Why Startups Die(pixelmonkey.org)
pixelmonkey.org
Why Startups Die
http://www.pixelmonkey.org/2012/10/03/why-startups-die
9 comments
tl:dr : dont quit
also, don't get distracted
Not enough people take that message to heart. Quitting is the #1 mode of failure not just in startups but in damn near everything.
The opposite is also true. Too often people don't quit when they should because of sunk costs they've invested.
Agreed. But I just call that "being too stubborn to learn from your experiences"
It's very difficult to tell the difference from the inside. Am I just bein stubborn, or do I just need to hang on? It's essentially a matter of predicting the future, and you don't have enough information.
Having gone through this in the last six months, I found I had more than enough information, and what was standing in my way of leaving was a somewhat complicated mixture of emotions surrounding the act of leaving. Of course, a clear headed look at the circumstances let me wipe all those emotions away, and I left at the right time, and without regrets.
For devs, a great rule of thumb to keep in mind is simply this: When the paychecks stop, so do you. The odds of any startup getting anywhere drop off a cliff once the money runs out, and the founders are running around desperately, talking about commitment and challenge and reward.
For devs, a great rule of thumb to keep in mind is simply this: When the paychecks stop, so do you. The odds of any startup getting anywhere drop off a cliff once the money runs out, and the founders are running around desperately, talking about commitment and challenge and reward.
One way to think about it is by asking yourself, "If I were just entering this situation today, would I take the job/join the project? Or would I see it as a fruitless endeavor?" That can help get your mind out of thinking about what you've already sunk into the job.
But quit a bad idea early enough. Don't cling onto your idea when it's not the best (seeing that can be difficult if you really believe in your idea though!)
Persistence.
As it implies continuous motion and flow of actions towards your startup's growth.
As it implies continuous motion and flow of actions towards your startup's growth.
I hadn't seen Chris Dixon's post on what startups need and don't need before. I disagree with vacation policy being unnecessary for startups. I know some startups don't have one and I feel like it's done to create friction whenever employees want to take time off which feels a bit insidious. And it creates the feeling that some folks are freeloading. I don't think it's overly "corporate" to have a well-defined vacation policy
> I feel like it's done to create friction whenever employees want to take time off which feels a bit insidious. And it creates the feeling that some folks are freeloading.
It's exactly that. The idea that people are more productive if all they do is work, for 50 hours a week or more, is such an insanely stupid notion. But I hear it time and again from founders who expect employees with a 0.5% stake to put in as much time as a founder who has a 30% stake.
Even founders should keep their work hours under control--they set the tone for the company, and a workaholic tone isn't healthy. People just burn out, they feel demoralized, and it creates conflict.
Working less also forces you to make hard decisions, to prioritize and focus.
Finally, founders should be HAPPY that employees take time off. It rejuvenates them and makes them that much more excited to get back to work. And often when they're not in the heads-down grind--when their mind is relaxed--they come up with some very good ideas.
It's exactly that. The idea that people are more productive if all they do is work, for 50 hours a week or more, is such an insanely stupid notion. But I hear it time and again from founders who expect employees with a 0.5% stake to put in as much time as a founder who has a 30% stake.
Even founders should keep their work hours under control--they set the tone for the company, and a workaholic tone isn't healthy. People just burn out, they feel demoralized, and it creates conflict.
Working less also forces you to make hard decisions, to prioritize and focus.
Finally, founders should be HAPPY that employees take time off. It rejuvenates them and makes them that much more excited to get back to work. And often when they're not in the heads-down grind--when their mind is relaxed--they come up with some very good ideas.
That was the one which bothered me the most too.
But I think it depends -- if you're still only a team of 7, and the 7th hire still got 3% equity (probably not realistic?), then everyone's got enough skin in the game where you probably shouldn't be taking vacations too often.
But if the 7th hire has 0.1% equity, then there should absolutely be a clear vacation policy. It's exceedingly important that clear rules are laid down for what's "fair".
But I think it depends -- if you're still only a team of 7, and the 7th hire still got 3% equity (probably not realistic?), then everyone's got enough skin in the game where you probably shouldn't be taking vacations too often.
But if the 7th hire has 0.1% equity, then there should absolutely be a clear vacation policy. It's exceedingly important that clear rules are laid down for what's "fair".
As much as people like to believe that working hard and not giving up will get them through, there's other reasons:
- The market wasn't there, the problem was too hard to solve, etc.
