The Internet of Things has enabled an entirely new economy with bullish new sectors and numerous opportunities. It has given rise to numerous successful startups who have created disruptive models based out of innovation coupled with cloud computing and smart technologies.

All these are essential subsets of the IoT domain. However, there is a certain set of prerequisites that you need to evaluate before beginning your stellar idea.

You can stroll around on the Internet and research numerous failed IoT startups that got ALMOST everything right! There are various reasons why IoT startups may fail, but they heavily depend on the nature of your business and your planning behind it.

However, patterns begin to emerge when you start aggregating analyzing and interpreting data from these failed ventures. What I found was a clear ignorance of basic business principles and inadequate sector-specific research.

Here are 7 reasons why your IoT startups can fail

1. Insufficient expertise in product application/knowledge

Many times, you think you have a great product idea based on no market research, no skills, and inadequate knowledge. This kind of fantastical thinking leads to you lapping up all your decisions based on the Dunning-Kruger pass.

It essentially means that you start developing your plans based on unverified facts and overconfidence, which is the essential recipe for all downfalls.

You have to ask yourself certain questions like:

  • Does your product/service have substantial incremental value?
  • Are you pricing your product keeping industry supply demand in mind?

Therefore, it is essential to work on something that you are an expert in. If you are not, then you must first become an expert in the field and then start planning. For instance, Homejoy Founder Adora Cheung herself worked as a professional cleaner to understand the business.

2. Due Diligence before product development

You don’t need to be a trained MBA for knowing such basic business principles. If you are experienced enough to understand the underlying dynamics of business, then you should be smart enough to carry all due diligence before product development.

  • Understand the market and the subsequent completion thoroughly
  • Take surveys and map the interest in your proposed offerings
  • Figure out your customer profile
  • Validate your assumptions about the product
  • See how similar products are performing and how can you differentiate

Many times, people with great ideas jump in with loads of venture capital and just try out ideas. They burn money on incessant advertising while paying no attention to product strategy and points, which I lay above.

What you can do is make a list of hinge-breaking assumptions for your target market. You should rank them according to the probability of being wrong and also according to the risk they add.

The more thorough and verified this list is, more are the chances of success.

3. Undermining your competition: Overconfidence

Passionately trusting your idea is a requirement but being overconfident each step of the way is not. It is a latent entrepreneurial tendency to feel smarter than others.

While it helps smart people in becoming leaders that take on billion dollar companies but on the other hand, it allows uninformed people to make business disasters.

Ask yourself a fundamental question: “How is your business/product/idea/service different from that for your competitors?”

Accept the fact that established competitors have more resources and a greater hiring power. Therefore, to beat them, you have to do something radically different. That is the only way.

4. Overpricing disruptive products

Take Lumos for instance. It was a well-funded IoT startup making smart switches. Their founders stated upon closing that the ROIs for their product didn’t make any sense.

The incremental value that your product provides should be substantial enough for your consumer. Only then will he/she be willing to pay for it.

People with management backgrounds must know the value-pain equation, which simply states that if for your consumer:

Value is less than the pain (cost and effort) of purchasing…

Then your product is bound for doom. The product will not sell because it is cool; or because the market is projected to be worth $29 trillion in the next 7 years.

It will only sell if customers get significant value out of the product.

5. Creating sunk cost biases: Lack of transparency and acceptance

I can understand the human sentiment behind it. You love your idea, you have come so far, you have developed so much, and your entire team depends on you and the success of this one idea.

Such circumstances don’t allow you to be transparent and accept the doubts that may keep coming up in your mind.

But, success doesn’t bank on such kind of sentiment 

It is better to be transparent, proactive and assess each problem on the go. What do you know; such kind of open brainstorming with your cofounders may lead to actual solutions.

Accept the possibility that you might have to start things over. It is not a big deal. Mistakes happen. Build a culture of transparency in your company. Encourage dissent among co-founders and deal with it objectively.  

6. Everyone is not your target customer

This is a problem, which gets solved, in the initial stage of planning and development. Extensive market research gives you data that leads you to the potential customers who are interested in your product.

If you try to please everybody and convert universally by burning down cash into marketing and advertising, then you will inadvertently fail. If you want to cater to each kind of demography with your product range, you will fail.

Such kind of flawed planning complicates your entire pitch and moves the entire agenda away from the main vision and mission of your model.

In an environment where resources are constrained, it is better to identify and solve selectively. For instance, Nest solved the heating problem; Dropcam and Canary solved the security issue.

Try to be a solution for your customer instead of being a supplement.

7. Never underestimate hardware

IoT startups heavily rely on hardware many times. Startups like Nest and Pebble are all based on hardware product designs.

You should realize that building a prototype is the easiest step. Problems can pop-up when you are involved in product design, production engineering, manufacturing, distribution, and marketing.

And that is not all. There are numerous details like product validations and iteration cycles that need to be taken care off. Managing cash flows is hard because you have to pay your vendors months before you get paid from your customers.

You have to assess what you are getting into completely. You need to have an experienced team and probably connect with accelerators that are invested in hardware startups like HAXLR8R.


Numerous things can go wrong when you are working on your IoT startup. Therefore, it is essential for staying informed as it keeps you on top of the situation.

Entrepreneurs should focus on building a vertically integrated product that sells a unique service/solution. Keep in mind, the points discussed above and always make decisions based on verified information. That is how it works!

7 Reasons Why Your IoT Startup Can Fail
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