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Why investors are choosing purposeless companies?

, by Saransh Sharma
One of the fundamental flaws that plague the business world, particularly in the startup ecosystem, is the absence of a well-defined problem statement. A significant number of enterprises grapple with this, as their foundational hypothesis is erected on flawed assumptions or misinterpretations of their prospective clientele. According to a study by CB Insights, about 42% of startups fail because there's no market need for their services or products. This illuminates the inherent dangers of not comprehending the market's demands or basing business models on incorrect market perceptions.

Moreover, the essence of purpose, deeply entrenched in authenticity and zeal, frequently gets overshadowed in the frantic pace of entrepreneurship. There's a seductive allure in mirroring the business trajectories of industry giants, leading startups down paths that may not necessarily align with their unique strengths or audience needs. A report by Harvard Business Review has stressed that the underlying stories of successful businesses often contain nuances and subtleties that are hard to replicate.

Simply put, every business has its own DNA, and cloning success without understanding its essence can be perilous.

The human factor in business, often termed as its most invaluable asset, is sometimes grossly underestimated by founders. Talent acquisition and retention are pivotal for any organization's growth. Yet, according to a report by First Round Capital, about 23% of startups believe that hiring competitive talent is their biggest challenge.

This underscores the fact that recognizing, attracting, and holding onto top-tier talent is not a given but a skill to be cultivated.

Today, media plays an inextricable role in shaping perceptions, and the startup universe is no exception. Stories of startups amassing unprecedented funds dominate headlines, inadvertently setting skewed benchmarks for nascent entrepreneurs. However, securing investments, especially in the early stages, is a labyrinthine journey fraught with challenges. The allure of shortcuts becomes tempting, leading some to adopt a facade, encapsulated by the "fake it till you make it" ideology. According to an article by Forbes, almost 90% of startups will fail, and among the top reasons are a lack of focus, motivation, commitment, and passion.

The hyper-competitive startup arena often precipitates a mad dash for skyrocketing valuations, sidelining introspection and self-awareness. Such an environment can cause startups to lose sight of their foundational goals. Aligning a venture with transient market trends, devoid of intrinsic purpose and clarity, is akin to building on quicksand. The cornerstone of any enduring enterprise is a clear vision, an unerring purpose, and an unwavering commitment to its actualization.

In the business cosmos, authenticity, patience, and tenacity are not just desirable traits but the very bedrock of sustainable success. These attributes, palpable in every decision, strategy, and ethos of a company, are the litmus test of genuine entrepreneurship. Metrics and data, albeit essential, are mere coordinates on the vast map of an entrepreneurial odyssey. Without purpose, passion, and persistence, the very essence of this journey stands compromised, raising questions about its legitimacy and authenticity.

In conclusion, the early stages of a business are instrumental in determining its trajectory. Investing time, effort, and resources in understanding market needs, cultivating genuine purpose, and building a competent team can spell the difference between fleeting success and sustained growth.


Investors are increasingly choosing to invest in companies that seemingly have no clear purpose or sustainable long-term vision due to a combination of short-term financial incentives, herd mentality, media influence, and the allure of disruptive technologies, even if the disruption lacks a well-defined purpose.

Supporting Points:

  1. .Short-term Gains over Long-term Sustainability: The modern investment landscape, particularly in the venture capital space, has become exceedingly focused on quick returns. As observed in various market bubbles, investors sometimes prioritize short-term capital gains over long-term sustainable growth

  2. Herd Mentality: The phenomenon of investors flocking to certain sectors or specific companies based on perceived market trends or the actions of prominent investors is well-documented. This herd behavior can sometimes lead to overlooking the core purpose or value of a business

  3. Media and Hype: The role of media in glamorizing certain startups, irrespective of their genuine value proposition, cannot be understated. A startup with a compelling narrative, even if it lacks a clear purpose, can attract significant media attention, leading to inflated valuations and attracting investors

  4. Misunderstanding of Disruption: Disruptive technologies or models often attract significant investor attention. However, the term 'disruptive' has been overused, leading to investments in companies that promise disruption without a clear understanding of what they intend to disrupt or why

  5. Lack of Due Diligence: The rush to invest, especially in oversubscribed funding rounds, can lead to inadequate due diligence. Investors might not always have the time or resources to delve deeply into the fundamental purpose and potential of every company they invest in


The investment landscape is complex, and while many factors influence investment decisions, it's crucial for investors to prioritize genuine value and purpose over short-term gains and market trends. While the allure of quick returns and disruptive technologies can be tempting, a sustainable and purpose-driven business model is more likely to stand the test of time. The emphasis on due diligence and a deep understanding of the company's purpose can ensure that investments are not only financially rewarding but also contribute positively to the broader ecosystem.


CB Insights - Top 20 Reasons Startups Fail

Harvard Business Review - Why Companies Fail

First Round Capital - State of Startups

Forbes - 90% Of Startups Fail: Here's What You Need To Know About The 10%

Shiller, R.J. (2005). Irrational exuberance. Princeton university press.

Banerjee, A.V. (1992). A simple model of herd behavior. The Quarterly Journal of Economics, 107(3), 797-817.

Pollock, T. G., & Rindova, V. P. (2003). Media legitimation effects in the market for initial public offerings. Academy of Management Journal, 46(5), 631-642.

Christensen, C. M., Raynor, M. E., & McDonald, R. (2015). What is disruptive innovation? Harvard Business Review, 93(12), 44-53.

Lerner, J. (1995). Venture capitalists and the oversight of private firms. The Journal of Finance, 50(1), 301-318.