Startup Failures: Five Ways To Crash Your Startup, Which Will You Pick?

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Startup Failures: Five Ways To Crash Your Startup, Which Will You Pick?

 


When talking about startups, it is interesting to talk about market forces, competition, product design and a variety of other things that founders believe they need to really understand and “get right” in order to survive. Though this is true (all of these things are interesting and important), it seems to me that more startups die from preventable causes than from external forces.

Sure, the act of crashing a startup startup is not sudden or immediate, but ultimately, from the company’s perspective, is still just as fatal – it just takes a while.

Here are the top ways that I’ve seen for startups to run a startup into the ground. Some take time, others are pretty quick. If you find yourself falling into any of these camps, I’d suggest reassessing and asking yourself: Why am I doing this? Can I control it? What’s the outcome that I really want?

Five Effective Methods Of Startup Failure:
  1. Death Before Life: I’m going to resist the temptation to dive into the metaphor of pro-life and pro-choice (which is a serious topic and I don’t want to belittle here). But, the concept is that the founder is “ready” to start a business. In essence, the startup is “real” (but it’s just in the founder’s head). At this point, the founder will likely start brainstorming. She will start coming up with ideas, bouncing these ideas off people she trusts and respects (and sometimes even people she doesn’t respect) to get a sense of what might work. The goal is to find The One True Idea that when it arrives in the founder’s brain will become this shining beacon of light that will guide the founder and the future management team through the dark wilderness of startup-land. Lots and lots of would-be startup founders fail with  their startups in the pursuit of The One True Idea. Quick tip: There are very few cases where a founder really comes up with the One True Idea, and even if she did, she’ll likely be talked out of it by friends, family and colleagues anyways.

  1. Failure By Isolation: Let’s assume that the founder does finally settle in on an idea. One of the most reliable ways to fail at a startup (this one takes a bit longer), is to keep the idea to yourself for extended periods of time assuming that you need to stay in “stealth” mode so that someone else won’t steal it. The idea remains in the founder’s head. Little resources can be committed to it, and the idea is never really brought out into the harsh light of reality to see if it can survive even modest scrutiny. Ultimately, when the idea is forced out, it becomes obvious that there is no way this idea will ever really work. Unfortunately, lots of time passes between the original idea and the ultimate realization that it’s not the right one.

  1. Failure By Founder Dissention: If the founder is smart, she will start early in trying to pull together one or more co-founders to help get the business off the ground. Here is where it gets tricky. Founder issues are very challenging. Everything from how do you divide equity, who will do what, who will take on what title needs to be discussed. The only thing worse than disagreeing about some of these things is not disagreeing about these things because you haven’t even talked about them. I wrote about this in “Important Questions Startup Co-Founders Should Ask Each Other”.

  1. Failure From Doing Nothing: When I say “doing nothing”, what I really mean is “doing nothing that is creating value for customers”. I am constantly amazed by how many creative ways founders can find to do things that have the illusion of moving their startup forward, but that has almost nothing to do with creating value for customers. Let’s design this fancy website. What about our business cards! What about this 120 page business plan? Surely we have to think through competitive analysis to make sure we build the right product. Don’t get me wrong, all of these things are important – but they are all trumped by the single act of creating customer value. If you don’t know how to create value: ask the customer! So many startups delude themselves into believing that all the activity around strategy and planning and marketing and “launch preparation” (yep, I’ve heard that one too, before the product development was even started) is what will determine their success when they “finally get out there”. I get really worked up about this one. I’m going to go get a cup of coffee and stare out my window so I can cool down.
    …Ok, I’m back.

  1. Failure From Determination: To clarify, what I mean here is when you are determined to make your original idea a success. You read somewhere that lots of startups die because they give up on their idea too soon and you’re not going to have that happen to you. Come hell or high water you will see this idea through! Here’s an insider tip: Most successful startups end up doing something that is different from their original idea. Dogged determinedness will likely keep you from building the business that you could have built. Yes, you can’t just drop every idea that comes along at the first sign of conflict or controversy. It’s a very thin line (nobody said startups were easy).


There are of course lots of other reasons could fail, but the reason the reason I selected the above ones are because they are all under the founder’s direct control. We have not talked about industry selection, competition or anything else. I don’t know about you, but I’d argue that a higher percentage of startups fail for one of the above reasons than the “we got our pricing all wrong and so couldn’t really get market traction” kinds of issues. What do you think? What are other methods of startup suicide are out there? Perhaps there are a few that I missed that are even more effective.

