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Update – As a followup, we analyzed all of these startup failure post-mortems to identify the top 20 reasons for startup failure. Also worth a read after you review these startup failure post-mortems.
We love a good entrepreneurial success story – entrepreneur as protagonist overcomes obstacles and builds a thriving, successful company (and become wealthy while doing so). We want to hear about, learn from and even replicate what they’ve done. However, this survivorship bias is problematic. Jason Cohen of Smart Bear Software does a nice job articulating this issue stating:
The fact that you are learning only from success is a deeper problem than you imagine…drawing conclusions only from data that is available or convenient and thus systematically biasing your results.
Luckily, the startup community often courageously shares their stories – even when things don’t end well. And so below is our list of the 25 “best” startup failure post-mortems of all time. Three notes before we begin:
- After reading these, you realize more than ever that the startup community is really like no other. We were amazed by the candor and generosity of many of the writers of these post-mortems. Corporate America could learn from this.
- We didn’t find post-mortems by investors (VCs, angels, etc) except for one by Roger Ehrenberg. We’d love to see these given the number of businesses you see and ultimately invest in. It would be an admission that you’re not infallible, but we already know that
- If we’ve missed a great post-mortem others would benefit from reading, please leave it in the comments, and we’ll add it. BTW, if you do the count, there are actually 32 post-mortems in this post. Think of it as 7 bonus post-mortems on the house.
With that preamble, here is the list in no particular order. We’ve picked quotes out of each that we thought were insightful, funny, poignant or some combo of the three. They in no way summarize the posts so please do read them (but probably not all at one time).
Post-Mortem Title: How My Startup Failed
There was no doubt about it: I had discovered The Next Big Thing. Like Edison and the lightbulb, like Gates and the pc operating system, I would launch a revolution that would transform society while bringing me wealth and fame. I was about to become the first person in America to sell condom key chains.
Between the worse data aggregation method and the much higher amount of work Wesabe made you do, it was far easier to have a good experience on Mint, and that good experience came far more quickly. Everything I’ve mentioned — not being dependent on a single source provider, preserving users’ privacy, helping users actually make positive change in their financial lives — all of those things are great, rational reasons to pursue what we pursued. But none of them matter if the product is harder to use, since most people simply won’t care enough or get enough benefit from long-term features if a shorter-term alternative is available.
- spent $20 million to get back to the same revenue that I had when I was CEO
- declined Microsoft’s offer (summer 2000) to be the first enterprise software company with a .NET product (a Microsoft employee came back from a follow-up meeting with Allen and said “He reminds me of a lot of CEOs of companies that we’ve worked with… that have gone bankrupt.”)
- deprecated the old feature-complete product (ACS 3.4) before finishing the new product (ACS 4.x); note that this is a well-known way to kill a company among people with software products experience; Informix self-destructed because people couldn’t figure out whether to run the old proven version 7 or the new fancy version 9 so they converted to Oracle instead)
- created a vastly higher cost structure; I had 80 people mostly on base salaries under $100,000 and was bringing in revenue at the rate of $20 million annually. The ArsDigita of Greylock, General Atlantic, and Allen had nearly 200 with lots of new executive positions at $200,000 or over, programmers at base salaries of $125,000, etc. Contributing to the high cost structure was the new culture of working 9-5 Monday through Friday. Allen, Greylock, and General Atlantic wouldn’t be in the building on weekends and neither would the employees bother to come in.
- surrendered market leadership and thought leadership
Post-Mortem Title: RiotVine Post-Mortem
It’s not about good ideas or bad ideas: it’s about ideas that make people talk.
And this worked really well for foursquare thanks to the mayorship. If I tell someone I’m the mayor of a spot, I’m in an instant conversation: “What makes you the mayor?” “That’s lame, I’m there way more than you” “What do you get for being mayor?”. Compare that to talking about Gowalla: “I just swapped this sticker of a bike for a sticker of a six pack of beer! What? Yes, I am still a virgin”. See the difference? Make some aspect of your product easy and fun to talk about, and make it unique.
