On his many failed experiments, Thomas Edison once said
I have learned fifty thousand ways it cannot be done and therefore I am fifty thousand times nearer the final successful experiment.
And so while we have dug into the data behind startups that have died (as well as those acqui-hired) and found they usually die 20 months after raising financing and after having raised about $1.3 million, we thought it would be useful to see how startup founders and investors describe their failures. While not 50,000 ways it cannot be done, below is a compilation of 51 startup post-mortems that describe the factors that drove a startup’s demise. Most of the failures have been told by the company’s founders, but in a few cases, we did find a couple from investors including Roger Ehrenberg (now of IA Ventures) and Bruce Booth (Atlas Venture).
They are in no particular order, and there is something to learn from each and every one of them.
You Are MUCH More Resilient Than You Think
Had someone told me I was going to work a night audit job, get 4 hours sleep a day, consult, and be part of a startup, I would have told them that they’re crazy. I knew I was resilient, but this really pushed me to the next level. NEVER underestimate your capabilities.
Focus and simplicity are often more difficult to achieve than building features on top of features on top of features. As a result, too many startups are unfocused. The time required to trim back an idea is not insignificant — said best by Mark Twain: “If I had more time, I would have written a shorter letter.”
(Don’t) multiply big numbers
Multiply $30 times 1.000 clients times 24 months. WOW, we will be rich!
Oh, silly you, you have no idea how hard it is to get 1.000 clients paying anything monthly for 24 months. Here is my advice: get your first client. Then get your first 10. Then get more and more.
Until you have your first 10 clients, you have proved nothing, only that you can multiply numbers.
Company: Standout Jobs
I raised too much money, too early for Standout Jobs (~$1.8M). We didn’t have the validation needed to justify raising the money we did. Part of the reason for this is that the founding team couldn’t build an MVP on its own. That was a mistake. If the founding team can’t put out product on its own (or with a small amount of external help from freelancers) they shouldn’t be founding a startup. We could have brought on additional co-founders, who would have been compensated primarily with equity versus cash, but we didn’t.
Title: Cusoy: A postmortem
I didn’t want a startup, but an actual business that generates revenue, and Cusoy would not fulfill that personal goal for me without a full-time team, 1-2+ years of funding, multiple years of hard work (3-5+ years at the very least?) trying to answer the if/when questions of whether or not Cusoy could make money (very expensive questions too, might I add — not only in money but time, my most valuable asset).
While I know there might be a possibility I could hustle incredibly hard and try to set up partnerships, the time investment required far outweighed the already incredibly slim chances of generating revenue.
We hired a local operations manager in Denver (Sasha Juliard) and soon launched at Shotgun Willie’s (the highest-grossing strip club in CO) and two other bars. We made about $1,200 on each deal (50% went to DexOne, we spent $800 on each launch event and we had $500 in hardware costs), this was the only sales revenue Flowtab ever made. We were tightening up our sales process, but it was hard to market ourselves properly in those bars without being there. It quickly become a distraction to our operations in San Francisco.
Title: Formspring – A Postmortem
Entrepreneurs: build your product, not someone else’s. The most successful products execute on a vision that aligns with their product’s and users’ goals. It’s hard to put blinders on when your stats are slowly coming down and you see other startups skyrocketing around you with various tactics and strategies. For the love of god, put them on. It’s the only way to build what you should instead of chasing others’ ideas.
Product: Mass-customized Jeans
We weren’t going to draw from the business until we had recouped our (parents’) initial investment. That meant continuing to operate 9-5 while earning an income at night, which was fine for the months leading up to launch, but totally unsustainable once orders started coming in.
No one likes someone who is too aggressive, but looking back, my idea of “too aggressive” could probably fit very nicely into the “persistent” bucket, which, quite frankly, is not enough when raising money. My father told me that, especially as a woman, to never be afraid to ask for what I want or to remind others of their commitments. People these days are busy, forgetful and over-scheduled; it’s quite possible my three emails each got buried, so a fourth or fifth email (not daily, though; maybe weekly) would have served me well. I’ll never know.
If you’re bootstraping, cashflow is king. If you want to possibly build a product while your revenue is coming from other sources, you have to get those sources stable before you can focus on the product.