Posted by Dharmesh Shah on Tue, Nov 14, 2006

COMMENTS

Excellent article!

The only addition to your list that I can think of is loss of interest in the product and/or business by the founder(s).

posted on Tuesday, November 14, 2006 at 11:33 AM by David Duey


I always keep in mind "Death By Lying To Yourself." A lot of young entrepreneurs aren't brutally honest with themselves when a potential problem comes up with their idea. This is because they don't want it to ruin their idealistic view, or they are afraid the problem might bring everything down.

So instead of trying to solve the problem head on, they ignore it....and of course it becomes death later on.

posted on Tuesday, November 14, 2006 at 11:52 AM by Brian Balfour


Pretty valid points. Value to the customers is the baseline. Surprisingly many peoplel dont think on this at all ..

posted on Tuesday, November 14, 2006 at 12:42 PM by dhoom 2


I have first hand experience with death by determination and it's a topic you rarely see discussed.

If you read the business magazines you come across dozens of stories where someone slogs on in the wilderness for years before finally hitting it big. Truth is you have a better chance of getting hit by lightening.

Most of the successful startups I know knew within weeks of launch that something was working or not. It may have taken a year or more for positive cash flow but it was obvious to an outside observer that it would happen.

If something isn't working it is a far better use of resources to go in a different direction than just soldiering on.

posted on Tuesday, November 14, 2006 at 12:45 PM by Rick Mason


Bloody kick-*ss AWESOME post Dharmesh!

Relative to your email notification email comment, TRUTH is NEVER negative, it just is! And those who want to win MUST make a decision... either to learn and adapt to truth or... die on the vine. If the latter decision i.e., avoidance of truth, then it is immaterial as to when they die because it just takes a while to quit breathing.

BTW [1] Your 4th point is AWESOME! and [2] I'm doing the Digg and Reddit thing regarding this totally awesome post!

Hopefully your entrepreneurial minded readers will learn and adapt relative to your highly relevant observations and rather gently placed recommendations! and... FAST!

As an aside... Succeeding is a blast!!!

posted on Tuesday, November 14, 2006 at 12:45 PM by Sheamus


I would add one more cause to the list, one faced by many unproven, inexperienced entrepreneurs: Death by Investors, specifically by spending your time courting them instead of developing your product or service. This goes along with #4, because it amounts to spending time on something other than providing customer value, but the thought of rich angels eager to write checks (and thus wash away some of the founders' risk) can be too enticing to those who have not been down that road.

My first company--as well as others I have known first-hand--collapsed because we spent our time and effort trying to woo investors rather than building our product. We were young and unproven, so potential investors were never truly comfortable with us, but they also were not willing to just turn us away and maybe miss out on a winner. Instead, they always had a few more hoops for us to jump through before they would be ready to sign the check. The longer this went on, the more time we spent trying to impress investors rather than developing the product we were trying to fund. We ended up with dozens of fruitless meetings and a stellar-looking business plan, but no business. The irony is that if we had ignored siren song of Other People's Money and used that time to build the product, those same investors may have finally seen something worth investing in.

posted on Tuesday, November 14, 2006 at 12:57 PM by Vincent Frisina


These methods aren't all equal, it seems to me.

By far, #1 is the most common. Lots of people never transition from "thinking about doing a startup" to "doing a startup". The reasons aren't always the same: some are just dreamers, others are unfocused, still others are in deep pain over their uncertainty.

I'm skeptic of #2. People can do wonders with truly terrible ideas. (Larry, Sergey, search engines are so 1995!) The secrecy isn't such a big deal as much as the lack of activity. Whether you do it secretly or publicly, you've got to carry out some sort of plan over some definite time period.

For #3, there is too much debate over the single founder to multiple co-founders issue. Even assuming that I line up on the co-founders side of the debate, the point is making the startup work, not the legal aspect. If the choice is between a working startup with founders shooting it out over profits and a dead-in-the-water startup were founders are shooting it out over profits that don't even exist yet, I'd take the former. Startups can be messy. Sometimes, it is better to put your efforts into making the company successful rather than putting your efforts into dividing the spoils. Realistically, you should probably do a little negotiation up front and then do more and more as you go along.

I think #4 doesn't kill startups so much as make them take longer to be successful. I don't really see this happen all that much but maybe others have different experiences. At some point, people get back to actually asking the question: "When does the money come?" Then, they drop all that stuff and focus on the customer.

