when-start-ups-fail-FI-1

Your startup will probably fail. 75% to 90% of all startups do.

A large number of them fail because of terrible premises, and there are plenty of laughable examples. (see: shockingly terrible startup pitches. Also see Startup Guys by CollegeHumor’s Hardly Working).

But most startups die 20 months after raising funding in the region of $1.3m, which means that plenty of startups begin from perfectly good ideas.

Paul Graham has written reasons startups still fail, despite great talent and ideas. We highlight the most pertinent failures of these 12 case studies to illustrate his analyses (while noting that failure is rarely mono-causal).

1. Gowalla – location-based social network locked in a war with Foursquare they couldn’t win

The media blew up the Foursquare-Gowalla rivalry.

The media blew up the Foursquare-Gowalla rivalry.

Josh Williams, CEO

IDEA: Gowalla was a location-based social network. Unlike Foursquare, Gowalla worked anywhere  – it was the first to crowd-source a local database from scratch. Foursquare only worked in a dozen cities. 

FATAL PROBLEM: IT WAS THE YOUNGER, PRETTIER, BUT LESS POPULAR SISTER OF FOURSQUARE

We gave people a way to check-in on both Facebook and Foursquare through Gowalla. It was very well received. But it was a lot like being Tweetdeck instead of Twitter. Tweetdeck might be cool, but let’s be honest, you’d rather be Twitter. We were still in the game of brokering check-ins, a game we couldn’t win. Our ceiling had been bolted in place.

ADVICE: RUN YOUR OWN PATH

Play by your own rules. Listen to your users more than the press. Don’t get sucked into the gravity hole between you and your competition. Ruthlessly run your own path, not someone else’s. – Founder Josh Williams

2. Intellibank – “Dropbox done wrong”

September, 2013 – Gary Swart (left) reflects on Intellibank’s failure during a Fireside chat

September, 2013 – Gary Swart (left) reflects on Intellibank’s failure during a Fireside chat

Gary Swart, CEO 

FATAL PROBLEM 1: IT WAS DROPBOX DONE WRONG 

ADVICE: DON’T IMITATE; SOLVE A PERSONAL PROBLEM

Many of the applications we get are imitations of some existing company. That’s one source of ideas, but not the best. Instead of copying the Facebook, with some variation that the Facebook rightly ignored, look for ideas from the other direction. It seems like the best problems to solve are ones that affect you personally. (This was the case for Apple, Google, Hotmail) – Paul Graham

FATAL PROBLEM 2: TRYING TO BE EVERYTHING TO EVERYONE

Every customer was asking for something different and we gave it to them. By failing to declare our major, we created a world of chaos for our sales, product and marketing teams.

ADVICE: KEEP IT SIMPLE; EXCEED EXPECTATIONS

Some of the greatest products today don’t have a million bells and whistles, but they solve one concrete problem brilliantly – like Salesforce. I cannot emphasize how important it is in the long run to over-deliver to your customers. – Founder Gary Swart

3. Sonar – stubbornly attached to its vision

sonar-brett-martin

Brett Martin, CEO 

IDEA: Sonar showed you who, how many, and why particular people are relevant to you in a room – for example, whether that the guy sitting across from you is facebook friends with your college roommate.

FATAL PROBLEM: TOO PRE-OCCUPIED WITH “BUILDING THE FUTURE”

One of the most requested features was a “map like foursquare” for our check-ins. Instead, we appended a simple “@Sonar” to content that users shared from our app. Although we had designs for a map, we never got around to building one. We were too busy building the future of ambient social networking!

Mistake. People didn’t like the bland “@Sonar” text string so they stopped sharing updates from Sonar.

ADVICE: FEET ON THE GROUND; MIND THE SMALL THINGS

You are probably not the Steve Jobs of ______.

Removing friction from existing user behaviors (e.g. checkins) almost always has a higher ROI than building castles in the sky (e.g. hypothesizing about your API). – Founder Brett Martin

4. On-Q-ity – great idea; fatally avant-garde

pharma-voice-mara

The Innovator’s Dilemma – CEO Mara G. Aspinall was one of PharmaVOICE magazine’s “100 Most Inspiring People in Life Sciences.”

Mara G. Aspinall, CEO

IDEA: On-Q-ity merged two exciting technologies in cancer and personalized diagnostics, which had (and still has) lots of potential to change the treatment paradigm in a number of cancers.

FATAL PROBLEM: RESEARCH-STAGE STORIES RARELY GET FUNDED

But the reality is [Circulating Tumor Cells are] a research-stage story right now, and in diagnostics (unlike drugs) it’s hard to get paid for research-stage stories. We certainly didn’t have enough capital around the table to fund the story until the market caught up. It will be great in 5-10 years to see CTCs evolve as a routine part of cancer care, though clearly bittersweet for those of us involved with On-Q-ity.