…we most definitely committed the all-too-common sin of premature scaling. Driven by the desire to hit significant numbers to prove the road for future fundraising and encouraged by our great initial traction in the student market, we embarked on significant work developing paid marketing channels and distribution channels that we could use to demonstrate scalable customer acquisition. This all fell flat due to our lack of product/market fit in the new markets, distracted significantly from product work to fix the fit (double fail) and cost a whole bunch of our runway.
Title: My Startup Failed. F@<#.
More importantly though, people really didn’t really LIKE anything about our product. No one that used the service thought it was that cool. In fact, some people that participated in the sale didn’t even like our “dynamic pricing” system. They were trying to support the artist, so saving a few dollars didn’t excite them. They could easily have just gotten his music for free elsewhere.
The founders acknowledge they made mistakes along the way. They spent too much time on the product and not enough time on growth and distribution. The first pitch deck they put together for investors was mediocre. They began marketing too late. They failed to effectively position themselves against giants like Apple and Google, who offer fairly robust — and mostly free — Everpix alternatives. And while the product wasn’t particularly difficult to use, it did have a learning curve and required a commitment to entrust an unknown startup with your life’s memories — a hard sell that Everpix never got around to making much easier.
Rimer put it a bit differently: “Having a great product is not the only thing that ultimately makes a company successful.”
But we never defined clear hypotheses, developed experiments, and we rarely had meaningful conversations with our target end-users. And while we had some wonderful advisors in the parking industry, we should have met with everyone we could get our hands on. Worst, we rarely got out of the building.
Title: Play By Your Own Rules
Unfortunately, once your key metric is tied to cash value in the eyes of investors, it sucks to be number two. Your ceiling has been bolted in place. Your future capacity to raise cash or sell has a lid on it now.
We felt that in order to survive we had to get our numbers up. We tried just about everything to juice growth, some ideas being more successful than others.
We received conflicting advice from lots of smart people about which is more important. We focused on engagement, which we improved by orders of magnitude. No one cared.
Growth is the only thing that matters if you are building a social network. Period. Engagement is great but you aren’t even going to get the meeting unless your top-line numbers reach a certain threshold (which is different for seed vs. series A vs. selling advertising).
Decide how you want do things then hire people that want to do things that way. There’s value in having a diversity of opinion but in a early stage startups, the benefits (moving fast) of hiring people that generally agree with you outweigh the benefits (diversity of opinion) of hiring people that don’t.
If you can’t hire anyone that agrees with you, re-evaluate how you want to do things.
Title: Shnergle Post Mortem
Does your idea only monetise at scale? If your idea can only be monetised at scale, head to San Francisco / Silicon Valley. There isn’t enough risk capital, or enough risk appetite, in the UK/EU venture market to pour capital into unproven R&D concepts. If you want to build in the UK, find some way of charging money from day one. You can still use a freemium structure to up-sell later. Shnergle was never going to monetise before it had scaled fairly significantly. Fail!
Don’t raise money from people who don’t invest in startups. We raised a (comparatively) small amount of money from friends and family. For the most part they were very supportive, but there were exceptions. Aside from the fact that we got little (non-monetary) value added from these investors, people who are unfamiliar with investing in startups and the risks and challenges of building a company will drive you bananas. (Tempting, but don’t / duh.)
Title: Travelllll Post-Mortem
If your monetisation strategy is advertising, you need to be marketing to an enormous audience. It’s possible to make a little money from a lot of people, or a lot of money from a few people. Making a little money from a few people doesn’t add up. If you’re not selling something, you better have a LOT of eyeballs. We didn’t.
Product outside area of specialization: Nobody in the team had built a successful consumer product before. We all had experience in the enterprise space, selling to businesses. We had no experience in consumer of video. We were not playing to our strengths.
Next time I will play in a space I have lived in before.
Title: Why Startups Fail: A Postmortem For Flud, The Social Newsreader (Editorial)
“We really didn’t test the initial product enough,” Ghoshal says. The team pulled the trigger on its initial launches without a significant beta period and without spending a lot of time running QA, scenario testing, task-based testing and the like. When v1.0 launched, glitches and bugs quickly began rearing their head (as they always do), making for delays and laggy user experiences aplenty — something we even mentioned in our early coverage.
Not giving enough time to stress and load testing or leaving it until the last minute is something startups are known for — especially true of small teams — but it means things tend to get pretty tricky at scale, particularly if you start adding a user every four seconds.”
