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Why Startups Fail

31 points by epi0Bauqu 18y ago

dennykmiu 18y ago
Interesting article. My own experience is that over reliance on money and over reliance on technology can also lead to failure. Having been an entrepreneur for the past fifteen years, I believe this is the best time for startups since we now have the luxury to bootstrap (until there is a workable business model) and also the ability to build business around off-the-shelf technology. Startup failure is sort of an old topic on this forum but my humble opinion is that there is never too much information.
edw519 18y ago
This article may apply to those who are building the next "killer app", but for the other 99% of us, it never mentions the two most important questions: - Is the product any good? - Does anyone want it? If you can't answer "yes" to both of these, all the money in the world probably won't help you.
- michael_dorfman 18y ago
  Amen, brother. You took the words right out of my mouth. Many, many startups fail for precisely this reason: they don't have a product people want.
  - nickb 18y ago
    Corollary: Make a product people want AND are willing to pay for it. That last part is incredibly important.
    - andyangelos 18y ago
      Amazing thought! Having a business model outside of "exit" is really important but does not receive enough emphasis.
- mattjung 18y ago
  But even when you can, you are not yet on the safe side...
- blang 18y ago
  The article gets the spirit of your questions. "Without strong product and market vision, a startup will burn through cash as its team collectively struggles to define its position." But yes, your words are more direct and should be asked, constantly, when you start your start up.
andyangelos 18y ago
The emphasis on speed could also be detrimental to startups not building the next "killer app." Growing too fast too soon can result in some debilitating growing pains.
- dangoldin 18y ago
  I can't help but blurt it out with the current blog coverage, but Twitter comes to mind as an example of this.
deleted 18y ago
[deleted]
Tamerlin 18y ago
I've worked for three well-funded startups that failed for another reason, though all of them ended up making the same mistake: they couldn't develop software. All three made some of the most common mistakes in software development, and tried to hide those mistakes behind a sweatshop. 1) Hire lots of people. Silly... hiring people doesn't get work done if you can't actually tell those people what you want their product to do. 2) Assume that hours = productivity. In every case, the competent folks among us spent a lot of time cleaning up problems caused by the folks working the extremely long hours. That contributed to my departure in every case... I hate cleaning up other people's messes, as it prevents me from doing worthwhile work. Firing those folks would have gotten us to market MORE quickly rather than less. 3) Deadlines set in stone... that just doesn't work. If you can't adjust your scope, you'll never actually hit the deadline. 4) Marketing based on the deadline... duh. 5) Perpetual crisis mode... when the requirements are poorly defined (if they're defined at all) as well as late, you have to be willing to delay launch or trim scope, or both. If instead you go into crisis mode and assume that your sweatshop will churn out a working product, you've already failed, and most of your best people will start jumping ship, leaving you with your burnouts who's primary contribution ends up being technical debt rather than working products. I could go on, of course; I'm sure most people here have had similar experiences. So far, what I've seen of startups that made it big, they succeeded because they were either smart and did things well (e.g. 37signals), or because their software wasn't what they made their money on. Where I work now, we have hundreds of developers whose job is to pay the technical debt of the sweatshop, and one side effect of this is high turnover and low tribal knowledge. Most of our systems are in perpetual triage, and it's pretty obvious that if they were the source of our revenue, we'd be history. Fortunately, they only support the core business, so we're still around and profitable... but very inefficient. Several government contractors I've worked for clearly survive based on the contacts within the government, because their software in many cases doesn't even meet the requirements it was developed for. That's quite a bit more than I'd intended :)
dhimes 18y ago
We get a lot of good advice from VCs across this site; I'd like to give some back: Talk to the "staff." You will never hear about many of the problems illustrated by Tamerlin, for instance, or even the lowdown on edw519's "is the product any good?" from the CEO if the startup is in the early, rapidly evolving phase (where the product is still fluid and trying to fit the market). The CEO will give the reports filtered through management, and a major underlying reason why startups fail is that they fail to see what (or who) is important. Take the technical folks to lunch. If outside consultants are involved in, say, non-technical aspects (content development, design, etc.), take them also, but separately. Don't bring management. Let them talk freely and you'll get a much clearer picture of what and who is important to the company's success than you will if you only look through the CEO's eyes.
- anamax 18y ago
  Any employee/consultant who takes that lunch should be willing to have it be the "goodbye lunch".
  - dhimes 18y ago
    If the employee/consultant is the star and the company/investor can't see it, he or she is better off elsewhere.
- edw519 18y ago
  You're walking a fine line here. Whether you're looking to invest, advise, or conduct analysis of some kind, it's always important to collect the best data you can. Naturally, getting technical appraisals from technical people is critical, and I completely agree with this thinking. But things like "take them also, but separately" and "Don't bring management" sound borderline underhanded. Without free and open communication about all aspects of the business you're conducting, you're just planting the seeds for distrust and concern down the line. Of course, most people will talk more freely without their boss or a video recorder in the room. Funny thing happens though when the boss is in the room or the video recorder is on. After the first 5 minutes, people still talk freely. In fact, this is the most desirous situation. You will uncover more when people are put together and encouraged (even rewarded) for being open and honest. Some of your best data will even come from their disagreements in front of you. If anyone ever went behind my back to gather data, it would tell me 2 things: - They're not doing all that they can to collect the best data. - I don't trust them, so I won't be doing business with them.

