Why You Should Write a Premortem For Your Startup
90% Of Startups Fail…
So let's not act so surprised when it happens to yours. It’s become cliché for founders to glorify failure, but it seems to let people off the hook for bad behavior. Acknowledging from the start, with anticipation, that unexpected circumstances will arise provides founders more time to raise defenses, or even avoid them entirely. Playing out scenarios and possible outcomes can improve the startup’s chances of success.
CB Insights, tech market intelligence platform, has been updating a compilation of startup failure postmortems. The lessons and pitfalls learned, from startups that are no more, include investor dropout, no market need, running out of runway, logistical missteps, poor product, timing, and legal challenges. More and more founders are penning postmortem essays detailing reasons why their respective startups failed.
Zen99 shut down because they uncovered a user acquisition problem due to a newly launched competing product.
We had a user acquisition problem, and the best route involved a competitor…The best acquisition method I saw was tapping into an existing network of people who had filed 1099s: like Intuit’s hundreds of millions of tax returns, many with 1099 income. Unfortunately, Intuit released an identical competing product to us. It’s not ideal when your best user acquisition strategy is partnering with a company who has a competing product. — Tristan Zier, Zen99 CEO
Take Eat Easy, which managed to become one of the top restaurant delivery businesses in Europe and reaching one million deliveries, filed for judicial restructuring. As things were looking good they suddenly ran out of runway and were pushed into a corner. They abruptly said goodbye.
The reasons are that 1) our revenues do not cover our costs, and 2) we are not able to close a third fundraiser …. In March 2016, after having been rejected by 114 VC funds, we signed a term sheet with a French, state-owned, logistics group, for a 30M euro investment. Unfortunately, after 3 months of intensive due diligence, their board rejected the deal and they ended up withdrawing their offer. We were negotiating with them under an exclusivity agreement, didn’t have a plan B, and only had a couple of weeks of run-way left. — Chloe Roose, Take Eat Easy Founder
I think it’s good for startups to share their stories to prevent others from making the same mistakes. However, instead of examining the causes of what went wrong, why aren’t more startups writing premortems? The premortem is a managerial strategy in which a founder imagines that a startup has failed, and then works backward to determine what potentially could lead to the failure of the startup.
In The Obstacle Is The Way, based on the stoic principles from Roman emperor Marcus Aurelius, author Ryan Holiday states, “premortems envision what could go wrong, what will go wrong in advance before we start.” Far too many startups fail for preventable reasons. They ignore the possibility of something going wrong and many don’t set contingency plans. What most neglect to take into account is that you have to make concessions for the world around you.
The only gaurantee, ever, is that things will go wrong. The only thing we can use to mitigate this is anticipation. Because the only variable we control completely is ourselves. — Ryan Holiday
According to Harvard Business Review, prospective hindsight — imagining that an event has already occurred — increases the ability to correctly identify reasons for future outcomes by 30 percent. A typical premortem runs like this:
- Gather a team for a 90-minute meeting announcing that the startup is going under.
- Make sure the team is aware that this is an exercise in hindsight — in advance.
- Brief your team on a plan.
- Have your team members write down reasons for why it failed. Make sure they are honest and open because in reality, the startup hasn’t actually failed.
- Ask your team to read reasons off their respective lists.
- Review the reasons.
- Develop decision trees and an overall backup plan for each setback.
Although there are a lot of methods to access risk, a premortem might be the best way for a startup to connect the dots going forward. Imagining unexpected disappointment will help you think though outcomes while enabling you to be prepared for failure and ready for success. Maybe this can help reduce the startup failure rate and dreaded postmortems.