Title: On-Q-ity, a Cancer Diagnostic Company: R.I.P. (A VC’s perspective)
Getting the technology right, but the market-timing wrong, is still wrong, confirming cliche about the challenge of innovating… We may have been right that CTCs are “hot” and will be important in the future, but we certainly didn’t have enough capital around the table to fund the story until the market caught up. It will be great in 5-10 years to see CTCs evolve as a routine part of cancer care, though clearly bittersweet for those of us involved with On-Q-ity.
Title: How My Startup Failed
Product: Condom Key Chains
There was no doubt about it: I had discovered The Next Big Thing. Like Edison and the lightbulb, like Gates and the pc operating system, I would launch a revolution that would transform society while bringing me wealth and fame. I was about to become the first person in America to sell condom key chains.
Title: Why Wesabe Lost to Mint
Between the worse data aggregation method and the much higher amount of work Wesabe made you do, it was far easier to have a good experience on Mint, and that good experience came far more quickly. Everything I’ve mentioned — not being dependent on a single source provider, preserving users’ privacy, helping users actually make positive change in their financial lives — all of those things are great, rational reasons to pursue what we pursued. But none of them matter if the product is harder to use, since most people simply won’t care enough or get enough benefit from long-term features if a shorter-term alternative is available.
1. spent $20 million to get back to the same revenue that I had when I was CEO
2. declined Microsoft’s offer (summer 2000) to be the first enterprise software company with a .NET product (a Microsoft employee came back from a follow-up meeting with Allen and said “He reminds me of a lot of CEOs of companies that we’ve worked with… that have gone bankrupt.”)
3. deprecated the old feature-complete product (ACS 3.4) before finishing the new product (ACS 4.x); note that this is a well-known way to kill a company among people with software products experience; Informix self-destructed because people couldn’t figure out whether to run the old proven version 7 or the new fancy version 9 so they converted to Oracle instead)
Title: RiotVine Post-Mortem
It’s not about good ideas or bad ideas: it’s about ideas that make people talk.
And this worked really well for foursquare thanks to the mayorship. If I tell someone I’m the mayor of a spot, I’m in an instant conversation: “What makes you the mayor?” “That’s lame, I’m there way more than you” “What do you get for being mayor?”. Compare that to talking about Gowalla: “I just swapped this sticker of a bike for a sticker of a six pack of beer! What? Yes, I am still a virgin”. See the difference? Make some aspect of your product easy and fun to talk about, and make it unique.
Title: The Last AnNounce(r)ment
A month ago, half way through my angel funds raised from family members, I decided to review the progress I’ve made and figure out what still needs to happen to make this a viable business. I was also actively pursuing raising VC funds with the help of a very talented and well connected friend. At the end, I asked myself what are the most critical resources I need to be successful and the answer was partners and developers. I’ve been looking for both for about a year and was unable to find the right people. I realized that money was not the issue.
Title: BricaBox: Goodbye World!
Go vest yourself.
When a co-founder walks out of a company — as was the case for me — you’ve already been dealt a heavy blow. Don’t exacerbate the issue by needing to figure out how to deal with a large equity deadweight on your hands (investors won’t like that the #2 stakeholder is absent, even estranged, from your company). So, the best way of dealing with this issue is to take a long, long vesting period for all major sweat equity founders.
Ethan and I came up with the “Zombie Team” test for figuring out whether or not someone is ready to work on an intense project, be it a start-up or otherwise. The test is this: If zombies suddenly sprung from the earth, could you trust the perspective team member to cover your back? Would they tell you if they got bit? Most importantly would you give them the team’s only gun if you knew they were the better shot? If the answer is no to any of those questions you need to let them get eaten by the cubicle wasteland of corporate culture, because they aren’t ready for this kind of work.
Title: EventVue Post-Mortem
Our Deadly Cultural Mistakes:
· didn’t focus on learning & failing fast until it was too late
· didn’t care/focus enough about discovering how to market eventvue
· made compromises in early hiring decisions – choose expediency over talent/competency
The market was not there.
The thesis of our current business model (startups are all about testing theses) was that there was a need for video producers and content owners to make money from their videos, and that they could do that by charging their audience. We found both sides of that equation didn’t really work. I validated this in my conversations with companies with more market reach than us, that had tried similar products (ppv video platform), but pulled the plug because they didn’t see the demand for it.
