Ask HN: Crashed founders, what was the point of failure?

70 points by jlbnjmn 5 years ago | 54 comments

The recent PG essay on thinking received a lot of comments about survivor bias.

It seems the value of survivor bias awareness is realizing the need to compare crashed planes to the survivors.

There's clearly potential for mismatched incentives when VCs are talking to potential founders, just like there's a mismatched incentive for armchair analysts to justify their inaction.

So, founders who went for it and failed enough to quit, what happened?

What was the actual point of failure?

mmcconnell1618 5 years ago |

Built a e-commerce platform company in 2002. Packaged software sales model with designers and web hosting companies as the sales channel. Reasonably successful for more than 10 years but I call it a "vampire start up." I had enough income to eat and hire a few people but never hit the right growth numbers. Also, small business is just as demanding as Enterprise customers for features and support but doesn't have the budget to pay for it.

I tried a pivot to a SaaS model but missed my window of opportunity as Shopify and a few others started out as SaaS only and had more traction. Also, Magento commerce popped out of nowhere as a really good free, open source cart that made it difficult to continue to sell higher priced stand alone licenses.

Two actual points of failure: 1) had to start letting employees go because not enough income and 2) had to fire myself because not enough income.

In the end, I was able to license the technology to a few companies in a royalty deal and sell some other parts. Not a complete failure and I learned tons from the experience.

Business lessons learned:

* My sales/revenue strategy was weak, i was depending on my channel to sell but they were only getting me a one time license purchase while they got the recurring hosting revenue. * Selling to small and medium sized businesses is almost as much work as selling into Enterprises and the pay off is much smaller. I'd recommend targeting enterprises or consumes rather than mid-market. Consumer has scale, Enterprises have cash. * The better mousetrap doesn't always win. I had much better quality software than some competitors but they had momentum and staff that was already familiar with their product. If you're going to be the "better" option, be 10x better. * Timing is critical. Some opportunities are about being in the right place at the right time. A few years too early or too late can sink an idea. Be prepared to scale as fast as possible when you see things working.

mindvirus 5 years ago | |

My econ prof always said that moderate success is the worst outcome for entrepreneurs - failure means you can do something else and learn, and massive success means you are rich, but moderate success can trap you for years.

jlbnjmn 5 years ago | | |

I think the same applies to careers, at least for me.

The worst outcome is a moderately good job. A bad job you can quit, a great job you can retire from, but a moderately good job is slow speed entropy with a gradually narrowing window of opportunity.

robocat 5 years ago | | |

I view many multi-million dollar businesses as economic failures, because too often:

(a) owners ignore their opportunity costs (especially prevalent for software engineers that can get a huge salary in a safe job)

(b) owners ignore that they need to get extreme returns to cover the large risks that they take of business failure. The standard pass-mark is a 30-times return after 10 years. If one “invests” $y00_000 savings, and one forgoes $x00_000/yr salary by quitting work, one needs to get back say a minimum of ten million. (10_000_000 divided by 30 is $330k, which is a surprisingly easy amount to have “spent”, especially due to what one could earn in a boring 9-5 job).

Edit: I am ignoring other personal benefits or costs, and only considering a startup from a purely economic POV.

jlbnjmn 5 years ago | |

Wow, thanks for sharing your experiences.

Anecdotally, I've experienced the small business/enterprise dilemma from the inside. Working for some companies perpetually struggling to make payroll and others looking for useful ways to spend more of the money flowing in.

It seems like instead of ignoring small businesses, one could group view the owners as consumer, with similar scale and prove considerations.

I like the idea of 10x better mousetraps. It's not no, it's just a high bar.

codegeek 5 years ago | |

Thanks for sharing your experience. I can totally relate to the "small business is just as demanding as Enterprise customers for features and support but doesn't have the budget to pay for it" bit.

Curious, what are you doing these days considering the lessons learned from the e-commerce platform venture ?

mmcconnell1618 5 years ago | | |

Currently getting a health paycheck from FAANG, less stress and operating some passive income side businesses. Good work life balance at the moment but will consider changing things up in the future if the balance goes the wrong direction.

lisper 5 years ago |

> the need to compare crashed planes to the survivors

As someone who is both a pilot and a "survivor" of three failed startups (and a coattail-rider at one successful one), this is the wrong analogy. The reason it's the wrong analogy is that most airplanes don't crash, but most startups do. This makes a big difference.

The reason that it is possible to make reliable aircraft but not reliable startups is that the success of a startup changes the dynamics of the environment to make that success non-reproducible. This is not the case when designing aircraft. If you replicate a reliable aircraft design, chances are the result will be another reliable aircraft. If you replicate a successful startup, almost certainly the result will be an also-ran rather than another successful startup.