- You simply weren't good enough to solve the problem. You didn't have the right combination of skills, experience, or connections to make it happen.
These are more interesting to me as you can attempt to succeed where other people have failed. I've always had an idea in the back of my mind about getting a list of startups that failed before 2001, figuring out which had good ideas, then retrying them again.
- The market wasn't there, the problem was too hard to solve, etc.
- You simply weren't good enough to solve the problem. You didn't have the right combination of skills, experience, or connections to make it happen.
These are more interesting to me as you can attempt to succeed where other people have failed. I've always had an idea in the back of my mind about getting a list of startups that failed before 2001, figuring out which had good ideas, then retrying them again.
> A list of startups that failed before 2001
Disclosure, I wrote this: http://www.amazon.com/gp/aw/d/1416577939
Disclosure, I wrote this: http://www.amazon.com/gp/aw/d/1416577939
I have had it on my shelf since 2002; the book and the site before that have provided hours of amusement, thank you.
He Pud! Always thought it was a damned shame you didn't continue fuckedcompany.com through the next crisis(es). Why was that? It was great fun reading that (and seeing pr0n stars with tight fuckedcompany t-shirts).
I just recently got out of an accelerator and the biggest thing I saw in the program was teams either able to execute or not able to execute. This makes a world of difference.
Also, figuring out your priorities as far as design first, just get something out there, etc. but whatever it is make sure everyone agrees on the time and methodology, ie design first will take longer.
Another big one, and one I got screwed over on, was finish all the legal paperwork in a program like this as early as possible. Make sure to sign your employee agreement and pay/equity agreement if you're getting it. Do this early on so everyone is on the same page and is clear about what's going on. I was cofounding and just this last Sunday got terminated after spending the last 4 months working on it. No cause or notice and almost without pay (still working on this). Always fear the worst and never think it won't happen to you.
Also, figuring out your priorities as far as design first, just get something out there, etc. but whatever it is make sure everyone agrees on the time and methodology, ie design first will take longer.
Another big one, and one I got screwed over on, was finish all the legal paperwork in a program like this as early as possible. Make sure to sign your employee agreement and pay/equity agreement if you're getting it. Do this early on so everyone is on the same page and is clear about what's going on. I was cofounding and just this last Sunday got terminated after spending the last 4 months working on it. No cause or notice and almost without pay (still working on this). Always fear the worst and never think it won't happen to you.
Wow, that sounds like a really bum deal. Thanks for sharing your experience. Hopefully it will help others avoid the same fate. Keep your chin up and keep pressing forward and you will come out on top in the end.
> When startups die, the official cause of death is always either running out of money or a critical founder bailing.
This sounds like a truism to me. Like "the brain stopped working", it's more a definition of death than an explanation of what caused it.
> But I think the underlying cause is usually that they’ve become demoralized.
And this, I suspect, is confusing correlation for causation. The team getting demoralized is a symptom of the company being in a poor, possibly life-threatening, state of health. Like many symptoms of real disease (e.g., diarrhea) it's something that will worsen the situation and needs to be treated. But it's not necessarily the underlying cause. If the real source of illness is something that won't resolve on its own then focusing too much on the symptoms is at best a form of palliative care. At worst, it exacerbates the situation by lulling you into believing that you're addressing the problem when you're actually allowing it to continue unchecked.
This sounds like a truism to me. Like "the brain stopped working", it's more a definition of death than an explanation of what caused it.
> But I think the underlying cause is usually that they’ve become demoralized.
And this, I suspect, is confusing correlation for causation. The team getting demoralized is a symptom of the company being in a poor, possibly life-threatening, state of health. Like many symptoms of real disease (e.g., diarrhea) it's something that will worsen the situation and needs to be treated. But it's not necessarily the underlying cause. If the real source of illness is something that won't resolve on its own then focusing too much on the symptoms is at best a form of palliative care. At worst, it exacerbates the situation by lulling you into believing that you're addressing the problem when you're actually allowing it to continue unchecked.
Startups start dying due to a lack of customers. Now, they actually die when you gave up. Duh...
To be clear, both of the quotes you have there are pg's from "How Not to Die" -- excerpted in the article but not quotes from the OP.
Morale problems can happen easily in the "trough of sorrow" which can be important to work through - many startups have found success at some point after one. If members don't know how to deal with that personally, it can end the company.
I actually think you're wrong. If someone is willing to keep going, they might be able to salvage something (or even rebuild) after running out of VC money. If the founder(s) just give up, then it's over, but until then, there's still a chance.