Video producers are afraid of charging for content, because they don’t think people will pay. And they’re largely right. Consumers still don’t like paying for stuff, period. We did find some specific industry verticals where the model works (some high schools, some boxing and mixed martial arts events, some exclusive conferences), but not enough to warrant a large market and an independent company.
Title: Leaving IonLab
Second, as one of my friends observed, I talked to about 7 people (both acquaintances and friends) whose judgment I trusted. 3 of them sympathized and agreed with my decision and 4 of them admonished me and asked me to “hang in there.” You know what was the clincher? The first 3 had done startups themselves and the latter 4 had not. The latter 4 did not really understand the context, even though they meant well and are intelligent folks.
Title: Lessons Learned
The most significant drawback to a remote team is the administrative hassle. It’s a pain to manage payroll, unemployment, insurance, etc in one state. It’s a freaking nightmare to manage in three states (well, two states and a district), even though we paid a payroll service to take care of it. Apparently, once your startup gets larger, there are companies that will manage this with minimal hassle, but for a small team, it was a major annoyance and distraction.
Make an environment where you will be productive. Working from home can be convenient, but often times will be much less productive than a separate space. Also its a good idea to have separate spaces so you’ll have some work/life balance.
Thin line between life and death of internet service is a number of users. For the initial period of time the numbers were growing systematically. Then we hit the ceiling of what we could achieve effortlessly. It was a time to do some marketing. Unfortunately no one of us was skilled in that area. Even worse, no one had enough time to fill the gap.
Title: Monitor110: A Post-Mortem (A VC’s perspective)
The Seven Deadly Sins
While we certainly made more than seven mistakes during the nearly four-year life of Monitor110, I think these top the list.
1. The lack of a single, “the buck stops here” leader until too late in the game
2. No separation between the technology organization and the product organization
3. Too much PR, too early
4. Too much money
5. Not close enough to the customer
6. Slow to adapt to market reality
7. Disagreement on strategy both within the Company and with the Board
Title: Why We Shut NewsTilt Down
None of these problems should have been unassailable, which leads us to why NewsLabs failed as a company:
· Nathan and I had major communication problems,
· we weren’t intrinsically motivated by news and journalism,
· making a new product required changes we could not make,
· our motivation to make a successful company got destroyed by all of the above.
For anyone faced with winding down a company, I’d highly recommend taking a while off before making any big decisions, and not just the two and a half weeks that I’d initially tried. You’re not thinking straight when your startup dies – your perspective may be a bit different in a few months, as might your preferences for what you want to do next.
The corollary to that is to wind up your startup before you’re totally out of money, so that you have options for what to do next and don’t have to bargain from a place of total weakness.
Product: Link Management System
So the most important thing is to sell – a fact lots of startups forget. And we did too. After much thought it comes down to these six reasons why we failed (beside the obvious one that the VC market imploded when we needed money and noone was able to get any funding):
1. We didn’t sell anything
2. We didn’t sell anything
3. We didn’t sell anything
4. The market window was not yet open
5. We focused too much on technology
6. We had the wrong business model
I would advise any entrepreneur or investor considering content to think twice, as Howard Lindzon from Wallstrip warned us. Content is an order of magnitude harder than technology with an order less upside; no YouTube producer will earn within a hundredth of $1.65 billion. This will only become more true as DVRs and media-sharing reduce revenues and pay-for-performance ads eliminate inefficient ad spend, of which there is a lot. The main and perhaps only reason to do content should be the love of creating it.
I have been hearing this advise from the time I have been in my mother’s womb. Dont take this easily.If you are a techie there are more chances that you won’t follow this advise. Your heart doesn’t get satisfied with any levels of development.Ignore your heart. Listen to your brain. If you are a web startup , you can take max 6 months to release your first version( for something like mint.com) .Simpler websites shouldn’t take more than 2-3 months.You can always iterate and extrapolate later. Wet your feet asap.
Company: Untitled Partners
Hiring is hard, and without proper experience, we should have leaned more heavily on our investors to help us with this decision. Hiring was a challenge we found difficult throughout the life of our Company. We made as many bad decisions as we did good ones with regard to hiring full time, part time, and independent contractors/consultants. Biggest takeaway: As soon as the data starts to suggest someone might be the wrong hire, don’t wait, immediately start recruiting a replacement, and upgrade as soon as possible.
