The Top 10 Startup Flavors of Failure
PICK YOUR FLAVOR OF FAILURE:
A common fallacy among observers of entrepreneurship is that they believe that startup failure happens at the end — the culmination of a series of compounding bad decisions that leads to a singular outcome — namely dissolution. That’s not accurate. Failure happens at virtually every stage of a company, and frankly speaking, failure continues to occur well into the lifespan of every successful company that has been around for decades. If you ain’t failing, you ain’t sailing.
However, failure strikes at different times for different entrepreneurial teams, and I can prove this to you with the following outline. Below is the typical process of 99% of startup companies, regardless of industry, product, service, or geographical disposition. They all experience a similar pattern of evolution, but there are different types of failures along the way.
Stage 1: Problem/pain identification
The entrepreneur experiences or witnesses a pain point in the market, notes it, and thinks to herself, “There really needs to be an X solution to solve Y.”
Failure Type 1: Failure to launch.
She recognizes the pain, but fails to launch anything. We all have friends or zany uncles who boast about their one brilliant idea that’s worth a million bucks. Reality is, they failed to do anything about it.
Stage 2: Ideation/testing/market feedback/solution 1.0
Here, the entrepreneur has identified the pain point, and taken action to see if their initial hunches and ideas for solutions have legs with a specific user group.
Failure Type 2: Failure to build what people want or truly need
Here, the entrepreneur takes it upon herself to go down the solution road to build what she wants, and not what the market is really showing her what they want.
Stage 3: Building the product/team building
Here, the entrepreneur has assembled a small team to build out the product or service, aimed at solving a problem.
Failure Type 3: Failure to work well with others
Call it personality differences or hyper controlling tendencies, many entrepreneurs fail at this phase when they simply can’t lead others, or work at a rapid pace with others to get to market without being a damn perfectionist.
Stage 4: Launch/dealing with problems/bottlenecks
Here, with a product in the market, the problems begin to pile up from every direction, as you skate from launch to building an actual business that serves customers.
Failure Type 4: Failure to overcome daily obstacles
Let’s face it, when you create something from nothing, by very definition, the entire experience is both new for your company and for your users, thus, failure is baked into the equation because you both are in un-chartered territory. Many entrepreneurs fail to overcome the daily obstacles that range from user problems, product glitches, hiring issues, operational hurdles, cash flow problems and more.
Stage 5: Salesmanship/marketing/advertising
Failure Type 5: Fear of rejection
You’ve built it, now you’ve got to change hats and go sell the world. Oh fuck! Many entrepreneurs are great builders, but terrible salesman and marketers. Salesmanship takes 99 “No’s” to hear 1 “Yes” — this takes time to get used to, and frankly, no one likes to be rejected. Many entrepreneurs fail here because they can’t handle rejection, and the fear of future rejections stunts them into either procrastination or staying stuck in product build mode forever. Back to corporate cubicle mediocrity we go!
Stage 6: Building traction
Whether this means increasing user numbers, driving higher levels of revenue, or amplifying the distribution of your product, it all sums to one word — traction.
Failure Type 6: Failure for objectivity
A very common group who gets to this point can’t grow out of the 1-3 person team in a garage to a small business with $100,000-$1,000,000 in revenue. A lot of this boils down to an inability to focus on the things that are truly working in the business and amplifying them, as opposed to continuing to ideate and launch more features or expand the product range horizontally with new additions that simply take the focus away from the one or two products or services that contribute the most margin and momentum for growth. This is actually a failure of analytical skills — the ability to be truly, emotionally detached and objective about what is blocking the business from accelerating to the next level.
Stage 7: Raising capital
If your business is intent on growing, you will at some point need outside capital. That can come in the form of a bank loan, a line of credit, an investment from an Angel investor, a VC round of financing, a private equity round or a strategic investment from a partnering company.
Failure Type 7: Failure to be convincing
Traction, as you will see, drives funding. Moreover, the inability to convince others of the attractiveness of your investment is at the core of this failure. This could mean that you are approaching the wrong investors, it could be your lack of traction or inability to articulate your path towards growth or profitability, or this could be due to your inability to highlight the key differentiating factors and competitiveness barriers around your business and offerings.
Stage 8: Hiring/scaling/partnerships
This phase is all about amplification of your company. The focus of leadership is to hire talented people with the right skillsets to magnify the results to drive faster outcomes. Partnerships with other companies also come into the forefront.
Failure Type 8: Failure to expand out of your comfort zone
Hiring takes guts. It requires the ability to remove the tendency to micromanage and control all elements of your startup. Partnering with other companies also requires, by very nature, a release of control over the outcome of your product or service. When you sign on a new distributor to represent your line to help you expand into a new territory, it forces you to give up control of a portion of the engagement with customers, marketing experience, and point of sale. Whether you’re expanding your retail operations to new cities, or launching your new product overseas, once the experience is out of your hands, you have to trust the process and this requires faith. Many entrepreneurs simply fail to scale for fear of losing control — of the office, of the process, of product design, or salesmanship, of customer interaction, etc.
Stage 9: Monetization
While I could list this earlier on in the typical startup process, often times companies are intent on getting to market and building traction with free users, that they delay getting to monetization until later. Monetization doesn’t just refer to going from not charging to charging something, rather, it could also mean increasing prices for a given product line or to a specific customer group.
Failure Type 9: Failure to charge
This goes without saying that a business cannot survive forever if it does not turn a profit. Even investor capital at some point dries up, so there becomes a return to monetization at some point. Many entrepreneurs launch a free product, build traction and then when faced with the decision to starve and die (close up their business), or charge and possibly flourish, they fear charging their users and thus, die from financial starvation. Conversely, some companies, even ones who have been around for decades, hold their pricing to the market for too long, and over time are faced with rising costs from every corner and a declining gross margin. Thus, for these types, they drown because they fear raising their prices for fear of losing customers that they fought hard to win years ago. In trying to feed the world, we starve ourselves — totally fucking tragic (insert tear).
Stage 10: Exiting
At some point, you either sell the business (acquisition), hire a replacement and then retire, or file to go public with an IPO. All of these in some sense of the word, is an exit experience of the founder. Additionally, dissolving a business falls into the category of exits.
Failure Type 10: Failure to let the f*ck go
When we’ve climbed from the bottom all the way up to the top of the mountain, we simply have no where else to go. Letting go leads to a tremendous amount of failures — from deciding to sell the company to another firm or individual, the fear of letting someone else run or ruin your baby casts a long shadow on your legacy, and to many, just isn’t worth the upside. Alternatively, should you be lucky enough to go public, it means that you are giving up both equity and control in your company and the strategic direction to the public markets — this represents fear for many, even though the upside usually comes with a fat check and global expansionary opportunity.
Lastly, the one that plagues most founders, is the fear to let go of a dead business. It is the culmination of all of your hard work, your napkin sketches come to life, your own hard earned dollars invested over the years, and the sleepless nights you’ll never get back. However, even for entrepreneurs like myself, saying goodbye to our baby is harder than it looks. The pain that we feel is a combination of one part remorse mixed with one part hope, that we could give it one more go to try to figure it all out. Failure to let go is, in my opinion, the hardest one of all to get through.
As you have read above, failure is not a singular event. It’s (usually) not even a one time decision that led you to fail. Rather, all ten stages come with ten different types of entrepreneurial failure types. If you recognized any of the aforementioned, don’t worry, you’re not alone. I have experienced all ten types personally over the past decade. Am I a failure? You bet your ass I am. Are you? Own it!
Failure is not a final destination — it is an endless journey that moves us forward, not backwards.