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Why Businesses Fail
 

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When the dot-com bubble burst, Nicholas Hall gave failed entrepreneurs a place to vent. On Hall's Web site, Startupfailures.com, failed business owners commiserated about what went wrong, and warned others to avoid the same mistakes.

Ironically, Startupfailures.com went offline last year. "It was more of a timely conversation than really a business initiative," said Hall, whose own failed startups include a financial services company and a microbrew. Hall has since moved on to work for a big company, PriceWaterhouseCoopers, but also runs a social networking business called Conference Guru. Hall talked to Inc.com about the biggest startup flops of the dot-com age, and what entrepreneurs have learned since.

Q: Just to be clear about what we're talking about, what would you say makes a failure, and what makes a flop?

Nicholas Hall: I'd say the flop is when they give up. I look more at the individual, the person, and less at the company itself. It's more about you as an individual versus the company. Any venture capitalist would tell you that a failure is when a company ultimately shuts the doors. For a flop, I would think more in terms of the person who gives up on their passion and gives up on their dreams.

Q: Do you think there's a moment when a company should know the writing's on the wall?

Hall: I know a lot of friends who are still in Silicon Valley and doing the whole boom phase. For every story, there's always somebody that lasts until the very end, when it looks like the writing's on the wall. If they didn't believe passionately in what they're doing, they wouldn't take themselves beyond the "writing's on the wall" phase. But you also hear plenty of stories, not only in business, but also about artists and musicians, when plenty of times it's looked like the writing's on the wall, but they still go on. By the same token, sometimes for that business, trying to shut it down might be the smartest choice.

I've been involved in a couple of deals with executives where they were in love with deals, more excited about the deal and sort of lost perspective, putting good money on bad deals. There's a fine line between being passionately committed and being blinded by the light. On the one hand, there are entrepreneurs who are passionate about what they're doing and the dealmakers put so much money in it and want to make it happen. That has less passion and more strategy.

Q: Can you share some thoughts on some of the Internet's biggest failures? Like Pets.com, Webvan and Kosmo.

Hall: I was a huge fan of Webvan. I was a customer of Webvan. I was a stockholder. I loved their service. It was amazing. They were building an infrastructure for a billion-dollar play. Again, it seemed rational at the time. They had a lot of rational people who had made money before. The runway just ran out.

Pets.com's approach seemed to be, "Let's do that, and let's do that, too." At that time, there was a whole lot of this rush to get into this space. I'm seeing the same thing with online advertising. Another example is blogging. There are just blogging companies popping up all over the place and services related to blogging. When you boil it down, it's not this super-sophisticated thing. It's a way to create Web pages. How many will have traction two or three years from now? We'll have to wait to see how it blends into the Internet on the whole.

Q: Why do you think some companies continue to fail?

Hall: The more you're willing to give it a shot, the more chances you have for failure. An entrepreneur recognizes that ultimate success or failure of a company is about personal success or failure, it's not just the business.

Personally, I know a lot of people who were involved with start-ups. At this point, I know a lot more examples of people doing well. They are those who bounced back and tried again. Those who didn't do well, I don't know what happened to them. I haven't heard from them. It's about how many times you'll get up after you're knocked down.

Q: Are there lessons to be learned from big flops, such as the Edsel and Crystal Pepsi - flops where the companies behind them just somehow missed their market?

Hall: It's tough to compare. With start-ups, you're not able to afford a big flop. The big companies have more resources and can afford to make big investments that don't go anywhere. You're talking about Crystal Pepsi, but look at energy drinks. They weren't on the map; now they're everywhere. Every beverage company has its own line. You just never know. I think that for everybody who tries something, there's got to be someone who believes in it. Otherwise, you wouldn't get to that point.

Q: What do you think is the worst flop in history?

Hall: It's hard to think of one off the top of my head. Brew.com is a good example. It was so ahead of where the market was. Webvan really annoyed me. I already knew that they were bleeding a ton of money because I was an investor. And I think the last six months they decided to completely redo web site and the logo. I was like, "You have got to be kidding me." They were totally going under.

Q: And the lesson of that is...

Hall: Slow and steady wins the race. It's just like a music act. It's a 10-year, not overnight, success story.

Last updated: Nov 18, 2005




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