
Why startups fail, according to their founders - cpeterso
http://fortune.com/2014/09/25/why-startups-fail-according-to-their-founders/
======
tcannon
Interesting that the article mentioned Jody Sherman. I've worked with him
several times. He moved to LA after running a startup into the ground in SF,
taking with him the last paychecks of those who he had lied to saying that
their pay was just delayed due to a glitch. While on the plane heading to LA
he used the in-flight phone to buy a Porsche (sight unseen) from a dealership
using his investor's money that he pocketed while leaving his former employees
to wonder what the hell was going on.

His plane ticket was paid for by the person sitting next to him -- a mutual
friend. Jody was supposed to pay him back for the ticket. He never did.

Interesting that his "business failures" are the causation for a trend, as his
businesses were never intended to succeed in doing anything other than
separating investors from their money and trying to stay one step ahead of
what inevitably caught up with him. People seem to think that he was overly
optimistic and just bad at making a business succeed. That might be true; I do
not know what he ever actually intended. I told him several times that in
order to get one of his former businesses to succeed he would have to spend
money on certain key pieces of infrastructure. He refused, saying he'd spend
it later. What I didn't know at the time that he wasn't being simply
unreasonable. The money was already gone. It just didn't say that on the
balance sheet he was showing to those who worked with and who he approached
asking to invest.

~~~
npx
In his defense, I bet this guy knew how to party.

~~~
tcannon
Astute observation. Read down to his trips to Guatamala to hang out with John
McAfee and see if you can read between the lines as to what he invested in
that didn't work out:

[http://www.businessinsider.com/jody-sherman-
ecomom-2013-4?op...](http://www.businessinsider.com/jody-sherman-
ecomom-2013-4?op=1)

------
softdev12
I think this article has it backwards. I think that the default state for a
startup is to fail. That even if you do almost everything right, you still
have a high probability of failing. And that there should be a list of all the
things that need to be done right in order to succeed, rather than listing all
the reasons for failure. For example:

1) make a product that people want (vs. no market need) 2) attract investors
(vs. ran out of cash) 3) media virality (vs. poor marketing) 4) perfect timing
(vs. product mis-timed) 5) have clear distribution to market 6) lots of luck

#6 is not mentioned at all in the article and is probably one of the biggest
factors.

~~~
bjelkeman-again
I agree, but I think 7) a great team, is missing from that list. It really
helps avoid problems with 1, 2, 4 and 5. For some markets, 3 media vitality,
isn't required and if you get the other things right you need less luck.

~~~
dushonok
How would a great team help you to make money out of a product nobody wants?
Market fit (#1) is the most important thing

~~~
epa
They have the knowledge, collaboration, and commitment to change the concept
and push on.

~~~
semerda
That's assuming the cofounder/s are not dictators. More common issue than you
think. Ego issue of Power. Hence why I dislike titles (labels) when one is a
small team.

Market fit should be worked out ahead of the team by the cofounders. The great
team will contribute to it and over time everything evolves. Should the market
shift fruit when you have the team, team transparency will help everyone steer
the ship in a different direction. Otherwise the company will run out of cash
chasing the founders fixed mindset.

------
Animats
After a short summary of the obvious, the article ends. There's not much
there.

~~~
curiously
this seems to be an awful trend I am noticing more and more. Clickbait title
and no substance in the article.

~~~
bjelkeman-again
Good journalism is expensive compared to what we are seeing in this trend. We
have to figure out a way to either lift the "casual journalist" into the
limelight, or find a way to pay for good journalism. Or maybe a bit of both.
It seems that the really good media companies aren't going away, but most of
the others are struggling. I don't look forward to having only a few good
media outlets dominate, so we need fix that.

~~~
briandear
Maybe if these news outlets didn't make their reading experience, especially
on mobile, a JavaScript advertising cacophony of cluttered hell, then I might
consider clicking some ads to support the publication. Since every pixel has
been whored out in the service of very low quality advertising, I don't much
care anymore. Imagine if publications went to simply one discrete ad per page.
They could charge a much higher CPM and piss readers off less. Drudge did it
that way for years and his site makes millions.

I hate all of that Taboola link bait 'recommended for you' crap. Does that
really make money for the website? I can't imagine it would, at least not
much.