Post-Mortem Title: The Last AnNounce(r)ment
Author: Eran Hammer-Lahav
A month ago, half way through my angel funds raised from family members, I decided to review the progress I’ve made and figure out what still needs to happen to make this a viable business. I was also actively pursuing raising VC funds with the help of a very talented and well connected friend. At the end, I asked myself what are the most critical resources I need to be successful and the answer was partners and developers. I’ve been looking for both for about a year and was unable to find the right people. I realized that money was not the issue.
Post-Mortem Title: My eHarmony for Hiring Failure
This started to make me more nervous. I was manifesting this huge monolithic application in my head that would revolutionize the job search, I had even written some code at this point, and didn’t have any idea if actual businesses were willing to pay a dime for it.
Post-Mortem Title: BricaBox: Goodbye World!
Author: Nate Westheimer
Go vest yourself.
When a co-founder walks out of a company — as was the case for me — you’ve already been dealt a heavy blow. Don’t exacerbate the issue by needing to figure out how to deal with a large equity deadweight on your hands (investors won’t like that the #2 stakeholder is absent, even estranged, from your company). So, the best way of dealing with this issue is to take a long, long vesting period for all major sweat equity founders.
Post-Mortem Title: Boompa.com Launch Postmortem, Part 1: Research, Picking a Team, Office Space and Money
Ethan and I came up with the “Zombie Team” test for figuring out whether or not someone is ready to work on an intense project, be it a start-up or otherwise. The test is this: If zombies suddenly sprung from the earth, could you trust the perspective team member to cover your back? Would they tell you if they got bit? Most importantly would you give them the team’s only gun if you knew they were the better shot? If the answer is no to any of those questions you need to let them get eaten by the cubicle wasteland of corporate culture, because they aren’t ready for this kind of work.
For four years we have offered the synchronization service for no charge, predicated on the hypothesis that a business model would emerge to support the free service. With that investment thesis thwarted, there is no way to pay expenses, primarily salary and hosting costs. Without the resources to keep the service going, we must shut it down.
Our Deadly Cultural Mistakes:
– didn’t focus on learning & failing fast until it was too late
- didn’t care/focus enough about discovering how to market eventvue
– made compromises in early hiring decisions – choose expediency over talent/competency
The market was not there
The thesis of our current business model (startups are all about testing theses) was that there was a need for video producers and content owners to make money from their videos, and that they could do that by charging their audience. We found both sides of that equation didn’t really work. I validated this in my conversations with companies with more market reach than us, that had tried similar products (ppv video platform), but pulled the plug because they didn’t see the demand for it.
Video producers are afraid of charging for content, because they don’t think people will pay. And they’re largely right. Consumers still don’t like paying for stuff, period. We did find some specific industry verticals where the model works (some high schools, some boxing and mixed martial arts events, some exclusive conferences), but not enough to warrant a large market and an independent company.
Second, as one of my friends observed, I talked to about 7 people (both acquaintances and friends) whose judgment I trusted. 3 of them sympathized and agreed with my decision and 4 of them admonished me and asked me to “hang in there.” You know what was the clincher? The first 3 had done startups themselves and the latter 4 had not. The latter 4 did not really understand the context, even though they meant well and are intelligent folks.
The most significant drawback to a remote team is the administrative hassle. It’s a pain to manage payroll, unemployment, insurance, etc in one state. It’s a freaking nightmare to manage in three states (well, two states and a district), even though we paid a payroll service to take care of it. Apparently, once your startup gets larger, there are companies that will manage this with minimal hassle, but for a small team, it was a major annoyance and distraction.
Make an environment where you will be productive. Working from home can be convenient, but often times will be much less productive than a separate space. Also its a good idea to have separate spaces so you’ll have some work/life balance.
Thin line between life and death of internet service is a number of users. For the initial period of time the numbers were growing systematically. Then we hit the ceiling of what we could achieve effortlessly. It was a time to do some marketing. Unfortunately no one of us was skilled in that area. Even worse, no one had enough time to fill the gap.