> Pre-Emptive Scaling
Man, this one a thousand times over. I shudder when I think of all the work that could have been saved if these premature optimizations had never been made (I wrote a blog post on 500m row tables in MySQL about this). A little dose of YAGNI would go a long way to many startups. Also, re: Twitter and Tumblr's scaling problems: they didn't fail because of sporadic downtime. They fixed the actual problems/bottlenecks when they encountered them, and went on.
Man, this one a thousand times over. I shudder when I think of all the work that could have been saved if these premature optimizations had never been made (I wrote a blog post on 500m row tables in MySQL about this). A little dose of YAGNI would go a long way to many startups. Also, re: Twitter and Tumblr's scaling problems: they didn't fail because of sporadic downtime. They fixed the actual problems/bottlenecks when they encountered them, and went on.
Agree 10,000x over your 1000x. On the occasions where rapid unexpected (and awesome!) traffic or growth spikes happen you can almost always temporarily patch the situation by scaling vertically (bigger/faster disk/CPU) or quick and dirty horizontally (load balancing or replication) and then have some breathing room to work out the real meaningful or cost effective scaling solution.
Every startup requires some level of the Jobsian RDF to exist around the founders and extend to the core team. The problem is that, for most startups, the RDF will be threatened by real-world events (nobody is using/buying/investing-in your product) and once the RDF is gone, it's very hard to keep going. That's when morale suffers. That's when founders leave. Startups die the same way because the begin the same way (and rightfully so): with a passion about an idea that doesn't necessarily conform to reality.
Here is why mine have died:
Running out of funding. This is a tough one to deal with, because you think you can make up funding with more work. My solution is to offer a very stage product right from the start in order to get some cashflow going in. So far it has worked.
Building something people don't want. I once spent two years developing an idea to only realize people did not want to pay for it. Two years spend buying equipment, developing marketing, etc. But I did not test the market. I know.
Lack of sales skills. This one is really tough. As an introvert, is was really hard getting how sales work. I read book after book trying to find the magic formula. Turns out that sales skills are more about social skills than anything. So my lack of sales skills were really a lack of social skills. One good startup died due to that. But I did realize the problem, and have been working on improving my sales/social skills. So far so good...
Wrong market. Spent five years trying to sell to a market that would not buy from me. Why? A combination of lack of social skills and pricing kept me from achieving any success.
Being the lone founder. My biggest successes have been when I've worked with someone else. Having someone to split the workload makes a huge difference.
Buying too much inventory ahead of time/demand. I still have some left.
Not getting deals on writing. A good startup I was building died because I did not get a deal in writing. I went and bought some inventory to satisfy the deal, and then the buyer backed out.
I have many more... :)
Running out of funding. This is a tough one to deal with, because you think you can make up funding with more work. My solution is to offer a very stage product right from the start in order to get some cashflow going in. So far it has worked.
Building something people don't want. I once spent two years developing an idea to only realize people did not want to pay for it. Two years spend buying equipment, developing marketing, etc. But I did not test the market. I know.
Lack of sales skills. This one is really tough. As an introvert, is was really hard getting how sales work. I read book after book trying to find the magic formula. Turns out that sales skills are more about social skills than anything. So my lack of sales skills were really a lack of social skills. One good startup died due to that. But I did realize the problem, and have been working on improving my sales/social skills. So far so good...
Wrong market. Spent five years trying to sell to a market that would not buy from me. Why? A combination of lack of social skills and pricing kept me from achieving any success.
Being the lone founder. My biggest successes have been when I've worked with someone else. Having someone to split the workload makes a huge difference.
Buying too much inventory ahead of time/demand. I still have some left.
Not getting deals on writing. A good startup I was building died because I did not get a deal in writing. I went and bought some inventory to satisfy the deal, and then the buyer backed out.
I have many more... :)
Well, I have to commend you on your entrepreneurial spirit to keep trying. If you keep trying you're bound to hit it eventually (if you haven't already).
That is why I'm building nuuton. If I'm about to get lucky, then I better aim high. Thanks for the nice words.
Books like “Business Model Generation”, by Alexander Osterwalder & Yves Pigneur, “The Startup Owner´s Manual”, by Steve Blank and Bob Dorf could be very useful.
Here in Brazil we have the recented lauched book in portuguese called “Empreendedorismo Inovador – Como Criar Startups de Tecnologia no Brasil”, 25 authors, Editora Évora.
Att. @neigrando