~~~
bjelkeman-again
The best way IMHO how to do this right is actually the Economist, which in the
iPad app has not very intrusive ads. Also the website is pretty good for this.

------
cyberjunkie
There are a lot of immature startups throwing away money in vulgar fashion
without considering the consequences of it, the value of that money. Startups
are run by relatively young folk. Unfortunately, there are few or no shortcuts
to years of first-hand experience of learning things the hard way, something
most startups don't seem to get. Startups on a daily basis should be governed
by a slightly conservative, old-school, level-headed individual.

People need to take the Facebook movie this seriously, the same way many
startups take the Steve Jobs' ideology.

~~~
semerda
Interesting point you touched up on "the value of that money". The value is
learnt through experience. But at who's expense. I highly recommend everyone
get into investing their money so they can learn this value before they spend
someone else's money.

------
DougN7
If Need/Lack Business model is the reason your start up fails, you never had a
business to begin with.

------
cubano
Isn't it common knowledge nowadays that simple luck plays a really big part of
of succeeding as a start-up?

I only say this because of a recent video series I watched from Stanford (I
think) where the speakers, all successful founders, drilled in that idea from
the get-go.

~~~
logicallee
>Isn't it common knowledge nowadays that simple luck plays a really big part
of of succeeding as a start-up?

It's not a contradiction. Refer to the chart in the article:
[http://fortunedotcom.files.wordpress.com/2014/09/unknown2-e1...](http://fortunedotcom.files.wordpress.com/2014/09/unknown2-e1411602328712.png?w=550&h=581)

Luck can be an important component, _however_ , it doesn't mean it's not
super-easy to identify an immediate cause of death in the absence of that
luck. For example, let's suppose that you literally have to win a lottery or
none of your sources of funding will close. (Remember, we are defining this as
a lottery for this hypothetical mental exercise - I don't think it is one.)

Now, there is luck, for example the must-have round closing days before money
runs out. That is luck. (In point of fact this is actually reported by some
founders - the same ones who declare how lucky they were.)

And on the other half of the spectrum, article shows 30% of startups reporting
dying due to running out of money. So in the other 70% of cases the startups
either: got lucky to close their round; or had no trouble closing their round;
or didn't need it. In any case in 70% of cases, running out of money wasn't
the reason they died.

So even though we used a simplified model that you have to win a lottery to
get funding, we can still see that it results in _some_ people reporting they
were very lucky to get funding at the last minute, however the cause of death
in 30% of cases remaining "running out of money."

Likewise, some companies will chance on a product people really, really want,
and pivot into it. Meanwhile, "No market need" kills 42% of startups.

So there is no contradiction. You can have three groups of companies in each
case:

    
    
      (1 funding):
      Group 1: No problem closing funding.  (Or don't need it.)
      Group 2: Nobody wants to fund and would die, but miraculously
        closes a round just in time.  Reports being super-lucky.
      Group 3: Tries to get into Group 2 after realizing they're not Group 1.  Fails to do so.
        They die and report "Running out of money" as cause of death.
    

After this point, who do we hear from? We hear from 3 in the present article.
We hear from Group 2 - very frequently - after they report how lucky they
were. We also hear from members of Group 1, who report not having trouble
closing their funding rounds.

Now let's look at market fit:

    
    
      (2 market need):
      Group 1: No problem with product-market fit.
        Facebook would be an example, Dropbox another.
      Group 2: Building wrong product, nobody wants it.
        But gets super-lucky and chances onto a market niche and pivots into it.
      Group 3: Building wrong product, nobody wants it.
        Does not get super-lucky and accidentally pivot into something people want.
    