5. 99Dresses – crowded out by well-funded competitors

nikki-durkin-apology-99dresses

Founder Nikki Durkin posted an apology to users following the site’s closure in 2011

Nikki Durkin, CEO

IDEA: 99Dresses was a virtual closet that allowed users to trade fashion items with other users quickly and cheaply.

FATAL PROBLEM: 99 PROBLEMS AND THE RUNWAY WAS ONE OF THEM

99dresses was squarely focused on trading cheaper fast fashion (fast fashion is really hard to re-sell for cash), but all the competition were mainly focused on buying & selling designer fashion. Despite our differentiation, the space is crowded and the competitors are well funded to the tune of tens of millions of dollars each. Some of the other partners in the firm didn’t like how competitive the market was. 

ADVICE: SET REALISTIC TARGETS; ALWAYS TAKE ENOUGH TO ADVANCE

So if you take money from investors, you have to take enough to get to the next step, whatever that is. Fortunately you have some control over both how much you spend and what the next step is. We advice startups to set both low, initially: spend practically nothing, and make your initial goal simply to build a solid prototype. This gives you maximum flexibility. – Paul Graham

6. Ecomom – founder handled all the expenses alone

ecomom-jody

Jody Sherman, CEO 

IDEA: Ecomom specialized in providing eco friendly and organic products to moms who desire an eco-conscious lifestyle for themselves and their children.

FATAL PROBLEM: THE COMPANY WAS IN A DISMAL FINANCIAL STATE – AND NOBODY KNEW

 

Ecomom was known for giving customers great discounts through daily deal sites like Groupon. Customers loved Ecomom for its generosity and customer service.

While this benefited Ecomom’s customers, the deals ate away at the company’s bank account.

On top of this, Sherman lived large and he was generous with money. He paid employees unusually high salaries and spent $75,000 on an Airstream travel trailer.

ADVICE: LEAN HIRING

We have three general suggestions about hiring: (a) don’t do it if you can avoid it, (b) pay people with equity rather than salary, because you want the kind of people who are committed enough to prefer that, and (c) only hire people who are either going to write code or go out and get users, because those are the only things you need at first. – Paul Graham

7. Formspring – blind focus on monetization

formspring

Cap Watkins, CEO

IDEA: Formspring was a question-and-answer-based social networking service.

FATAL PROBLEM: CHASING THE HOCKEY STICK

The biggest sin was skating towards the hockey stick. “We literally spent months on a [Formspring button]. We bet huge. On someone else’s (Facebook and Twitter’s) plan. Flop. How about photos? Instagram had just come out and was killing it!

ADVICE: FOCUS ON YOUR PRODUCT VISION

I learned to focus. To put the product vision first. To not try keeping up with what’s trending. To build your product for your users. – Founder Cap Watkins

8. Blurtt – death by excessive iterations

blurtt-image-caption

Jeanette Cajide, CEO

IDEA: Blurtt was a mobile app that allowed you to create their own digital expressions by choosing an image, adding text and sharing either anonymously or to your network.

FATAL PROBLEM: EAGERNESS TO PLEASE INVESTORS = DEATH BY TOO MANY BUSINESS MODELS

Blurtt went through four iterations, each significantly different from the previous one.

I kept on changing the vision to appeal to investors so I could chase the bigger dollars so I could build the startup I really hoped to build. In the end, the passion and magic was lost.

ADVICE: DON’T LOSE SIGHT OF YOUR VISION

The chances of getting it right the first time are about the equivalent of winning the lotto. [But] remember why you started this in the first place and never lose sight of it, because once it becomes something you are not happy doing — you shouldn’t be doing it. – Founder Jeanette Cajide

9. Everpix – hackers didn’t hustle, neglected growth and distribution

everpix-hackers

Latour, CEO 

IDEA:  The service seamlessly found and uploaded photos from your desktop and from online services, then organized them using algorithms to highlight the best ones. The best part about Everpix was its ‘set it and forget it’ nature.

FATAL PROBLEM: NEGLECTED GROWTH AND DISTRIBUTION

They spent too much time on the product and not enough time on growth and distribution. The first pitch deck they put together for investors was mediocre. They began marketing too late. While the product wasn’t particularly difficult to use, it did have a learning curve and required a commitment to entrust an unknown startup with your life’s memories — a hard sell that Everpix never got around to making much easier.

ADVICE: A HACKER MUST HUSTLE

If you’re going to attract users, you’ll probably have to get up from your computer and go find some. In the first batch of startups we funded, in the summer of 2005, most of the founders spent all their time building their applications. But there was one who was away half the time talking to executives at cell phone companies, trying to arrange deals. Can you imagine anything more painful for a hacker? But it paid off, because this startup seems the most successful of that group by an order of magnitude. – Paul Graham

10. NewsTilt – founders’ miscommunication killed morale

newstilt-paul-biggar

Paul Biggar, CEO 

IDEA: NewsTilt aimed to provide services to help journalists become entrepreneurs and earn a living off their work online.