Every successful startup must necessarily distinguish itself from its predecessors (i.e. from its competition) somehow. But there cannot possibly be any reliable way to produce such distinguishing factors because every one is necessarily different from all such distinguishing factors that have come before. Anything that can be easily and reliably reproduced will already be reproduced by someone and so cannot be used as the distinguishing factor that differentiates the next successful startup.

This is the reason that looking to the past is of limited value. All of the stories of, "Here is what I did to succeed" are useless because none of those can possibly be a model for future success. This is not to say that you should not study the past. You should, because that can help you avoid repeating someone else's mistakes. But in the startup world, you can make zero mistakes and still fail to succeed. In aviation, making zero mistakes is pretty much the definition of success.

Building a successful startup is much more akin to making a new scientific discovery than designing a good airplane.

jlbnjmn 5 years ago | |

The analogy comes from aircraft surviving combat, as opposed to general aviation, although I'm not sure that's enough to overcome the flaw you've pointed out.

One thing I disagree on is the failure rate. Surely the failure rate of all businesses is skewed by restaurants and the self employed.

It seems like building a $1B+ startup is as you say, but what about building a $1M-$10M startup?

lisper 5 years ago | | |

> The analogy comes from aircraft surviving combat

Yeah, that doesn't work either because you can't see the holes in a successful startup.

fuzzfactor 5 years ago | |

>Building a successful startup is much more akin to making a new scientific discovery than designing a good airplane.

Eureka!

shyn3 5 years ago |

I tried to build a Google Reader alternative when Google Reader was first about to die, well a bit prior to it because it was missing the idea of grouping similar articles. I started investing in the product but kept building instead of launching. By the time I had it all built and ready to run it was extremely slow, untested adequately at scale and I didn't have a way to make money on it. Also, I didn't have enough money to sustain it.

I cut bait but after a few years because I was building it for me, and just succumbed to using News360. They made something similar to what I wanted but not exactly what I wanted.

The next time, it will be something that makes money on its own right away. Ideally just a basic POC and a landing page to get the first customer.

petewailes 5 years ago |

Marketer and 7 time company founder/C-suite member. Every time a company fails, it's a function of one of two things:

1. A lack of a product people will pay for, reliably delivered in a way they're willing to accept. If people won't buy your thing, you don't have a business, you have a hobby.

2. Poor financial acumen leading to costs being higher than turnover. Unless a business actually turns a net profit, it's not a business. It's a subsidised organisation waiting to collapse.

There's a whole pile of ways both of those can go wrong, but it's always one of those two. Bad product &| marketing, or poor financials.

The may valuable piece of advice I can give is, work out a proper strategy (start with a model like Roger Martin's strategy cascade), and then for every thing you plan to do at any point in the business, right down a list of assumptions which would have to be true for the idea to be good. Then try and knock those down with evidence, starting with the most fragile, least likely, most important ones first. Always try and prove your ideas are bad, not that they're good. At least then you've robustly tried to kick the shit out of them before the market does.

radihuq 5 years ago |

I started my first company last year, and it crashed & died in 5 months. The point of failure was when I burnt out and ran out of money in month 5.

Looking back, the venture was doomed from the beginning. I think it was due to a lack of structure:

* No daily routines to take care of my physical & mental health (working 0-16 hrs a day on 3 coffees is not good haha)

* No systems in place to socialize (sometimes I'd go weeks without talking to friends)

* No clear weekly/monthly goals. I would operate on 1-2 day sprints and constantly change the product roadmap & distribution strategy

* No clear distribution strategy. I kind of just did whatever came to mind

* No focus on generating income. I wanted to build cool shit that impressed people > building something of value and asking people for money in return

That period of my life was pretty dark and depressing, but a period I'm glad I went through. In the end I learned how to code (which has 2x'd my income potential) and I learned a ton about product & business.

I'm going to go for it again, and when I do I plan on putting a much bigger emphasis on taking care of my physical & mental health, as well committing to 1-2 month plans (instead of changing plans every 1-2 days)

thecleaner 5 years ago | |

I think this is a great way to approach starting companies. I hope you didnt have to go through poverty due to lack of an income on those 5months. But I am sure that the learning experience and the ability to align tech and business goals will payoff. I didnt go through the struggle so I dont understand your struggle fully but I hope those 5months served as a great management course.

jlbnjmn 5 years ago | |

Thank you for sharing this.

It sounded a bit too familiar.

I've spent the past 3 months developing daily fitness habits but I've got nothing and no ideas on social habits.

As for work boundaries, I just started experimenting with a hard 2pm cutoff for "future work". I'm curious to see the impact.

radihuq 5 years ago | | |

That's awesome to hear, I hope its going well!

For social habits, the mindset that I'm adopting is that its a necessary factor to perform at a high level. I've observed, especially recently, that my confidence and mood shoots out the roof when I regularly socialize.

I think the approach for me is to treat it like exercising: it won't help me type faster or solve that bug, but it will enhance my mood and confidence which is a huge competitive advantage over the long run.