Company: Cryptine Networks
No matter how close of friends, how much you trust each other or how good your intentions are money comes between people and everyone over estimates their own contributions. Furthermore, founders become highly emotional about their companies. Thus, the process of negotiating taking back stock from founders is not rational and inherently very difficult. However, vesting schedules reduce the difficult negotiation to simply and mechanically exercising the companies pre-agreed right to repurchase stock at the price it was issued. I foolishly let myself fall into the “it won’t happen to me” trap but no startup gets it right on the first try and theses hiccups often lead to changes in the team. Believing that any startup won’t have to deal with stock vesting issues is totally unrealistic.
Title: Imercive Post-Mortem
For one, we stuck with the wrong strategy for too long. I think this was partly because it was hard to admit the idea wasn’t as good as I originally thought or that we couldn’t make it work. If we had been honest with ourselves earlier on we may have been able to pivot sooner and have enough capital left to properly execute the new strategy. I believe the biggest mistake I made as CEO of imercive was failing to pivot sooner.
Title: Meetro Post Mortem
Company: Meetro (aka Lefora)
We could have gone about trying to fix Meetro but the team was just ready to move on. Raising money on the flat growth we had was nearly impossible. Plus I knew that in order to keep the tight-knit team we had built together, we needed to shift focus for sanity sake. People (myself included) just felt beat up. We knew that fixing these issues would involve a complete rearchitecturing of the code, and people just weren’t excited about the idea enough anymore to do it right.
As the product became more and more complex, the performance degraded. In my mind, speed is a feature for all web apps so this was unacceptable, especially since it was used to run live, public websites. We spent hundreds of hours trying to speed of the app with little success. This taught me that we needed to having benchmarking tools incorporated into the development cycle from the beginning due to the nature of our product.
Title: Hubris, ambition and mismanagement: the first post-mortem of RealTime Worlds (Editorial)
Company: RealTime Worlds
Dave Jones made a virtue of having no business model for APB. He said “if a game is built around a business model, that’s a recipe for failure.”
Company: Q&A Service
But the more we moved down the path, the more I realized the complexities involved with selling answers. Knowledge is a tricky thing to sell, because even experts disagree on some answers. What’s worse, most people think they know more than they really do. Look at how many idiots think they know stocks, or programming, or even business. Nearly everyone thinks they can give good management tips. It is difficult to sell something so… confusing, and we realized it would lead to problems down the road. Yahoo, and most of the other sites, fix this by having people vote on the best answer, but we couldn’t post answers in public because that would take away our residual incentives. And anyway, I’m not convinced in the “wisdom of crowds” for anything beyond general knowledge. It doesn’t work for domain specific stuff.
Hyper-local is really hard. Don’t kid yourself. You don’t just open the doors and hit critical mass. We knew that from the jump. It takes a lot of work to build a community. Look carefully at most hyper-local sites and see just how much posting is really being done, especially by members of the community as opposed to be the sites’ operators. Anybody who’s run a hyper-local site will tell you that it takes a couple of years just to get to a point where you’ve truly got a vibrant online community. It takes even longer to turn that into a viable business. Unfortunately, for a variety of reasons, Backfence was unable to sustain itself long enough to reach that point.
Title: What an Entrepreneur Learned from His Failed Startup (Interview)
Company: Sedna Wireless
Finances were just one part of the story. The other part was that we failed to execute our own plans. Both external factors (e.g. the hardware ecosystem in India) and internal reasons (e.g. the expertise of the team) played a role. With money it would have lasted a bit more longer.
Title: Couldery Shouldery
We exposed ourselves to a huge single point of failure called Facebook. I’ve ranted for years about how bad an idea it is for startups to be mobile-carrier dependent. In retrospect, there is no difference between Verizon Wireless and Facebook in this context. To succeed in that kind of environment requires any number of resources. One of them is clearly significant outside financing, which we’d explicitly chosen to do without. We could have and should have used the proceeds of the convertible note to get out from under Facebook’s thumb rather to invest further in the Facebook Platform.
Data related to this research
An Excel list of all early-stage tech companies who appear to be running out of cash