Yes, mindless stubborness like #5 isn't a good thing. Mindful stubborness may be ok, though. Flightiness is just as bad; you can't stick with something too short or too long. I'd say that the danger is more a matter of reaching a level of operation where all energy goes into doing the exact same thing as yesterday with no energy put into "how to get to the next level".

posted on Tuesday, November 14, 2006 at 1:03 PM by Dan Howard


very thought provoking article... I have had a little of all what you mentioned..
hopefully, I will knockit off the next time..

posted on Tuesday, November 14, 2006 at 1:08 PM by mnc


Let's talk industry selection: in a crowded field (like mine, for example), shrink-wrapped cookie-cutter approachs to marketing and product/services presentation would seem to be suicidal.

As more and more entities in a mature (or saturated) industry jockey for position, real creativity, innovation and value-adding become critical.

(thanx for #2--some painful memories got purged on that one!)

posted on Tuesday, November 14, 2006 at 3:42 PM by ARLAN DEAN


I wanted to mention that as a regular I've noticed that your articles have felt rather inconsistent recently, and I believe the reason is that you have started to write more lists then essays – I greatly prefer your essays.

When I read a good essay it changes me and opens my eyes to a new way of thinking. This is something I can take with me immediately and start applying to my life right away. When you tell me the 10 things to remember to do xyz, I may be interested in one or two of them, but unless I'm precisely at that phase in my life to use the list then it is just another list of stuff I should remember someday and it isn't as helpful.

As you say in your recent post about how Markets Reward Specialists you mentioned that it was better to do one thing deeply then many things shallowly. Does this apply to writing as well? In each this articles Five Ways To Kill A Startup I was left wanting more. Yes, I’m interested in Death By Determination, but I need to know more to know how to change.

In your recent post about “Delusions of a B-List Blogger” you seemed to be coming to the realization that your numbers have plateaued. I’m not certain of the why of this but it could be caused by the inconsistent depth of your content. When I read Paul Graham it is gain a deep insight into something new. He always writes essays (never lists) and always has a very fresh and insightful perspective. There is no doubt that this is harder to achieve, and his slow posting may be explained by this. But I read everything I can from him even if he waits a month to get a new essay out.

Finally I’m sorry about the public posting of this. I prefer to give suggestions in private, but I couldn’t find an e-mail address for you. I’m a big fan of your writing and look forward to you posts every week. Thanks for listening.

posted on Tuesday, November 14, 2006 at 4:28 PM by Evan


Evan: Thanks for your comments. I prefer public comments as it provides impetus for others to do the same.

You raise an interesting issue (and challenge). I would agree that deeper, insightful articles would likely drive a more loyal readership over the long-term. But, as you might guess, deeper articles are harder to write.

Paul Graham possesses a gift that I simply do not have (he is both a better writer and generally more insightful). I'm ok with this. We can't all be great. :)

Having said that, I will think about what you have said and see if there is some way to dig deeper into issues that readers are interested in. I have had this brought up before. I'd love to write more deeply about some of the current issues I encounter day-to-day in my startup (but want to remain fair to my team and the people involved).

One of the temptations of "list-=style" blogging is that the rewards are immediate and measurable. Articles that I spent a lot of time on and were relatively "deep" rarely do as well as list-style articles that are easier to consume. In fact, some of the most popular articles on the site are my "pithy insight" series which is nothing more than a list.

But, popularity should not always be the goal.

Will give this all some thought.

posted on Tuesday, November 14, 2006 at 4:39 PM by


As I sit here in the middle of a six month old startup, every one of these points hits home. However, I almost feel like the list should be reversed; when one understands point 5 there is less apprehension about swimming in a pool where your feet can't touch the bottom (point 1).

posted on Tuesday, November 14, 2006 at 11:41 PM by Matt Brezina


I guess the point " Death by doing nothing" is the most important point .. creating customer value is the most talked about in all meeting, brainstorming sessions, business meets etc etc but very often this is one area that companies tend to ignore or let me correct myself give second priority because the common answer is " gotta take care of current scenario and situation"

I firmly believe even small amount of value add to the customers can speak volumes about company as a whole.

