Dear dreamers & founders,
We probably all heard the fact that only 10% of startups make it and become a long-term success. There can be many reasons why 90% of us don't make it, but a former McKinsey and Harward Business School professor, Tom Eisenmann, identified 6 main reasons for entrepreneurial failure.
I thought I would share these 6 primary patterns of failure and hopeful it can help us understand what signs to look for before failure happens.
1. False Start (Occurs Early-Stage)
You could have a great team (good talents, investors, founders), but they start building too quickly and waste a cycle and their capital on a bad first product without knowing market fit or customer needs.
2. False Positive (Occurs Early-Stage)
You get off to a good start with early adopters and then turns out that mainstream demand doesn't share the same needs and you've actually mobilized the wrong resources and efforts to pursue the mainstream market without considering your first users/customers
3. Bad Bedfellows (Occurs Early-Stage)
This one happens mostly on Early-stage startups: You could have a good idea but it never gets traction due to poor founder fit, weak team, and poor investor relationships.
4. Cascading Miracles (Occurs at Mid-Late Stage)
Many things have to go right in your startup and if any one of them doesn't go as plan, the venture fails. This happens in startups where there are a really ambitious innovation plan and a founder who has the skills to sell that innovation to investors. Because of the scope of innovation, it's going to take a long time to develop the product, so you have a moving target because you're not actually going to launch for 5 - 7 years.
5. Speed Trap (Occurs at Mid-Late Stage)
VCs buy into a company that's growing fast at a high share price and expect more of the same. Now you have to layer in middle managers. You have to create processes and so forth. You're often experiencing chaos operationally. You have problems culturally. All sorts of problems due to rapid growth.
The right answer is to slow down and fix things, but you have a lot of pressure to keep going and that's where the speed trap comes.
6. Help Wanted (Occurs at Mid-Late Stage)
This is when a startup still has product-market fit, the customers love the product/service, and the basic formula in terms of LTV/CAC is on track, but something on the resource front goes awry. It might be a mistake, or it might just be a misfortune. Market changes, suppliers, unexpected deals, etc. This pandemic seems like a "Help Wanted" scenario.
So, which one do you think is most dangerous? Are there any other major traps founders need to avoid and have you noticed any of these failure patterns in your startup? 💬