FATAL PROBLEM: COMMUNICATION ISSUES COMPOUNDED EXISTING PROBLEMS - Among them, a lack of a specific audience; a poor understanding of writers and news readers; and failing to differentiate itself from competitors like Huffington Post.

When Nathan and I signed up together, we had not spent any time working together, and that was a big mistake. Nathan is certainly a great coder, but when we didn’t share a vision, and we found it so difficult to communicate, there was no way we were going to get this built. You need a co-founder who gets you, and whom you work together well with.

ADVICE: BE VERY SELECTIVE ABOUT YOUR TEAMMATES

Most of the disputes I’ve seen are not due to the situation but the people. Which means they’re inevitable. Don’t suppress misgivings. It’s much easier to fix problems before the company is started than after. Don’t start a company with someone you dislike because they have some skill you need and you worry you won’t find anyone else. The people are the most important ingredient in a startup, so don’t compromise there. - Paul Graham

11.Decide.com – debating added unnecessary grief

decide-couldnt-decide

Hsu Ken Ooi, CEO 

IDEA: Decide.com invented technology that predicted the future price of consumer goods. The startup was a success and was acquired by eBay in September 2013, but founder Hsu Ken Ooi shares some lessons he learned in the company’s early days.

PROBLEM: AIN’T NOBODY GOT TIME FOR ENDLESS DEBATE

We spent a lot of time debating rather than doing. What technology should we use? When should engineering get involved with the design process? What’s our design methodology? How long should our release cycles be? Should we even have release cycles? I could go on indefinitely.

ADVICE: HIRE LIKE-MINDED PEOPLE

Decide how you want do things then hire people that want to do things that way. In  early stage startups, moving fast is more advantageous than having a diversity of opinion.

12. Better Place – drank its own Koolaid

better-place-koolaid

Shai Agassi ,CEO 

IDEA: Agassi dreamed and talked big. He was sure he wasn’t going to just sell electric cars, he was going to “get rid of oil”.

FATAL PROBLEM: DELUSIONS OF GRANDEUR BECAME TERRIBLE DECISIONS

Agassi’s grand vision gave Better Place life, but according to former employees, investors, and board members, that same grand vision also ultimately destroyed it. Entrepreneurs are frequently told not to drink their own Kool-Aid. They are cautioned to focus on the small things; to make more money than they lose; to cut costs when needed; and, when necessary, to pivot to a more promising business. Agassi made great Kool-Aid and then drank it all himself.

We spent $60 million to build something that TomTom sells for $29.95,” says a former board member. “We were building our own charge spots and call centers. We thought we could do everything better.”

Better Place lived fast and died young. It had a massive following in 2008, but by May 2013 it had declared bankruptcy.

It’s great that startups are now radically transparent about failure.

There are so many more founders speaking up about failure now. And they’re talking about failure in constructive, analytical ways, so that other entrepreneurs can avoid the mistakes they made. Countless post-mortems have been written – Business Insider‘s list of 33, and CB Insights‘ list of 76 are worth checking out. 

This shift matters from a mental health perspective.

Dave McClure, founder of accelerator 500Startups, completely understands startup stress:

Oh Jesus, founding a company can suck. It was a hell of a lot of work for not a hell of a lot of return. And then there are days when you sit in a corner and cry. You can’t really do anything else. Your world revolves around your startup and it’s all about trying to survive and not look like an idiot in front of employees.

Many entrepreneurs experience serious mental health issues, but feel that they can’t talk about it.

Christina Farr writes for Venture Beat that “a discussion about the psychological effects of failure was thrown into the public consciousness after the tragic suicide of Ecomom founder Jody Sherman. A year prior, Ilya Zhitomirskiy’s suicide ignited a similar discussion about the mental health repercussions of extreme pressure and scrutiny. Zhitomirskiy died at 22 years old after cofounding a startup that was positioned by the press as the “anti-Facebook.”

No startup is worth a life.

Hopefully, through this radical transparency, we can have healthier and more supportive conversations about failure and burnout. It’s worth recalling that failure is very normal. Founder of DrawQuest, moot, spoke about his failure as a matter of fact:

Most companies fail, and unfortunately we are one of those companies. Those are the odds.  

Founder of 99Dresses Nikki Durkin is now happy to be a normal 22 year old for a while. She folded 99Dresses with peace of mind: 

We both learned some hard lessons from our mistakes, but it also made me realize how much luck and timing are often huge factors in success and failure. 

Marcin and I agreed not to get sucked into the ‘shoulda woulda coulda’ trap. “No regrets”, he said. 

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