Up to 90% of new businesses fail. The main reasons? Among the top reasons are lack of market need (42%), insufficient funding (29%), and ignoring competition (20%). These challenges are particularly relevant for IoT startups, where many companies struggle to survive despite a projected market growth to $1,213,9 bn by 2030. So why do so many IoT ventures fail, even with such massive potential?

In this blog, we'll show the most common mistakes that lead to failure and provide actionable solutions to help you avoid them. TetaLab IoT company knows how complex it is to build successful IoT solutions and is here to help you navigate them. Let’s dive in and ensure your startup becomes part of the 10% that succeed!

Common Reasons Why IoT Startups Fail

IoT is a fast-growing area with a lot of potential. However, many IoT startups fail in a tough market. Some companies introduce innovative solutions, while others run into serious challenges that lead to failure. Understanding the main reasons behind these startup mistakes will help entrepreneurs avoid common pitfalls and increase their chances of success.

IoT startup failures often stem from a mix of technical, financial, and strategic challenges. Some of the most common reasons IoT startups fail include:

  • Technical Challenges – Creating IoT solutions involves combining hardware and software in a complicated way. This process can also face issues with connectivity and security. These challenges can slow down development and raise costs.

  • Market Misalignment – Many startups build solutions without thoroughly understanding their target audience’s needs. This lack of understanding often results in products that do not succeed.

  • Scalability Issues – To grow an IoT business, you need good device management, strong infrastructure, and smooth cloud integration. Many startups struggle to move from testing their prototypes to deploying them on a large scale.

  • Security and Compliance Risks – IoT devices handle sensitive data, and failing to implement strong security measures can lead to breaches, regulatory issues, and loss of customer trust.

  • Business Strategy Flaws – Poor monetization strategies, high production costs, and ineffective marketing efforts can make even the most innovative IoT products unsustainable.

In the next sections, we will explore the most common mistakes that lead to failure. We will also share tips on how startups can tackle these challenges and build successful IoT businesses.

Top 6 Mistakes of IoT Startups Fail

Mistake #1: The Hardware Trap

One of the first challenges IoT startups face is building the hardware. Unlike software, where updates can be pushed instantly, hardware mistakes are expensive and difficult to fix once products are manufactured. Delays in sourcing components, design flaws, and compatibility issues with different networks can easily drain resources and patience.

Real-life Example: A good example is one famous home security camera company. Originally, the first-generation cameras faced major connectivity issues. Their cameras often lost Wi-Fi connections, causing users to experience interruptions in the live feed.

Tip: Don’t rush into large-scale production. Start with prototypes and pilot tests to identify potential issues before committing significant resources. And never assume hardware development will go smoothly—because it won’t.

Mistake #2: Security Breach Black Hole

The Internet of Things is all about connecting devices, meaning every device is a potential gateway for hackers. Many IoT startups fail to prioritize security, which leaves their products vulnerable to cyberattacks. If customers don't trust your product's security, they will leave it quickly.

Real-life Example: A popular IoT baby monitor brand suffered a significant security breach. Hackers gained access to live video feeds of customers’ homes, causing the company to face significant backlash, lose customer trust, and recall products to implement stronger security features.

Tip: Build security into your product from the ground up. Regular updates, end-to-end encryption, and secure data management are vital for protecting your customers and your brand name.

Mistake #3: The Scalability Struggle

Many IoT startups work great with 100 devices but collapse when scaling to 5,000+ users. Even if you didn't plan to scale much initially, take our word for it and pay due attention to scalability. This problem can impact how users experience the service, potentially causing outages or poor performance.

Real-life Example: A smart thermostat startup began successfully in smaller homes. However, when they expanded to larger systems, their performance dropped dramatically. The system couldn’t handle too many connected devices and would freeze or disconnect, frustrating users and damaging the brand's reputation.

Tip: Plan for scalability from the start. Choose cloud solutions that can grow with your product, and stress-test your system before launch.

Mistake #4: Running Out of Funding 

IoT Startups need money—not just for development but for manufacturing, distribution, and ongoing support. Many startups fail because they run out of money before they can launch their products. Without a clear plan for making money—whether through direct sales, subscriptions, or partnerships—startups can quickly run low on cash.

Real-life Example: The smart luggage company launched a high-tech suitcase with a built-in GPS tracker and remote locking. However, they underestimated the funds for manufacturing, marketing, and fulfilling orders. The company went bankrupt despite having a great product.

Tip: Try different ways to make money, like selling data or offering subscription services, to see what your audience prefers. Ensure you have enough funding to cover the development process and plan for unexpected costs with a clear financial strategy.

Mistake #5: Poor User Experience (UX) and Customer Support

Many IoT devices are difficult to set up, use, and maintain. A poor UX can lead to frustrated customers, high return rates, and negative reviews. Similarly, poor customer support causes users to feel abandoned when they seek help—and they will need it soon!

Real-life Example: Some well-known smart glasses had problems with UX and support. Many users found them hard to wear for long periods and the interface confusing. Even though they were marketed as revolutionary, poor usability caused many users to stop using the glasses. Additionally, the company did not provide enough customer support during the beta phase, leading to frustration among early users.

Tip: Create devices that are easy to use. Give clear instructions and have helpful customer support to assist users.

Mistake #6: Overlooking Post-Launch Support

Many focus heavily on product development and initial marketing, but once the device is released, they fail to provide ongoing customer support. This can lead to frustrated users, poor reviews, and high churn rates.

Real-life Example: Once a leading wearable tech company, it struggled after the initial launch of its fitness trackers. Users faced syncing issues with the mobile app and long periods of silence from the company regarding software updates and product fixes. This led to users abandoning the product, poor reviews, and eventual decline in market share. 

Tips: Don’t let the launch be the end of the journey—post-launch support is just as crucial as development. Handling post-launch problems can make or break your reputation and customer loyalty.

Conclusion: Avoid IoT Startup Mistakes and Achieve Success

Listen, success isn’t just about having the latest technology. It’s about having a clear plan, a strong team, securing sufficient funding, ensuring an exceptional customer experience, and being prepared to scale. 

TetaLab experts are here to help IoT startups avoid these IoT startup challenges and build successful products. If you’re ready to avoid these common mistakes and make your IoT startup a success, we’re here to help. Contact us today for expert advice and support, and let’s work together to make your IoT project successful!