5 Lessons from 2 Failed Startups
7 years ago, on my last year in university, I unwittingly embarked on a startup journey. Here are the five most important lessons that I picked up the hard way.
The main reason I wrote this piece is so that I don’t repeat the mistakes I list below, but I’m publishing it in hopes that my experience will have a positive externality — that someone out there will internalize these lessons without paying the cost of money, time, and tears.
FIRST STARTUP
What it was: the first premium educational platform for a popular competitive video game (Dota 2);
My role: main content guy — I wrote most of the content and worked directly with our influencer partners, but with time got more and more involved;
Timeline: created platform and developed content; launched successfully and found decent traction; slowly faded into obscurity due to insufficient funding to deliver on promises;
LESSON 1: Be prepared for different levels of success
Naturally, when we started the project we had great expectations for its future financial performance. We also kept in mind that it could crash and burn, as we knew most innovative products fail.
The two options in our heads were either:
- great success — the business supports itself just fine and grows
- or total failure — we close down and search for “real” jobs.
What we failed to anticipate is the vast land in between those two extremes. That’s where we ended up. When we launched we started making enough money to indicate we are onto something, but not enough to fully support and grow the business.
When you hear something along the line of “90% of startups fail”, you imagine that 10% of startups hit the jackpot while the other 90% lose their money and close their doors instantly. However, this statement lacks a time dimension and a grayscale between the whiteness of success and the blackness of failure. It could be useful to investors, but it is misleading if you are a founder.
I’m sure some startups lose their money very fast and are left with no choice but to close operations. Yet, I’d wager a big chunk of the unsuccessful 90% spend a long time trying to navigate mixed signals from the market. The problem is that in such conditions decision-making is not straightforward. Are you wasting your time, or are you on the brink of something worthwhile? Not an easy call to make.
When faced with such decisions, pessimists quit too early, while optimists tend to believe success is just behind the corner perpetually. Both mindsets are wrong.
If you quit too early, you are cutting short the chances that you’ll hit a lucky breakthrough.
But if you fight for too long, it could get you stuck in a terrible limbo people in the startup community call “the land of the living dead”. You make ends meet, barely, but in reality, you are just wasting your time, potential, and testing the patience of all the people with a stake in your success or failure (people in both your personal and professional life). A business is, generally speaking, not a worthy cause for martyrdom.
In our case, we ended up in the second option. We had over-promised so our investors and business partners were unhappy with the performance, yet we were not ready to give up yet because we still saw a lot of potential.
At the same time, without the full support of the inventors and partners, we had no chances to succeed. We spend over a year in this state. You need to be realistic about these things, and in startups, the business of selling dreams, this is harder than it sounds.
Plan for success, plan for failure, plan for everything in between.
Retrospectively, what we had was a successful proof of concept which required further funding to grow and become a real business. Our failure to anticipate this outcome meant that neither we nor our partners or investors were prepared, which spelled the slow and agonizing death of the project.
If you’re a founder, you need to be granular in defining success and failure. You need to have a timeline everyone agrees upon (not only the founders but all stakeholders) and a definition of different levels of success so that nobody quits too early or leads a lost war for too long.
For example:Great outcome: X months after launch, we’re making enough money to support the business. We agree to reinvest and grow it slowly to avoid dilution (lifestyle business route) or to fundraise to grow fast and search for an exit (startup route).Good outcome: X months after launch, we’re making money, but not enough to support the business. This is expected — proof of concept. We’re in the process of fundraising. If we succeed to fundraise until month Y (money runs out) — great. If not — we close the business.Bad outcome: X months after launch we’re making very little (if any) money. We pivot if we still have resources, if not — we close the business.
LESSON 2: Find a mentor
The three main components people talk about when evaluating startups are usually the team, the product, and the market.
It’s hard to argue if any of the three is more important than the others. Usually, you need all three to be good enough to reach success.
In our case, we were lucky enough to have a favorable market — demand for what we were offering and lack of any real competition.
The product was so-so: it could have been much, much better considering our lack of experience & resources, but it was good enough to attract the early adopters and with time it could have evolved.
The team, however, had 0 experience.
We did this straight out of university (I worked on the project part-time until I finished my masters). The founder was the technical guy and he was a junior developer at best. I was the content marketing guy and even though I had some marketing courses in uni (which mostly focus on traditional, big businesses), I had 0 real-world experience.