31 points by epi0Bauqu 18y ago

Interesting article. My own experience is that over reliance on money and over reliance on technology can also lead to failure. Having been an entrepreneur for the past fifteen years, I believe this is the best time for startups since we now have the luxury to bootstrap (until there is a workable business model) and also the ability to build business around off-the-shelf technology. Startup failure is sort of an old topic on this forum but my humble opinion is that there is never too much information.

edw519 18y ago

This article may apply to those who are building the next "killer app", but for the other 99% of us, it never mentions the two most important questions: - Is the product any good? - Does anyone want it? If you can't answer "yes" to both of these, all the money in the world probably won't help you.

michael_dorfman 18y ago
Amen, brother. You took the words right out of my mouth. Many, many startups fail for precisely this reason: they don't have a product people want.
- nickb 18y ago
  Corollary: Make a product people want AND are willing to pay for it. That last part is incredibly important.
  - andyangelos 18y ago
    Amazing thought! Having a business model outside of "exit" is really important but does not receive enough emphasis.
mattjung 18y ago
But even when you can, you are not yet on the safe side...
blang 18y ago
The article gets the spirit of your questions. "Without strong product and market vision, a startup will burn through cash as its team collectively struggles to define its position." But yes, your words are more direct and should be asked, constantly, when you start your start up.

andyangelos 18y ago

The emphasis on speed could also be detrimental to startups not building the next "killer app." Growing too fast too soon can result in some debilitating growing pains.

dangoldin 18y ago
I can't help but blurt it out with the current blog coverage, but Twitter comes to mind as an example of this.

deleted 18y ago

[deleted]

Tamerlin 18y ago

I've worked for three well-funded startups that failed for another reason, though all of them ended up making the same mistake: they couldn't develop software. All three made some of the most common mistakes in software development, and tried to hide those mistakes behind a sweatshop. 1) Hire lots of people. Silly... hiring people doesn't get work done if you can't actually tell those people what you want their product to do. 2) Assume that hours = productivity. In every case, the competent folks among us spent a lot of time cleaning up problems caused by the folks working the extremely long hours. That contributed to my departure in every case... I hate cleaning up other people's messes, as it prevents me from doing worthwhile work. Firing those folks would have gotten us to market MORE quickly rather than less. 3) Deadlines set in stone... that just doesn't work. If you can't adjust your scope, you'll never actually hit the deadline. 4) Marketing based on the deadline... duh. 5) Perpetual crisis mode... when the requirements are poorly defined (if they're defined at all) as well as late, you have to be willing to delay launch or trim scope, or both. If instead you go into crisis mode and assume that your sweatshop will churn out a working product, you've already failed, and most of your best people will start jumping ship, leaving you with your burnouts who's primary contribution ends up being technical debt rather than working products. I could go on, of course; I'm sure most people here have had similar experiences. So far, what I've seen of startups that made it big, they succeeded because they were either smart and did things well (e.g. 37signals), or because their software wasn't what they made their money on. Where I work now, we have hundreds of developers whose job is to pay the technical debt of the sweatshop, and one side effect of this is high turnover and low tribal knowledge. Most of our systems are in perpetual triage, and it's pretty obvious that if they were the source of our revenue, we'd be history. Fortunately, they only support the core business, so we're still around and profitable... but very inefficient. Several government contractors I've worked for clearly survive based on the contacts within the government, because their software in many cases doesn't even meet the requirements it was developed for. That's quite a bit more than I'd intended :)

dhimes 18y ago

We get a lot of good advice from VCs across this site; I'd like to give some back: Talk to the "staff." You will never hear about many of the problems illustrated by Tamerlin, for instance, or even the lowdown on edw519's "is the product any good?" from the CEO if the startup is in the early, rapidly evolving phase (where the product is still fluid and trying to fit the market). The CEO will give the reports filtered through management, and a major underlying reason why startups fail is that they fail to see what (or who) is important. Take the technical folks to lunch. If outside consultants are involved in, say, non-technical aspects (content development, design, etc.), take them also, but separately. Don't bring management. Let them talk freely and you'll get a much clearer picture of what and who is important to the company's success than you will if you only look through the CEO's eyes.

anamax 18y ago
Any employee/consultant who takes that lunch should be willing to have it be the "goodbye lunch".
- dhimes 18y ago
  If the employee/consultant is the star and the company/investor can't see it, he or she is better off elsewhere.
edw519 18y ago
You're walking a fine line here. Whether you're looking to invest, advise, or conduct analysis of some kind, it's always important to collect the best data you can. Naturally, getting technical appraisals from technical people is critical, and I completely agree with this thinking. But things like "take them also, but separately" and "Don't bring management" sound borderline underhanded. Without free and open communication about all aspects of the business you're conducting, you're just planting the seeds for distrust and concern down the line. Of course, most people will talk more freely without their boss or a video recorder in the room. Funny thing happens though when the boss is in the room or the video recorder is on. After the first 5 minutes, people still talk freely. In fact, this is the most desirous situation. You will uncover more when people are put together and encouraged (even rewarded) for being open and honest. Some of your best data will even come from their disagreements in front of you. If anyone ever went behind my back to gather data, it would tell me 2 things: - They're not doing all that they can to collect the best data. - I don't trust them, so I won't be doing business with them.