David Feinleib at Mohr Davidow Ventures pens a piece called, “Why Startups Fail.” Here are his four reasons with my thoughts below.
1. Spending too much on sales & marketing before they’re ready
This is exactly why we encourage new companies to stay as far away from venture funding as they can. VC’s encourage you to spend! And since software is virtually free, and hardware is dirt cheap these days, and you only need a couple people to get your company and product going, the only place to spend your money is on sales and marketing. And spend you do, cause there’s nothing easier in this world than spending other people’s money.
2. The market outpaces the startup’s ability to execute
I hear this one discussed a lot, but I rarely see evidence of its impact. The market doesn’t really move that fast. Things generally move pretty slowly. Consumers move even slower, and consumer loyalty is built through great experiences over time not through early availability. First mover or early advantage is overrated. Google was late to search, Flickr was late to photosharing, Facebook was late to social software. Being late gives you a chance to watch the market develop and spot what’s actually working and what isn’t. Take your time, build something valuable, and then go to market. No, you can’t wait 36 months to release something that’s 3 years behind, but if you’re a few months “late” (whatever that means), and you’re great, you’ll do just fine.
3. There is no Entrepreneur
This one I do agree with. Every great company has a great leader who is willing to make decisions, say “no” more often than “yes,” and see a clear vision through to fruition.
4. The market takes too long to develop
If the market takes too long to develop, there is no market… it doesn’t exist. Unless you have one of those rare products that can create a market, you’re dropping a product into a void. So don’t blame the market, blame the entrepreneur’s judgement.
(One other thing)
One more thing I want to comment on. At the end of the article there’s this sentence: “A startup that struggles for reasons beyond the entrepreneur’s control.” This deflects blame in the wrong direction. If the entrepreneur finds themselves in a situation they can’t control it’s almost certainly because they put themselves in that position — either by borrowing too much, spending too much, rushing too fast, creating a false sense of urgency, hiring the wrong people, attacking a market that doesn’t exist, or not focusing on generating revenue early enough. Natural disasters are out of our control, bad business decisions are in your control.
(And another thing)
“It’s not just how fast you run the race that matters. It’s how fast the race is run. When it comes to startups, speed wins.” That’s just ridiculous.
Andy Gadiel
on 23 May 08Well put.
We did a press release this week announcing some new partnerships. It’s something we’ve been trying to do lately after a decade of not really telling people what we were doing.
A blogger picked up the release.: http://gesterling.wordpress.com/2008/05/21/jambase-syndicates-local-music-data/ His last line sums it all up: Slow and steady wins the race.
Rudiger
on 23 May 08Your thoughts on reason #1:
It’s disingenuous to say software is virtually free. Development takes time, and while a couple of people working together may not put much cash in a startup, there is an opportunity cost associated with their time.
JF
on 23 May 08Rudiger, when I say “software is virtually free” I mean the software you need to run your business, not the software you create. The best infrastructure stuff is open-source/free, and if you need a few other things it may cost a few thousand a year.
Daniel Gibbons
on 23 May 08In some respects VCs are the very worst people to evaluate what works and what doesn’t. Not only are VCs’ returns generally pretty poor, they are also binary and short-sighted. Perhaps worst of all is the way they embrace the cult of the entrepreneur, investing in track records rather than real market opportunities (I’m a huge fan of virtually everything Marc Andreessen has to say on this topic).
tom s.
on 23 May 08I have a problem with Great Leaders. They seem recognizable only with hindsight, and in software a Great Leader in one venture often becomes a Great Failure in successive ventures. If someone could show a track record of identifying such people ahead of time then I’d be surprised.
I suspect this is a myth that is convenient to those who are successful.
Gv Jim Blanchard
on 23 May 08@andy gadiel. As a complete aside, your late 90s web stuff singlehandedly rocked my world. I probably gave andygadiel.com/phish thousands of page views from 1997-1999. I’m happy jambase is going well.
David Andersen
on 23 May 08@tom s -
so what are you arguing, that great (strong, good, choose your adjective) leaders don’t exist? I don’t think anyone ever claimed that greatness in leadership means no failures. Most highly successful people fail more than realized.
Grammar Boy
on 23 May 08At the end of the article there’s this sentence: “A startup that struggles for reasons beyond the entrepreneur’s control.”
That’s not even a sentence!
Chris Chowdhury
on 23 May 08Thanks for responding with this post. You’re setting people free from the fear and uncertainty of start-ups.
Keith
on 23 May 08RE: Market Pace
I think it depends on how crowded your market space actually is with established or startup competitors.
In these cases it is sometimes a footrace to both sell your image and value vs. your competitor’s and to remain abreast of the latest developments within your market.