The Seven Deadly Sins
While we certainly made more than seven mistakes during the nearly four-year life of Monitor110, I think these top the list.
- The lack of a single, “the buck stops here” leader until too late in the game
- No separation between the technology organization and the product organization
- Too much PR, too early
- Too much money
- Not close enough to the customer
- Slow to adapt to market reality
- Disagreement on strategy both within the Company and with the Board
None of these problems should have been unassailable, which leads us to why NewsLabs failed as a company:
- Nathan and I had major communication problems,
- we weren’t intrinsically motivated by news and journalism,
- making a new product required changes we could not make,
- our motivation to make a successful company got destroyed by all of the above.
For anyone faced with winding down a company, I’d highly recommend taking a while off before making any big decisions, and not just the two and a half weeks that I’d initially tried. You’re not thinking straight when your startup dies – your perspective may be a bit different in a few months, as might your preferences for what you want to do next.
The corollary to that is to wind up your startup before you’re totally out of money, so that you have options for what to do next and don’t have to bargain from a place of total weakness.
So the most important thing is to sell – a fact lots of startups forget. And we did too. After much thought it comes down to these six reasons why we failed (beside the obvious one that the VC market imploded when we needed money and noone was able to get any funding):
- We didn’t sell anything
- We didn’t sell anything
- We didn’t sell anything
- The market window was not yet open
- We focused too much on technology
- We had the wrong business model
I would advise any entrepreneur or investor considering content to think twice, as Howard Lindzon from Wallstrip warned us. Content is an order of magnitude harder than technology with an order less upside; no YouTube producer will earn within a hundredth of $1.65 billion. This will only become more true as DVRs and media-sharing reduce revenues and pay-for-performance ads eliminate inefficient ad spend, of which there is a lot. The main and perhaps only reason to do content should be the love of creating it.
I have been hearing this advise from the time I have been in my mother’s womb.Dont take this easily.If you are a techie there are more chances that you won’t follow this advise. Your heart doesn’t get satisfied with any levels of development.Ignore your heart.Listen to your brain. If you are a web startup , you can take max 6 months to release your first version( for something like mint.com) .Simpler websites shouldn’t take more than 2-3 months.You can always iterate and extrapolate later.Wet your feet asap.
Hiring is hard, and without proper experience, we should have leaned more heavily on our investors to help us with this decision. Hiring was a challenge we found difficult throughout the life of our Company. We made as many bad decisions as we did good ones with regard to hiring full time, part time, and independent contractors/consultants. Biggest takeaway: As soon as the data starts to suggest someone might be the wrong hire, don’t wait, immediately start recruiting a replacement, and upgrade as soon as possible.
No matter how close of friends, how much you trust each other or how good your intentions are money comes between people and everyone over estimates their own contributions. Furthermore, founders become highly emotional about their companies. Thus, the process of negotiating taking back stock from founders is not rational and inherently very difficult. However, vesting schedules reduce the difficult negotiation to simply and mechanically exercising the companies pre-agreed right to repurchase stock at the price it was issued. I foolishly let myself fall into the “it won’t happen to me” trap but no startup gets it right on the first try and theses hiccups often lead to changes in the team. Believing that any startup won’t have to deal with stock vesting issues is totally unrealistic.
My philosophy was to get as far as possible with a small seed round. To do this, I thought keeping my day job would allow to spend the money wisely on product or marketing actions. Wrong. Quit your job (if you can), and get down to business. Period. You need to be dedicated to your project, meet people, talk about it, code and hack this sh*t out of it. At the end of the day, I was doing both things wrong: my day job, and my startup.
For one, we stuck with the wrong strategy for too long. I think this was partly because it was hard to admit the idea wasn’t as good as I originally thought or that we couldn’t make it work. If we had been honest with ourselves earlier on we may have been able to pivot sooner and have enough capital left to properly execute the new strategy. I believe the biggest mistake I made as CEO of imercive was failing to pivot sooner.