So, we hear about Group 2.3 in this article. It accounts for 42% of deaths. We
also hear frequently about Group (2.)1 and sometimes about Group 2.2.

It's rarer to hear about Group 2.2 though!! (Much rarer than in the funding
example where good ideas were really lucky to get funded at all.

So since we hear so frequently about groups that were really lucky to close
their funding for a good idea, but more rarely about groups that were really
lucky to identify something people actually wanted, while building the wrong
thing, it stands to reason that Building the Right Thing is less based on Luck
than funding is.

I'm not 100% sure of this reasoning though.

However, from the analysis above you can clearly tell that simple luck is kind
of orthogonal to the points raised in the article. :)

~~~
JacobAldridge
Good assessment - I can't imagine any credible startup founder saying their
reason for failure was "we didn't get lucky", even though plenty of successful
ones (but not all, as you observe) can point to moments or periods of good
luck that helped them survive.

I continue to believe that luck is the meeting of preparation and opportunity
- that doesn't guarantee you good luck or business success, but it sure beats
building a business in a basement without talking to the market and hoping you
get it right!

------
Flux159
A link to the image that matters in the article:
[https://fortunedotcom.files.wordpress.com/2014/09/unknown2-e...](https://fortunedotcom.files.wordpress.com/2014/09/unknown2-e1411602328712.png)

A few things to note are that it seems like a few of those items could be
combined into the same general problem in a failed startup: Not the right
team, poor marketing, poor product, and disharmony on team/investors could
potentially be related.

Another point is that these are obtained from self post-mortems by founders,
whereas if the data were obtained from employees or investors, you might get a
different story.

------
jakejake
Interesting that "failure to monetize" didn't make the list. Either that isn't
a problem or isn't recognized by founders as a problem.

~~~
seekingcharlie
To me, monetization has to do with #1 - making a product that people want.
Obviously not all products require actual revenue, but they all require users.

------
asanwal
The analysis is based on this compilation of 101 startup failure post-mortems

[https://www.cbinsights.com/blog/startup-failure-post-
mortem/](https://www.cbinsights.com/blog/startup-failure-post-mortem/)

------
joshuak
This list adds up to 300%

This has been a test.

Based on our research, we've found that startup founders who fail to notice
that this list adds up to 300% have startups that will also fail.

Your user ids have been added to the investment exclusion list.

Thank you for participating.

~~~
itsybitsycoder
That's not impossible, it would just mean that most businesses fail for
multiple reasons. Lots of the reasons in the list seem like they could easily
go together, e.g. "No Financing/Investor Interest" \+ "Ran Out Of Cash"? "Burn
Out" \+ "Lack Passion" \+ "Lose Focus"?

~~~
joshuak
Yes, but it means the relative percentages are not meaningful. Even if your
where to simply normalize them to total 100%.

Likely the servey was, "list 3 or more reasons why your startup failed," and
then the top three where used in this list. This can be used for voting and
ranking but deriving a percentage is inappropriate. Someone's 3rd choice may
be only 1% of the reason they think they failed. there is no concept of
relative percentage between the three choices of a single respondent.

If anything it is the _set_ of three answers the respondent considers salient,
in which case they are inseparable. They might have answered quite differently
if they where asked "what is the single most important reason your startup
failed."

Which is what this article claims it is listing.

------
brentis
Not my product. :) my product is at risk if they can't find it in the outdated
App Store. Http://www.mometic.com. Oh yeah and if my developers can't
deliver... Also a distinct likelihood.

------
Bahamut
OT - is it just me, or does the page load atrociously slowly on mobile?

~~~
briandear
Goes to my point I mentioned above in response to a comment about low quality
journalism. Whe every pixel is dedicated to pimping ad clicks, it makes the
experience just awful. There's an area ripe for disruption!