Our lack of technical/marketing experience proved not to be fatal — we were learning on the go and managed to push out a working product and to reach our customers. We had vision, passion, some domain knowledge, and the willingness to work hard.
What was fatal, however, was that we had 0 experience running a business. Honestly, we had close to no knowledge about startups and what to expect of these kinds of projects. Doing the actual work takes thousands of hours, and the minutes spent making a bad decision can easily invalidate all your efforts.
If present-day-me could advise and mentor this startup, I’m certain it would have become a successful business.
If you are a young entrepreneur, you need a mentor. An official one, with a small share in the business in order to have skin in the game. Ideally — an entrepreneur who has some startup experience behind his back or at least someone who has been deeply involved in such businesses. Turn to your local startup community and it won’t be that hard finding someone interested: after all, most people like giving advice as well as getting free shares in companies.
[If you don’t have an official mentor, at least make sure you’re getting mentorship from other places intimately familiar with your business (investors, startup groups or communities, etc.).]
Embarking on your first startup journey without a mentor is like trying to become an MBA star without ever having a basketball coach. Unless you are incredibly lucky, you will simply fail. You’ll make fatal mistakes like the one above (and many more I can list, but it would take forever). Frankly, even nowadays, being much more experienced, I doubt I’ll ever work on anything innovative without a mentor.
SECOND STARTUP
What it was: a monetization platform for video game influencers and content creators in the same niche
My role in it: founder
Timeline: fundraised (a bit more ambitiously this time); created platform and developed content; launched and found 0 traction; turned the website into a profitable gaming blog for a year; tried to pivot in the meantime, unsuccessfully;
LESSON 3: Market expertise doesn’t trump startup common sense
As you’ve probably noticed, startup one and startup two are connected. What happened is that the founder of startup one finally had enough and bailed. I still had a chip on my shoulder, however, and managed to convince one of the old investors (and a few new ones) that there is merit in having another go at the market with a new (more ambitious) concept. Naturally, things didn’t turn out as planned.
“Fail fast, fail cheap, and leave yourself time to pivot.”
That’s probably the most frequently repeated startup advice. And probably the most valuable one you can get. The one that you need tattooed on your forehead if you’re a founder.
So, even though I was aware that the biggest startup mistake is to spend all your resources developing something no one needs, I made exactly that mistake. Like many a startup, I burned through 90% of our bank to acquire the validated learning that there’s no demand for the product we’re making.
What led me astray was the belief that I was an expert on this particular market niche and knew intimately its needs.
The confidence I had, obviously, was false.
What’s true is that the previous startup validated that the market actually exists, which is a good start.
What’s not true is that the previous startup validated in any meaningful way the new product we’re developing. We had a new concept, a new marketing approach, etc. Equally importantly, the market had changed since the first project — competition was starting to pop up, etc. I was probably one of a handful of people on the planet intimately familiar with this small market niche, and yet my ideas weren’t bulletproof anyway.
After we launched and saw 0 traction, I tried to pivot with a new idea based on the market feedback. The problem was that I had to validate it on my own with no budget and no team. I couldn’t do it properly, and I still don’t know to this day if this idea would have worked out if I had more resources to test it.
Looking back, if I had focused on being an expert on running a startup as much as I did on being an expert on the market, things could have turned out quite differently. I could have tested the waters for plan A with 20% of the budget. That would have left me with enough resources to try out at least three more different approaches. We were working from Eastern Europe (Sofia, Bulgaria) and mainly with freelancers, which meant that our burn rate was quite low.
Failing fast and cheap would have made the company four or five times more likely to succeed. I suspect that this number is even higher because the accumulated expertise by smashing your head into the wall (market) repeatedly means that plan B is usually better than plan A, plan C would probably be better than plan B, and so on.
Every startup needs to be lean (test your assumptions with minimal resource investment) and agile (be ready to continually change your concept/priorities base on market feedback). This is simply not negotiable if you want to succeed no matter how much of an expert you believe yourself to be.
“Startups almost never get it right the first time. Much more commonly you launch something, and no one cares. Don’t assume when this happens that you’ve failed. That’s normal for startups. But don’t sit around doing nothing. Iterate.” — Paul Graham
LESSON 4: Don’t regret correct decisions that didn’t turn out your way
After launching and finding 0 traction with almost no money left in the bank the realization where things are headed hit me hard. I wasn’t ready for a second failure just yet, however, so I poured all my efforts into finding a source of income for the business to give us some breathing room.
