Why appealing start-ups still collapse

Structural gaps in contracts and logistics are eroding the prospects of growing ventures, experts say.

Despite renewed investor appetite in 2025 and continued interest in global entrepreneurship, early-stage companies remain statistically fragile. While the narrative around startup failure often centres on poor product-market fit or undercapitalisation, professionals working with high-growth ventures say the reasons are frequently more structural.

Data from the U.S. Small Business Administration indicates that only 51 per cent of businesses survive beyond five years. In Israel, one of the world’s leading innovation ecosystems, recent declines in early-stage resilience have coincided with rising operational complexity, global shipping constraints, and shifts in regulatory exposure.

According to the OECD, firm exits have accelerated across high-income countries, particularly among businesses operating in cross-border supply chains. The causes vary, but one pattern is consistent: businesses that fail often do so not for lack of demand, but because of misaligned contracts, delayed fulfilment, and poor structural readiness.

“Founders tend to treat agreements as a formality,” says Mark Lazarus, director of Australian-based Lazarus Legal, which works with startups scaling into international markets. “They sign templates, often without jurisdictional review, and assume the relationship will carry them through.”

In one matter his firm reviewed, a software startup had entered a multi-year exclusivity agreement with a vendor but failed to include performance standards or termination provisions. When service standards dropped, the startup had no contractual grounds for exit, nor leverage for renegotiation.

“What looked like a routine supply contract became an operational roadblock,” Lazarus says. “A qualified agreements lawyer could have addressed this risk in one paragraph.”

He notes that while many startups engage legal support for investor documentation, they often overlook commercial agreements, especially with offshore partners  until disputes arise.

Legal clarity is only one axis of early-stage fragility. Another is logistics.

“Many founders base shipping promises on early samples, not ongoing commercial capacity,” says William Nguyen, head allocator at INH Transport, a Sydney-based freight company that services cross-border clients, including those entering Asia-Pacific markets.

Nguyen explains that businesses often launch with aggressive delivery timelines that fail to account for customs holds, booking backlogs, or port congestion. This disconnect can result in immediate reputational damage, particularly in consumer goods and retail categories.

“One client from Israel missed their European launch by three weeks due to unconfirmed container space,” Nguyen says. “They had already committed marketing spend and wholesale pre-orders. Fixing the delay cost them more than the freight itself.”

He adds that early consultation with a freight provider can avoid the most common breakdowns but that many startups reach out only after commitments have been made publicly.

What both legal and logistics professionals observe is that startup failure often stems from misplaced confidence, not in the product, but in the assumptions around delivery, flexibility, and protection.

Startups rarely have excess cash reserves, alternate vendors, or full internal legal counsel. As a result, minor oversights become operational liabilities.

Data from CB Insights, which tracks over 100 startup post-mortems, supports this. While 42% of failed companies cite “no market need” as a primary factor, nearly 20% cite team, operations, or execution issues, including mismanaged relationships and scaling complexity. In most cases, these breakdowns are avoidable but not without early-stage structural design.

There is a widespread belief that proper contract terms, compliance structures, and logistics discipline are necessary only at scale. But the professionals interviewed reject this framing.

“Clarity does not require complexity,” Lazarus says. “Most of the issues we deal with could have been avoided by using a more specific clause or removing ambiguity in one line.”

Nguyen offers a similar view from the logistics side. “Startups don’t need full operational teams,” he says, “but they do need realistic delivery assumptions and a sense of what happens when things don’t go to plan.”

This article was written in cooperation with Rakibul Hasan Razu.