As much as we celebrate failure, for those going through it, it's pretty rotten.
Just how rotten? Well, CB Insights has just released its latest installment of startup failure stories. Unlike the data-heavy reports that CB Insights usually produces, these are collections of anecdotes--156 and counting--of startups that didn't make it.
What's most striking about the anecdotes is that more than a few startups fail for reasons you're never going to find on a survey. Said the founders of Lumos, an internet-of-things startup: "We were not the experts in the [internet of things] space." Laguna Pharmaceuticals encountered unexpected safety issues with a drug it was developing. Standout Jobs said it raised too much money with the wrong team. When it came time to pivot, the folks at Meetro were just too worn out and burned out to do it.
And while we're well accustomed to stories of startups such as Airbnb and Uber skirting the law, a significant number of companies in the list went belly-up because they, too, fought the law--and the law won.
Here are some of the recurring--and less reported--reasons that startups go under.
They Didn't Have a Plan B
In a number of cases, the founders were heading down what must have been a pretty bleak road but thought that a particular investor or acquirer was going to save them. Nope. When that person didn't come through, they had no other option that would allow them to keep operating.
Wantful, for instance, was counting on a follow-on investment that never happened. CB Insights quotes the company web site (this post is no longer there) as saying:
The coming holiday season was shaping up to be pivotal for us, but the loss last week of a planned follow-on investment from a strategic partner leaves us little time to secure an alternate source of capital, or to pursue the other opportunities on the table.
What's unsaid here is that Wantful probably should have been pursuing other opportunities in parallel with the follow-on investment. It's easy to see how, in the crazy life of a startup, making sure the company has a strong Plan B in place doesn't seem like a priority. Until.
Of course, this reason for failure, along with the ever popular "ran out of money," is probably more a result than a cause. If everything had been going along as swimmingly as the founders thought, they never would have been so desperately dependent on a single person in the first place.
It's not just Aereo that gets shut down by unfavorable legal decisions.
Flytenow's service, airplane ridesharing, was banned by the Federal Aviation Administration.
Vatler, a valet parking service, was told by the city of San Francisco that its permits had been denied and it was operating illegally. Even if Vatler had been willing to fight on, its customers weren't.
Grooveshark came to a settlement agreement with the major record labels--and part of that agreement was that it cease operations immediately.
Homejoy was fighting a lawsuit by workers who said they were employees, not freelancers. Once the California Labor Commission gave the go-ahead to a class action suit against Uber, said Homejoy CEO Adora Cheung, it became impossible to raise money.
And if it seems like these founders maybe should have known what they were getting into, consider this: Ordrx says it was defeated by a patent troll.
Couldn't, Didn't, Wouldn't Scale
For venture-backed startups, scaling is a huge problem. They absolutely have to do it, but it's frighteningly expensive. Scale too late, and someone else eats your lunch. Scale too early, and you waste money trying to repair molehills that have grown into mountains.
As one of the founders of RewardMe wrote, in a post entitled "Premature Scaling Killed Us":
Though on paper we had tremendous progress, we brute forced our growth and never established a scalable product or a scalable customer acquisition channel.... Don't scale until you're ready for it. Cash is king, and you need to extend your runway as long as possible until you've found product-market fit.
GroupSpaces had a similar problem:
...we embarked on significant work developing paid marketing channels and distribution channels that we could use to demonstrate scalable customer acquisition. This all fell flat due to our lack of product/market fit in the new markets...and cost a whole bunch of our runway.
The Good, the Bad, and...
Then there are the folks you just have to feel bad for. As in all failures, lots of things went wrong with MyFavorites, but consider this:
I was blowing cash--at a ridiculous pace. I had seven guys working on this thing at once, as we were hustling for SxSW launch deadline. We decided to focus on the iPhone app, which sucked for me and Dan, the backend programmer, because we both couldn't even use the app--we both have Droid X phones.