Look at the proliferation of Basecamp clones that came out. The only one I still know about it is that PHP one ActivCollab.
eric shannon
on 23 May 08how about poor customer service? I have had no response to my support requests and the first one was weeks ago. The second a couple days ago.
base camp is great product that needs some very simple improvements, but I cannot get in touch with anyone…
tom s.
on 23 May 08@David Anderson – not so much that. I’ve met a few. More that “leaders”, great or not, have much less influence over the success or failure of a venture than is usually thought. I have seen organizations fail that were led by people I thought to be fine leaders, and organizations succeed, from my point of view, despite the people in charge.
JF
on 23 May 08Eric, I’m sorry you seem to have had a bad experience, but we respond to every support request we get—often within an hour during normal business hours. People are very happy with our support and speed.
You may want to check your spam filter if you aren’t getting responses.
UPDATE: We just checked the support logs. I see three separate emails from you. We replied to one in 1 hour 14 minutes, another one in 20 minutes, and the third in 4 minutes. We haven’t received a reply back on any of these from you.
Malcolm Lewis
on 23 May 08An alternate view on why startups fail:
1) No market. Startup is trying to address a problem or opportunity that doesn’t exits. Aka “technology in search of a problem”.
2) Uncompetitive solution. Market is big and growing fast, but the startup has a me-too solution that doesn’t bring anything new to the table.
3) Management cannot execute. Market is good, product is good, but the management team cannot translate those two advantages into a sustainable business. Usually because it spends to much.
Ben
on 23 May 08Eric, you should have known better, now you just got owned by Jason! JF is never wrong.
Anyone else been owned like Eric and I have?
JF
on 23 May 08Malcolm, those are great reasons too.
condor
on 23 May 08Not sure if JF is never wrong, I just think he really cares.
Tom Greenhaw
on 23 May 08I think the most important reasons for business failure are not mentioned:
Not the right people with the right skills, talent and or experience. In other words – inadequate production capacity. It’s people that make a company successful.
I like to think that building a business is like buiding a campfire – you need heat, fuel, and air. Once you start the fire, it generates it’s own heat. To build a business, you need money, production capacity and sales. Money is like heat, production capacity is like fuel, and air is like sales.
The list above focuses on sales and money and ignores the most critical part – people.
Steven
on 23 May 08That guy is full of crap. I have owned businesses and racing teams, and the race-smart guys with the right strategy win. Not always the fastest.
Ever heard the phrase “slow down to go fast”? It is an old car racing phrase. Speed is part of the game but more important is endurance. You can’t win what you don’t finish.
These guys should quit chasing rainbows and build businesses.
Tom G
on 23 May 08Wow – the last sentence in David Feinleib’s piece is: Sometimes you have to slow down to speed up.
John
on 24 May 08and you’re great, you’ll do just fine.
I think this hits the nail on the head. You have to be better than the rest. To many people create mediocrity for easy money in the web. The money is never easy, and its only given to those that see a better product vision, not to the same vision as everyone else.
Look at the guy who created facebook, he was quoted as saying “I just want to create something cool.”
Wim Permana
on 24 May 081. Spending too much on sales & marketing before they’re ready.
No Jason, No! because the phrase “too much” is a horror for a lot of founders out there. Including here in Jogjakarta, Indonesia.
My advice is to spend as little as possible which mean; pick up the free service to others as long as it is available as good as the air.
AdrianRivers
on 24 May 08One criticism, one comment.
Criticism: The last paragraph in Jason’s piece quotes part of Feinleib’s last paragraph and describes it as “just ridiculous”. Taken as a whole, I think Feinleib is spot on – “speed” is not necessarily about going fastest, but about getting your timing right.
Comment: There is debate in the comments above about whether market positioning (and timing) is the most important success factor or whether the critical factor is the quality/competence of your internal resources (including your leader/entrepreneur). This debate is played out in the management literature (with Porter championing the importance of “environment” and Hamel and Prahalad etc taking a resource-based view). Of course, both dimensions are critical to success – a start-up needs to have a proposition for which there is a market and the resources (human and financial) to exploit the opportunity.
Steve Wilhelm
on 24 May 08In my experience, there is no shortage of good ideas and opportunities abound.
What is rare is the opportunity and ability to bring together talented people who share a vision, and to create a working environment where there are clear goals and spheres of responsibility.
Said another way, the best ideas go unrealized and opportunities are missed if a startup lacks: talent, vision, concrete deliverables, realistic time tables, and a set of disciplined development and business processes.
joe
on 24 May 08I think the failed startup-to-be shows up with a couple of useful tricks and maybe some good people. You have to be able to see the whole model that the useful tricks reveal and develop the business toward fulfilling the opportunities within the model. Agree with Steve Wilhelm especially about disciplined development and business processes.
Jesse Hines
on 24 May 08“If the market takes too long to develop, there is no market… it doesn’t exist.”