This is where the concept of ... create , implement and measure comes into play.

amit

posted on Wednesday, November 15, 2006 at 5:33 AM by Amit Desai


Counterpoint to poster who wanted more in depth posts. There's room for all type of posts and Paul Graham chooses one or two posts a month mode. I have also noticed that he has turned off comments in the latest post, well more of an article. I fear that if these type of blogs proliferate then it becomes more of a webzine than a blog where's a chance to engage with the author and possibly have a lively discussion.

On this particular post I've tried to find missing items but have not found any so far so thanks.

An idea for a future post if I may make a suggestion: How to find a technical co-founder? I have been struggling the last 2-3 months trying to find one for my startup and am batting less than .200...one problem is that the market is hot right now and my timing may be less than optimal.

So if I am unable to find a good fit then #6 on your list could read Death at Birth?

posted on Wednesday, November 15, 2006 at 7:48 PM by Gary Valan


I look at the reasons for start ups failing in a different way. They fail for one of two main reasons, which are actually linked. One is having no or too few customers and the other is having insufficientr cash - either way in

posted on Friday, November 17, 2006 at 8:40 AM by chrisjlilly


Dharmesh: Thanks that is a great post. I have seen a few of these failings and you are right.

I also compiled a similar list of eight traps that would-be disruptors sometimes fall into (with accompanying list of failed companies who fell into these traps), including focussing excessively on being first to market (GovWorks) and over-investing (Webvan).

Details at:
http://www.ondisruption.com/my_weblog/2006/08/its_disruptivei.html

posted on Friday, November 17, 2006 at 12:29 PM by Michael Urlocker


Good post Dharmesh. Lets do our best to avoid these landmines at HubSpot.

Brian.

posted on Saturday, November 18, 2006 at 1:20 PM by Brian P Halligan


Just caught up on last week's articles, and seriously, Dharmesh, this was a bit surrealistic, were you reading my thoughts? I am exactly in the "I could already be working on it, but cannot really start because I am not yet sure what to do in 2023 when we may have to take some tricky decisions under scenario #47" phase of start-up development that annoys you that much. You're 100% right, I'll immediately stop working on that ppt and get coding.

posted on Wednesday, November 22, 2006 at 1:02 PM by Christian Flury


Dharmesh, at the risk of sounding trite, you have done a great job. There is something i would like to add, which is 'A guy battling it alone' This is probably the antithesis of the co founders issue. Without somebody to share, to talk to, work on and do the umpteen things to handle in a startup, it becomes a big pain. And when the administrative and the statutory elements creep in, one feels like throwing in the towel and even that decision never happens because there is no matching wavelength available. So please add to your list 'A Solitary Founder' as one other reason for a Startup suicide.

posted on Thursday, December 14, 2006 at 9:27 PM by Badri


what??????

posted on Friday, January 12, 2007 at 10:58 AM by suicide


http://www.amazon.com/Six-Million-Ways-Cutty-Ranks/dp/B000003B16
nice reference.
the biggest startup killer is the biz mob (that also runs govt, aka 'dose hos').
systemic obstacle.
customers r forever, but they're scrūed & they won't break out til things get much worse.

posted on Sunday, January 27, 2008 at 7:59 AM by *


dfdhghgh

posted on Thursday, March 13, 2008 at 4:33 AM by sonee


How about selling the wrong product? It sounds simple enough doesn't it, but so many people fall into the trap of selling products that are only of an interest to them. What about your customers? You must put yourself in their position.

posted on Tuesday, August 05, 2008 at 1:16 PM by Startup Advice


cool

posted on Sunday, August 17, 2008 at 6:09 AM by amber


That's a pretty comprehensive list. I think most startups that fail hit at least 2 or 3 of the problems you mentioned 
 
 
 
There's a blog some guy just put up about how he killed his startup - he put up a few other things that can mean death to a young startup too: 
 
http://www.crashingastartup.com

posted on Friday, November 21, 2008 at 3:42 AM by John


These are good, but rather than focus on reasons for failure,I think there are some basic principles which are critical to the succes of a startup. See my article "Startup Principles for Success" on http://blog.startupprofessionals.com for some key ones. 
 
 
 
Martin Zwilling, CEO & Founder, Startup Professionals, Inc.

posted on Tuesday, January 27, 2009 at 8:55 PM by Martin Zwilling


Very good notes Dharmesh, 
 
i too started my idea as website (citypad.in) but not sure how to make it big. 
 
thank you for your valuble suggestion.

posted on Monday, July 20, 2009 at 11:33 AM by laxman


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