The Real Reason Why Startups Fail Now

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One of the eternal questions in entrepreneurship is why do so many startups still fail. Is it a bad idea, poor execution or are many just not cut out to be their own boss?

On The Small Business Radio Show this week, Tom Eisenmann, a Professor of Business Administration at Harvard Business School discusses the real reasons in his new book, “Why Startups Fail”. He has interviewed over 470 entrepreneurs and has case studies including an ice cream maker, a concierge dog-walking service, and a sophisticated social robot.

Interview with Tom Eisenmann

Tom believes that too many experts focus on examples of success rather than failure. He explains that we can learn more from the many companies that have failed rather than mocking them. Tom says that knowing what these patterns are can save startups in the future.

Tom points out six key patterns of failure:

  1. Bad Bedfellows. Startup success is thought to rest largely on the founder’s talents, experience and general instincts. But the wrong team, investors, or partners can sink a venture very quickly. Tom says that startups need “human Swiss army knives” with people that can perform many different functions.
  2. False Starts. In following the typical advice to “fail fast” and to “launch before you’re ready,” founders risk wasting time and capital on the wrong solutions early on. Tom believes that you have to do up front research and test with customers and stop just “pitching your product”. Alternately, perfectionists want to keep “polishing the product” and never want to “expose it to customers”.
  3. False Promises. Success with early adopters can be misleading and give founders unwarranted confidence to expand. Early adopters are just that and may not represent the needs of a broader mainstream market of customers.
  4. Speed Traps. Despite the pressure to “get big fast,” hypergrowth can spell disaster for even the most promising ventures. Not every business has the leadership, money, market or infrastructure to expand rapidly.
  5. Help Wanted. Rapidly scaling startups need lots of capital and talent, but they can make mistakes that leave them suddenly in short supply of both.
  6. Cascading Miracles. Silicon Valley tells entrepreneurs to dream big. But the bigger the vision, the more things that can go wrong fast. In fact, Tom says that the huge entrepreneurial success stories like Facebook and Tesla had to have a million things go right to succeed.

Coming back from failure according to Tom takes three steps:

  1. Recovery: Find new distractions and rebuild neglected relationships in your life.
  2. Reflecting: Understand what happened a few months later and what can be learned.
  3. Rebound: Learn what was your role and what will you do differently next time.

Tom also talks about the 100 Harvard Business School case studies he has authored.

Listen to the entire interview on The Small Business Radio Show.

Image: hbs

This article, "The Real Reason Why Startups Fail Now" was first published on Small Business Trends



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