In other words, take some time, initially anyway, to research the market so that you can potentially save yourself lots of time later on—by not launching something for which you should have known wouldn’t really work.
Kathleen
on 24 May 08Concerning your objections to the first point, I understand what you are saying, but to play devil’s advocate, I think that a key point is at the end: “before they’re ready”. Spending however much or little money on sales & marketing will not make a difference if your product or service is simply not ready for the market. Many entrepreneurs are so excited about their product/service that they attempt to start selling it before it is either ready or close enough to ready to become viable.
JP
on 24 May 08Except with point 4, I agree and found this article very useful. Take for example “green tech” and see why this point isn´t applied to that market.
j
on 24 May 08if i was JF, I would not have embarassed eric. I would have suggested he email again, and I would have suggested he check his junk settings, but i would not have slammed him publicly.
makes JF look like a bully, even if correct.
he didn’t SEEM to have a bad experience - he HAD one. it WASN’T 37S fault, but he still HAD one. slamming him is cheap, as is the patronizing “seem”. I know this kind of language - accurate, penetrating, demoralizing. Being RIGHT is no excuse for being a JERK.
jF
on 25 May 08J, I’m not slamming anyone. Since Eric isn’t getting emails from us, I have no way to get in touch with him with specific details other than posting a comment here. I wanted to give him the specifics so he can check his spam filters and cross reference with times so he can find the responses.
Rachael Hampton
on 25 May 08Love the points that were brought up in this post and in the comments. Also would like to add to n#4 Making excuse as for why it taking so long to develop.
Peter Urban
on 26 May 08Recently we also get a lot more of what I call Error 411: ‘no business model in sight’ again. If asked how to make money the answer ‘don’t worry, we’ll monetize our (soon to come) huge user base…’ is not good enough for me.
eric shannon
on 27 May 08jf, i am still having a bad experience. you haven’t given me anything useful. i’ve white listed 37signals.com and basecamphq.com and i’m still not receiving your replies… you guys are a little domain challenged and yet no white listing info on your support page that i can see.
I am not having problems receiving e-mail from any other source.
-eric
JF
on 27 May 08Eric, the only contact information we have from you is your email address. When you sign up we don’t ask for a mailing address or a phone number.
Regarding email addresses on our web site: You have submitted three support emails. We’ve replied. You haven’t received them. That is why we’re trying to help you locate them.
We’re trying to help you here. This isn’t adversarial.
If you have another email address, shoot me an email from that address and we’ll forward the support emails we’ve sent you that you haven’t received.
Charlton
on 27 May 08All of these reasons resonate with me.
I worked for a startup for about a year and a half, as an employee, and tried to start one myself. Many of these “why startups fail” reasons could have been taken from their management playbook.
I would add:
N. Insufficient ruthlessness, or excessive politeness.
Startups are often founded by groups of friends. If one of the partners simply cannot deliver, the business is in trouble, no matter how great the market space is, no matter how innovative the idea is, no matter how much the venture capitalists love it. If one of the partners simply cannot deliver, and the other partners simply ignore it, the business is doomed.
Bernard
on 27 May 08Success stories are always published after the fact and then human nature kicks in to glorify them. You can’t sell reality but you can certainly modify it to monetize it.
If you like uncertainty start a company, if you sort of do, start a blog about other people starting companies, and if you don’t like uncertainty at all, get a corporate job with health, dental, and a decent 401k so you can take care of your family and then call it a day…
Engago team
on 28 May 08If a VC could generate leads or bring customers, then an VC is interesting. However VC’s are not into selling the products or the services of the company. They are interested in selling your company at a premium price.
Your company is just a temporary vehicle until he next one.
The main reason to start a startup is a market opportunity.
Eric J Gruber
on 28 May 08Eric,
Are you running your MX record through Google Apps, by chance? I’ve had some problem as of late not getting e-mails from my mailing list manager to one of my e-mail addresses that is running through Google Apps.
Just in case.
Peter
on 30 May 08I have to say, it’s pretty entertaining to finally have some folks who are willing to call out VCs on their ridiculous statements. Good morning-starter!
eric shannon
on 30 May 08JF,
I am now getting an e-mail copy from your server when I post a support request. but I have still not received any mails at all from you or your support team. we do have two levels of spam control but have white listed your domains 37signals and basecamphq in both systems.
In the past, when I cannot receive e-mail from someone, it has always been because their domain is blacklisted in one of the spam databases. Is it possible that your support person is using some other mail server other than your corporate servers?
I have tried many different things with your support form using various different e-mail addresses and am still coming up empty.
ordinarily, I would give up more easily—but I like your product a lot. I am the president of a 10-year-old Internet company with about 25 employees spread all over the hemisphere and your service has improved our teamwork remarkably.
suggestions?
—Eric
eric shannon
on 30 May 08no, we are not using Google apps in any way…
This discussion is closed.