Lessons From 4 Failed Start-ups
In the world of start-up literature, you'll often hear things like:
"Fail often and fail fast."
Or: "If you're not failing, you're not trying hard enough."
Maybe true, but still. No one likes to fail--and it's never easy. Just ask the following entrepreneurs who learned the hard way. Their failures offer four concrete takeaways for any start-up founder.
1. It's easier to start a company than to end one.
Businesses are easy to start--that's why sites like MyCorporation exist. For Brad Barrett, the hard part was figuring out how to shut one down. About 10 years ago, he was running a company called Connect Center that provided workspace at hotels like the Hilton at the Dallas Fort Worth airport. He raised $400,000 in angel investments and all seemed to be going according to plan. Then his contact left the Hilton, the dotcom crisis killed investment opportunities, and the company started to sink. Because he still had investment money, he kept trying. "That kind of money makes you try other angles and do anything to keep going," he says. But in the end, persistence couldn't save the company--Barrett had to pull the plug. The failure didn't scare him away from entrepreneurship, however: He now runs a successful start-up that makes an infrared grilling plate.
2. It is possible to raise too much money.
Plenty of cash is always a welcome relief, right? Not for Michael "Luni" Libes. At one of his previous start-ups that shall not be named, he found that raising too much money at an early stage caused too many problems. "All funding buys you is time. But just as nine mothers can't make a baby in one month, no matter how hard you try, a bigger team can't get more product into market in less time," he says. Libes now sees funding as something appropriate for a company that has already found a market. Without funding, companies are forced to be agile and smart. With funding, they'll hire too fast and add layers of complexity that obfuscate the real market goals.
3. In the beginning, it's not possible to have too many status updates.
Everyone with a stake in a fledgling company likes to see that it's making progress. But often there's a temptation to report progress intermittently in a grand unveiling, especially as a way to impress investors. That's a major mistake, says Iqbal Ashraf, who ran a business networking company in the 90s called NetworkChord. He decided early on to meet with his teams and report on company progress only as needed rather than let everyone know what was going on each week or even daily. That meant employees started missing meetings, dropping workloads, and eventually creating a snowball effect of risk. "Daily reviews help not only to track progress but to surface potential future issues," he says. Eventually, he did start doing two progress meetings per week, but it was too late. Fortunately, he learned the lesson. He now runs a successful consulting company called Mentor's Guild.
4. Grow slowly so you can keep a handle on team dynamics.
Growth is always a win for business, unless it reveals a problem in the organization. Kratee E-commerce and Consulting is a media company that operated from 2009-2011. Company founder Ankur Agarwal proved he was a successful manager with a small team. When the company turned a profit, he decided to expand operations and hire more employees. Then, everything started spiraling out of control. "Micromanaging everything that my staff did was the culprit," he now says. "I left very little room for my team to do something on their own, fail, and learn from it. And thus I ended up doing a lot of work myself." With his new company, the product search site PriceBaba.com, he gives junior staffers much more leverage and ownership.