Content marketing was my biggest strength, so I made a content strategy and started churning out articles. I managed to grow the traffic of the website significantly (reached 240k unique monthly visitors at its peak), and at the same time, I was doing cold outreach to any viable business that might want to advertise with us long-term.
I deliberately made some of the content well suited to advertise a certain type of business in our niche. Eventually, I managed to close a deal with such a business, which gave us just enough income to keep our head above water.
During this time, an unexpected opportunity presented itself. A new game closely related to the one I was writing about pupped up and started gaining popularity (Auto Chess, which later turned into Dota Underlords). I was in a great situation to start writing about it and to turn our website into the main authority site on the subject, and slowly but surely I managed to rank our website in the first place in Google SERPs for most relevant keywords.
The hope was that the game was going to continue to grow (and our traffic along with it). This, in turn, would allow me to land bigger advertising contracts, giving me the needed funds to bootstrap a team and continue the validation experiments related to this new market and our newly acquired audience (I was trying to get the business into a positive feedback loop).
Then this happened:
Dota Underlords (the game we attached ourselves to, our market) fell from over 200k to about 10k concurrent players. Naturally, as I had invested most of my time into Dota Underlords content, our traffic started falling as well, which invalidated the authority site plans and made new advertising sales much, much harder.
You could argue I should have diversified our content to avoid this situation, but the reality is that you have limited resources and you need to plan how to use them. The business was created as a startup, it had investors, which by definition demands at least some level of ambition. Surviving as a niche gaming blog wasn’t going to cut it for the people involved, so I decided to go all-in on the opportunity I saw.
It didn’t work out, but that’s OK. As mentioned, most startups fail. Sometimes they fail because of avoidable mistakes (as demonstrated above), but sometimes they fail because the educated bets they make don’t work out.
Making educated but risky bets is what startups do, so don’t regret the second kind of failure when the risk is anticipated.
LESSON 5: Accept full responsibility
It’s quite easy to blame the circumstances when you’re looking back at past failures. It’s a great way to protect your ego. Going back to my own journey as an example:
- Startup environment: access to mentorship, funding, and know-how would have been much better if I was located in Silicon Valley. Yet, I tried to play the game of startups in Eastern Europe. Paul Graham sometimes mentions the concept of the Milanese Leonardo. In two words — there is no such thing, all great 15th century painters come from Florence, not Milan. So where are the Milanese painters? The theory is that the environment in which you develop trumps any kind of talent and probably even hard work. Maybe I’m a hardworking genius, but simply failed because of the unfavorable environment half-a-planet away from the Valley.
- Influencer partners: our two key influencer partners for the 2nd startup project bailed just before we launched. Surely they are to blame for the failure at launch, not me?
- Crisis in Ukraine: speaking of partners, our main business partners for the first startup were a Ukrainian esports organization. Shortly after launch, the political crisis in Ukraine happened and naturally, they were unable to fulfill all of their promises related to our project (they had bigger problems of their own). Surely we couldn’t have predicted geopolitical events while managing an esports startup?
I could go on, we’re all masters at making excuses. However, this is a fool’s game. Analyzing your past circumstances is important, but only in the light of taking valuable lessons into the future. An excuse means you learned nothing from an important event.
All of the above seems like it’s something I don’t have control over, but I’d argue that’s not true.
- Environment: I didn’t want to move to SV, but there are other ways to solve this problem at least partially. E.g. I could have reached out to people to ask for remote mentorship. “We have funding, we’re building this product, we want mentorship (weekly/monthly Skype calls) and we’re ready to give you a small share in the company to commit.” That’s not a bad offer and a viable way to make a connection to the real startup world.
- Partners: I could have done a thousand things to keep them more interested or involved in the project to minimize the chance they’ll quit. Even that aside, I could have made sure we’re not as reliant just on those two and involved more partners in advance.
- Crisis: sure, I couldn’t have predicted the geopolitical events, but I could have prepared for potential problems with our partners (same point as above). If someone is so important for your business that you fail if they underperform, you better have some plan to mitigate this risk. As a startup founder, you constantly operate in a high-risk environment. It’s your job to protect the project against the most critical and most likely of those risks.
Past failures are a blessing — put them on your shoulders and they will make you stronger.
Future failures are the ones you want to avoid, and your past failures are the best tool for the job.
If you want to chat, don’t hesitate to get in touch.
