Why do startups fail?
Knowing this might be helpful to your success.
Everyone knows that most startups fail, but do we know why? Venture Capitalists claim to know — and yet VC’s are wrong about 75% of the time.
So they’re probably the wrong people to ask.
Fortunately, a Harvard Business School professor, Tom Eisenmann, recently wrote a book called Why Startups Fail (I do love a nice, clear title) in which he reports his research on the topic. He studied hundreds of failed startups and he concludes that we can break the failures down into two buckets, Early-Stage Failure and Late-Stage Failure and that within each of those there are three common failure patterns. He defines them as:
Early Stage Failure
- Good Idea, Bad Bedfellows, which basically means the wrong team of founders and investors.
- False Starts, which means building the wrong product (CB Insights recently ran a survey of founders of failed companies and “No market need” was the top reason cited).
- False Positives, which means you talk to two customers and they both love your idea so you build it only to find out those two weren’t actually representative of the larger market.
Late Stage Failure
- Speed Trap, which basically means premature scaling.
- Help Wanted, which means failing to staff properly during the high-growth stage (the early-stage team often isn’t a good fit for the growth stage).
- Cascading Miracles, which is when a company’s early success can be attributed to a series of low-probability bets that paid off, but eventually their gambler’s luck ran out.
Eisenmann’s list seems about right to me. In my own Silicon Valley career, I’ve lived through most of these and I’ve seen all of them. They’re all pretty painful.
As we go through the Launch Path we’ll return to many of these themes, as I try to help you avoid my failures. My job is to serve as a cautionary tale for others. You’re welcome.
This article was merged into my new book, The Launch Path, now available on Amazon.
