Failure: it’s a common theme among start-up founders. In the Silicon Valley, it’s almost a badge of honor. But for all the dire statistics out there, what are the real reasons some start ups don’t make it? And what lessons can we learn from them?
We asked 8 (now) successful founders to share why a prior start-up didn’t make it – and what they’re doing differently knowing what they know now.
1. We Did Not Have A Narrow Focus
My first start up team had a very big idea about encouraging sustainability. If we could get individuals to track how often they took small, sustainable actions – refilling water bottles, reusing paper bags, etc. – we could create a culture where reuse was prevalent. Not only were we trying to change behaviors – difficult! – but we assumed that gamification would be a critical element. And that education was a critical element. And that social sharing was critical. There was more, too.
If I were to restart that business, I would focus on the root issue of encouraging sustainable actions and tackle only one aspect of it. We have seen many companies pop up in this space, but each only focuses on one of the many complex ideas. At the start, be great at something small. Then expand. – Aaron Schwartz, Modify Watches
2. We Entered The Market Too Early
My first company failed because it was too nascent of an idea to introduce into the market. We wanted to help people understand the risks behind social media at the corporate level. What we didn’t take into account was that clients at the corporate level didn’t know what social media was at the time. We spent so much time explaining what social media was that we never got to the point where we could explain what we actually did.
If we had to do it all over again, we would have actually done social media training for corporations first, then presented the risk mitigation aspects of it. This time around, we made sure that we were entering the market during a time where our products/services made sense, so people got excited about it without us having to explain our idea! – Benish Shah, Vicaire Ny
3. We Didn’t Manage Cash Flow Correctly
Numbers are not only the oxygen of a business, they are the vital signs as well. As a teen, I was almost entirely focused on doing what I enjoyed in the business: Creating, sales and growth. I was burning through reserves until one day, I had none left — only a large box of IOU’s. If I had done a better job keeping track of my monetary flow and following up on accounts receivable, I probably could have avoided my company’s ultimate demise.
In my next (successful) businesses, I learned much more about reading and interpreting financial reports and I also hired a competent bookkeeper and accountant. If your numbers aren’t in order, you won’t be in business very long. –Kent Healy, The Uncommon Life
4. We Had Bad Timing
My first start up enjoyed initial success and had gotten a seed investment, but ultimately, we couldn’t make it work. Our business model at the time was based on job advertising. Needless to say, it was much harder to sell job ads in the fall of 2008 then in the spring of 2008, when we launched a well-received beta. We had borrowed about $25,000 each to start the company, but our money was soon gone and we were about to run out of our seed money, too. We were faced with two options — borrow even more cash, or close our doors.
The question I asked myself was this: “Is this idea important enough for you to invest more of your life in?” The answer was no. The best decision I made was to start my first company; the second best was to close it down. Always know when to quit. – Kasper Hulthin, Podio
5. We Didn’t Have An Audience
Having multiple businesses fail was the only way I learned to succeed. Specifically, I learned that my products must always fit a proven need my audience has. It never matters if I think a product will sell; it only if my audience agrees it’s something worth making. – Brian Moran, Get 10,000 Fans
6. We Weren’t Careful bout Who We Hired
The first company my brother and I started was hijacked by its employees. All I have to say is hire people who are sincere and trustworthy. Protect yourself legally. Be frugal. Run lean. –Ziver Birg, ZIVELO
7. We Had Different Motivations
I tried to start an apartment listings website on my college campus with two of my roommates. They were excited to start, but that excitement waned when they realized just how much work it was going to be, including walking around in winter in Madison, Wis. taking apartment photos and gathering landlord information. What started out as a promising project slowly failed because it was a difficult idea to execute well, and my partners lost interest while they balanced their studies, partying and girlfriends.
Today, I would start the business myself and hire people to do the work that my two partners were helping me with at the beginning. – Nathan Lustig, Entrustet
8. We Didn’t Spend Enough Time On Worst-Case Scenarios
I’ve started three companies with business partners. The first company we grew into a seven-figure company, and the partnership was great. The second company never reached its potential because I didn’t think ahead about what we’d do if ‘X’ happened with the equity partners. In this business’s case, I devalued my own contribution to the business when we started it, then later took on too much in exchange for too little.
So, always think ahead and ask yourself, “What if ‘X’ happens?” Build those scenarios into your start up agreement so everyone is on the same page from day one. When I finally realized that I couldn’t justify the role I’d taken on after roles shifted in the company – and for the share of the company I’d agreed to – motivation was lost, morale went down and progress stalled. – Trevor Mauch, Automize, LLC
[Editor’s Note: This post was originally featured on RWW]
