Team Experience and Diversity:

Finally, a diverse team with skills and expertise complementing each other is also essential. We tend to hire people like us, which is not always what the company needs. The lack of diversity creates blind spots in the leadership and hence the capacity to execute. Executive coaching, expert advice on team building and retention, and peer mentorship can help tremendously.

We know the road to success in the startup world can be challenging. Despite startups’ high failure rate, we have witnessed the impact that addressing operational issues can have on a business.

Our founder struggled in his first two ventures, he failed, and there is no way to sugarcoat it. But in the last seven years, he had five consecutive successful exits. Not only that, but now at Connect Sparks, we’ve also been able to help turn around several other struggling startups by defining a clear path to sustainable growth that ultimately led to new rounds of capitalization, acquisitions, or profitable enterprises.

Our IKIGAI is sharing our knowledge and experience to launch cause-driven ventures, with a particular focus on AI for Social Progress and working side by side with others to help them succeed in their ventures.

Contact us at Connect Sparks for the full report on Why Startups Fail – 2023, including details on the above elements and benchmarking data for SaaS companies.

CB Insights Report Here: The Top 12 Reasons Startups Fail

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