5 stories of startup failure

The experience of running a startup is invaluable. Success stories are more pleasant, but they do not have the teaching power of failure. Everything seems to go right; even the problems seem to be easily fixed. But after all, it is well documented that we learn more from failure.

I like the story of game company Rovio. It’s about how to keep moving forward and not allow the bad stuff stop you.  At the beginning of 2009 Rovio was close to bankruptcy. Then Mikael and Niklas Hed had to create the perfect game to save company. The overnight success of Angry Birds took eight years and 51 tries. As Chris Dixon shared in a recent blog post: ”Angry Birds was Rovio’s 52 game. They spent eight years and almost went bankrupt before finally creating their massive hit.”

When we read about a successful exit we don’t always know that the founder’s two or three previous attempts failed. Did you know, in fact, that many first-time entrepreneurs don’t even make it to MVP?

A guest post by Sam Hysell at the Mike Fishbein’s blog is both: a warning how we shouldn’t think of, and advice what to do while you’re going to succeed with your company.

CB Insights recently parsed 101 post-mortem essays by startup founders to pinpoint the reasons they believe their company failed. It crunched the numbers to reveal that the number one reason for failure, cited by 42% of polled startups, was no market need for their product. Other top reasons included lack of sufficient capital (29%), the wrong team for the project (23%) and superior competition (19%).Of the dozens of stories out there I chose these 5 as case studies from which I hope you can both learn and take heart.

1.Jeremy Bell and Wattage

You know you are in trouble when the best thing you are told is that you have a nice pitch deck. Jeremy Bell, founder of Wattage Inc., wrote an essay that breaks-down and details the multiple things they did wrong.

“Being a hardware company, we focused on building prototypes to validate that our vision was technically feasible. In retrospect, this was a mistake.  Instead, we should have released something far more lightweight, and as quickly as possible. Our efforts should have been focused on validating interest in our product and generating traction. We did realize this, and we were moving to launch a beta as a means of validating interest. The problem is we realized too late, and ultimately didn’t want to launch a beta that we couldn’t afford to support.”

  1. Marc Hedlund and Wesabe  

Many postmortems have been written about why Wesabe lost out to Mint and the results are a number of myths that just aren’t true. For the real “lessons learned” you need to read co-founder Marc Headlund’s account on his blog.

“In November 2006, Wesabe launched as a site to help people manage their personal finances. We certainly weren’t the first to try to tackle this problem through a web app, but we were the first of a new wave of companies that came out in the months that followed, characterized by what some would call a Web 2.0 approach to the problem.  Wesabe launched about 10 months before Mint. More the shame that we didn’t capitalize on that early lead. There’s a lot to be said for not rushing to market, and learning from the mistakes the first entrants make. Shipping a “minimum viable product” immediately and learning from the market directly makes good sense to me, but engaging with and supporting users is anything but free. Observation can be cheaper. Mint (and some others) did well by seeing where we screwed up, and waiting to launch until they had a better approach.

I see two primary reasons that, if they had changed before Mint’s launch or had never occurred in the first place, could well have allowed Wesabe to maintain its early lead and remain the leader against Mint’s entry”

  1. Nate Westheimer and BricaBox

As Nate Westheimer, the founder of BRICABOX, insists there are four essentials for a successful startup: money, traction, team, and vision. BricaBox ran out of all but one of them—to be successful they would have had to have twice the product in 2/3 of the time.

When Nate Westheimer made the decision to shut down BricaBox it wasn’t an easy decision. He also chose to explain it publically and then detail each error in the Postmortem table of contents

“Does your startup have a burn-rate? If it’s above $0, think about concentrating it and speeding up development. BricaBox was fed-but-anemic and slowly roasting its cash. Do it again and I’ll concentrate those costs at the beginning. We would have had twice the product in 2/3 of the time.”

  1. Schuyler Deerman and Moped

Schuyler Deerman’s Moped went from $1 million in seed funding to shutting down because it didn’t have enough users to get new investors excited. When your vision entails a product for an already crowded market, succeeding requires a dazzling customer experience combined with flawless execution. Schuyler Deerman shared the reasons why  Moped shut down.

“When I started my first company, Moped, I didn’t think the day would come that I’d have to close it down. I was as naive as I was ambitious. Our vision was to revolutionize communication, making messaging and the infrastructure underneath it more web-friendly. We didn’t have any revenues, but I was convinced we would make it to a Series A. I had great answers to how we were different from Kik, Whatsapp, Facebook Messenger, HipChat, Skype and others. We had great investors, a great team and a great vision about the future of messaging on the Web. Still, we didn’t make it. Right thesis, totally wrong execution.

When growth stagnated, we started building new features. At the time, we thought we were helping. But instead of focusing on why users weren’t coming back, we were trying to attract new users. We started costly development cycles that, in the end, won us some users, but, unfortunately, not enough to make a real impact on the company.”

  1.  Brianne Garcia and Parceld

Starting a company is hard. Starting a tech company when you aren’t technical is much harder. Starting one when your technical co-founder quits taking the code with him and having no backup plan pretty much guarantees you won’t make it.

That’s what happened to Brianne Garcia, founder of Parceld, whose goal was to give women a way to buy a “look” they liked. Although forced to close, she still took the time and spent the energy to share the story and lessons learned.

“My company, Parceld, would solve the problem discovery sites create: the desire to purchase a specific style or trend (since a bunch of images aren’t actionable or affordable).  (…) Startups are so “cool” right now that it’s easy to forget how terribly naive, blindly optimistic and delusional startup founders have to be to think their company will succeed over others, especially over others with similar ideas in the same market. Though it’s natural to make mistakes, it’s also worth reflecting on those mistakes in order to do better in the next go-around. I made mistakes, BIG ones, that directly contributed to Parceld failing.”

According to Steve Hogan, who runs startup turn-around shop Tech-Rx, “Running out of cash does not cause a startup’s failure. It’s merely a symptom of another issue. Excluding instances of “stupid spending” or the inability to raise capital in the first place, startups tend to run out of cash when a CEO has overlooked all other indicators of failure.”

Starting over is hard, but first-time startup failure is frequent and most successful founders have one or more under their belt. The important thing is to keep moving forward and not allow the bad stuff to define you.

That said, there is one type of bad stuff that can be avoided — unless you are blinded by your vision. I’m referring to the 42% that fail because there was no desire for their product. Join me next week to find out how.  


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