We could have gone about trying to fix Meetro but the team was just ready to move on. Raising money on the flat growth we had was nearly impossible. Plus I knew that in order to keep the tight-knit team we had built together, we needed to shift focus for sanity sake. People (myself included) just felt beat up. We knew that fixing these issues would involve a complete rearchitecturing of the code, and people just weren’t excited about the idea enough anymore to do it right.
As the product became more and more complex, the performance degraded. In my mind, speed is a feature for all web apps so this was unacceptable, especially since it was used to run live, public websites. We spent hundreds of hours trying to speed of the app with little success. This taught me that we needed to having benchmarking tools incorporated into the development cycle from the beginning due to the nature of our product.
Dave Jones made a virtue of having no business model for APB. He said “if a game is built around a business model, that’s a recipe for failure.”
Post-Mortem Title: A Startup Idea Postmortem: Proof That Good Ideas Aren’t Always Good Business
Author: Rob May
But the more we moved down the path, the more I realized the complexities involved with selling answers. Knowledge is a tricky thing to sell, because even experts disagree on some answers. What’s worse, most people think they know more than they really do. Look at how many idiots think they know stocks, or programming, or even business. Nearly everyone thinks they can give good management tips. It is difficult to sell something so… confusing, and we realized it would lead to problems down the road. Yahoo, and most of the other sites, fix this by having people vote on the best answer, but we couldn’t post answers in public because that would take away our residual incentives. And anyway, I’m not convinced in the “wisdom of crowds” for anything beyond general knowledge. It doesn’t work for domain specific stuff.
Post-Mortem Title: Co-Founder Potts Shares Lessons Learned from Backfence Bust
Author: Mark Potts | Mark Glaser
Hyper-local is really hard. Don’t kid yourself. You don’t just open the doors and hit critical mass. We knew that from the jump. It takes a lot of work to build a community. Look carefully at most hyper-local sites and see just how much posting is really being done, especially by members of the community as opposed to be the sites’ operators. Anybody who’s run a hyper-local site will tell you that it takes a couple of years just to get to a point where you’ve truly got a vibrant online community. It takes even longer to turn that into a viable business. Unfortunately, for a variety of reasons, Backfence was unable to sustain itself long enough to reach that point.
Post-Mortem Title: What an Entrepreneur Learned from His Failed Startup (interview)
Company: Sedna Wireless
Author: Rajiv Poddar | Kamla Bhatt
Finances were just one part of the story. The other part was that we failed to execute our own plans. Both external factors (e.g. the hardware ecosystem in India) and internal reasons (e.g. the expertise of the team) played a role. With money it would have lasted a bit more longer.
We exposed ourselves to a huge single point of failure called Facebook. I’ve ranted for years about how bad an idea it is for startups to be mobile-carrier dependent. In retrospect, there is no difference between Verizon Wireless and Facebook in this context. To succeed in that kind of environment requires any number of resources. One of them is clearly significant outside financing, which we’d explicitly chosen to do without. We could have and should have used the proceeds of the convertible note to get out from under Facebook’s thumb rather to invest further in the Facebook Platform.
Post-Mortem Title: How To Develop a Product Nobody Wants
Like a Printer/Fax/Copy Machine – We were trying to be a credible data company and a community. Most companies struggle to be good at just one thing, and we decided we were going to be good at two. Bottom line – We are data guys. We’re good at data. We like data. Community was about things we didn’t have as much familiarity with, i.e., social media, game mechanics, community building, etc. These were things when we started that we honestly had little insight into given the composition of our team. Even those who know these things intimately will admit it can be difficult. As novices, the task was even more daunting.
We have shamelessly included our own quasi post mortem. We messed up a lot of things in v1.0 of ChubbyBrain so this is a post-mortem of our first product which we’ve gotten a lot of nice and positive feedback on. We’re happy to report we are still alive.
If you have a friend, colleague who is starting their own business, and you found one of these post-mortems useful, please share this with them. Success stories are inspiring of course, but there is a lot to be learned from failure. And the startup community, as evidenced from the above, is immensely generous in sharing their knowledge – whether the outcome is good or bad. Best of luck in your venture.