Why Art Tech Start-ups Fail: 5 Key Mistakes to Avoid

According to Deloitte Art & Finance research by Fuelarts, 2020-2022 was the most productive period for the ArtTech industry. And it’s hardly surprising since when the pandemic hit, art retailers became desperate for modern technological solutions. The latest Fuelarts study also showed that the industry is still evolving despite the economic, environmental, geopolitical, and other uncertainties. Yet, 90% of all startups still fail. Even the venture-backed ones.

In this article, we’ll figure out general reasons why most startups don’t make it, and then narrow it down to the ArtTech sector.

Why Startup Companies Fail

In 2021, CB Insights identified the top 12 reasons for startups’ downfalls. Among them:

• 38% of companies faced financial challenges.
• 35% lacked customer demand.
• 20% lost out to competitors.
• 19% suffered from an unviable business model.
• 18% met regulatory challenges.
• 15% had budgetary issues.
• 14% worked with disengaged team members.
• 10% lost momentum and market share due to timing.
• 8% had a mediocre product.
• 7% encountered misalignment among stakeholders.
• 6% had a pivot that led to ruin.
• 5% got burned out.

As rewarding as creating a startup may be, the process still goes hand-in-hand with certain risks, regardless of the sphere. ArtTech is not an exception. So far, there is dramatically little data or research in terms of ArtTech startups, so we’re kind of creating history here by doing our work on 10101.art and analyzing existing businesses.

Our primary goal is to speed up the digital transformation of the art market. We understand that one particular startup or even a unicorn company is not usually able to drastically change the industry. Therefore, we are interested in seeing more successful projects in our niche. For this purpose, projects like ours should focus primarily on analyzing the causes and consequences of the mistakes of predecessors rather than rely solely on success stories.

Failed Art Startups. Reasons Why

Our research wouldn’t be wholesome without real-life examples of art startups that failed. Lately, ArtTech startups have been nearly identified with NFTs. Therefore, let’s explore some of the most notorious NFT projects that couldn’t make it and find out why that happened.

NFT startup Tessera (formerly Fractional), which raised nearly $44 million from a group of investors, shut down due to its inability to transition to a break-even business model. According to the project's founder, Andy Chorlian, the project would not be able to turn a profit given its financial position and potential market conditions.

Another NFT platform, RECUR, shut down after raising $50M in just 2 years. The project’s team announced the news this summer, and the reason for the downfall was a prolonged bear market that burnt a hole in RECUR’s pocket.

Financial problems also deeply affected Mark Cuban-backed Nifty’s, a platform for Web3 creators. The firm managed to raise $10M in funding but eventually announced that they’re shutting down due to challenging market conditions and financial hurdles.

Top Art Startups Mistakes

10101.art is a group of experts who have run and built several startups. Therefore, we can highlight the most common mistakes in the actions of startups, based not only on available research but also on our own experience.

1. Failure of a startup to achieve Product Market Fit. Nanne Dekking, head of TEFAF's supervisory board and creator of ArtTech startup Artory, pointed this out back at Christie's Art+Tech Summit conference in 2018: “Most startups are focused on their offering, ignoring the demand of the art market. The reason is that they don’t know its real problems”. Understanding the internal market processes is the basis for an idea to become a success. So, before pitching an idea, it’s crucial to be sure that there's a real problem that my project solves. Also, some research on how this problem is solved today without my unique technology won’t hurt.

   
   

2. Lack of understanding of targeted audience. Failing to understand your target audience is a major blunder that can derail your startup's success. This oversight can have a ripple effect, leading to products or services that don't connect with your intended audience, marketing strategies that waste valuable resources, pricing that prevents you from acquiring and keeping customers, and a customer experience that fails to meet expectations. This lack of understanding can also hinder fundraising efforts, talent recruitment, and business expansion opportunities.

   
   

3. Fear of idea theft. An idea, in itself, is just the starting point of a successful venture. The real challenge lies in executing the idea, turning it into a viable product or service, and building a business around it. Execution is where the true value lies, and it's where startups differentiate themselves. Instead of wasting time worrying about someone stealing your idea, focus on turning your vision into reality. The only way to truly protect your idea is to make it a reality and build a successful business around it.

   
   

4. Overloaded MVP. As soon as an idea comes to mind, the team rushes into creating the first prototype. Here’s the mistake people tend to make: cramming as much functionality as possible. Experience shows that it’s better to gradually test hypotheses by making small iterations to the MVP.

   
   

5. Keeping up with unreasonable investors. Many startups bring toxic investors into their projects who are trying to run them in a “superior-subordinate” manner. Such dynamics can stifle innovation, disrupt team morale, and ultimately hinder the startup's growth and success. It is not worth tolerating a bad attitude for the sake of money, but it is essential to wisely allocate the shares of the owners. We recommend sticking with the 3F (Friends, Family, and Fools) concept for as long as possible.

Final thoughts

Our 10101.art platform enables art enthusiasts to acquire NFTs of renowned artistic masterpieces, granting them ownership over these timeless works. Despite our noble aspirations, we are prone to occasional errors. While imperfections are inherent to our existence, we recognize and address the potential hazards of the aforementioned mistakes.

However, it doesn’t mean that stepping into ArtTech isn’t worth a shot. A startup's flexibility and readiness to pivot are some of the most important factors in its survival and growth. Don’t be afraid to make mistakes because that’s how we learn.