I'm going to try finding a mastermind group[0] (or just creating one) and literally set time aside in my calendar for socializing. Lets see how that goes.

[0] https://www.youtube.com/watch?v=eOGLQEN38ZQ

Dumblydorr 5 years ago |

The value of mentioning survivor bias and selection bias is to highlight that we listen to those who made it because they have wealth and influence and we want or are interested by that.

There is no way to prove founders are more talented or wise than failed founders because it's impossible to disentangle luck and chance from their talent, though they would tell you luck favors the well prepared.

One great source of data would be serial entrepreneurs. It's one thing to look at Elon who was luckily in the right place and right time for his companies. But what about a similar individual who had luck on their side and failed multiple times? Even Steve Jobs had multiple failures, but bounced back time and again with new funding and a new vision.

jlbnjmn 5 years ago | |

> serial entrepreneurs

That is who I'm looking for.

If the odds of success are less than 10%, then it would seem to follow that the thoughts on success by single or several failure individuals would suffer from a similar bias as the survivors.

Basically, who actually kept trying long enough to disprove the hypothesis that's it's all about experimenting until you find something that works really well, and then growing it as fast as you can?

auganov 5 years ago | | |

If you're lucky, perhaps you can roll the dice 10 times. With a 10% chance 10 failures wouldn't be too significant. Given a binomial distribution that's still p~=0.35.

bob33212 5 years ago |

I was engineer #1 and CTO for a SaaS analytics start-up. It was pretty obvious after 2 years that there was no Product Market Fit. The CEO/Investor was OK with losing 900k/year so he wanted to keep going. I negotiated away my equity for high pay and an expense account. But I still quit 2 years later because the wheels were coming off as the sales pipeline dried up and the lead sales person was trying to sign anything, even work that he knew we couldn't do without taking a big loss when the engineering effort was factored in.

shostack 5 years ago | |

Any thoughts on how to better align sales with net outcomes based on your experience?

jlbnjmn 5 years ago | | |

I'm not the person you asked, but the most relevant advice I got was to pay half the commission after month 1 and half after month 12.

It helps weed out the less honest people, aligns sales with support, and protects cash flow.

bob33212 5 years ago | | |

At a small company you would ideally have engineering involved before any contracts were signed.

At a large company you generally pass the sale off to a integration team who isn't commission based. And that team will quickly find out if the customer was badly lied to, And you will have time to cancel the commission.

jonplackett 5 years ago |

I hope some founders answer this. It’s always disappointing when I good question rises up the charts... and then gets barely any answers!

jfengel 5 years ago |

I screwed up my life pretty badly by sticking with my startup for more than a decade. All that stuff about "Winners never quit..." I should have quit.

I kept it going in part because I had personally backed a large loan, which came due all at once when we finally folded. That was a very, very bad day for me. I managed to salvage it -- part of the reason I was able to last so long was that I'd had some successes during the dotcom boom. I lost all of that.

I failed to fail fast, which is easy to say in retrospect, but I would have been equally tsked at if I'd let it go without trying harder. Beyond a certain point (a few years) it was clearly just inertia and depression, and bad advice I got from people I brought in to be CEO.

We quit for real when our solitary customer dropped us. They never really understood what we were good for -- a story that I never managed to tell really well, despite still believing in it. The world went in exactly the opposite of the direction we aimed at: high quality data with powerful semantic reasoning.

I did everything wrong, and was really bad at it, including knowing when to quit. My life is going great now, and I'm incredibly fortunate, but if I had two pieces of advice it would be "Don't" and "Listen to your friends who tell you you're being stupid."

wh-uws 5 years ago |

I thought I was smarter than I was and I was trying to do a lot by myself. It didn't work and my ego made me not admit it wasn't working far longer than I wish I had spent on it.

It was all a very humbling experience.

In the future

1) recruiting at least 1 other person to work on anything like a startup with me. The bar for me is can I get at least 1 other person to work on this and do I have a plan to get to the first 5? If not I'm not doing it.

Worse case you build a great team and have a good time with them making something and hopefully get acqihired or better. If you're by yourself and it doesn't work out you're likely just getting another job...

2) Recognize what your strengths are and recruit to fill in the gaps. You only have 24 hours in a day 6 to 8 of which you are sleeping if you want to be effective for the rest at all... So even if you were a super hero at all the things you need to be to make a business successful (hint: you wont be) you will run out of time in the day if you can't get other people to help.

If you can't get ^ in your own project join other people's projects until you can.

stevesearer 5 years ago |

Not a startup in the typical sense, but I created a side project maybe 10 years ago that had great traffic growth and was signing up users.

It was basically a content website so I was using Wordpress and MANY plugins without really understating how the worked together. Traffic kept growing and I was getting pretty excited.

My other (and current) business was growing more so I focused on that. After a few months I checked back in and the other site had actually broken in an update of Wordpress and been getting zero traffic for months and didn’t ever recover once fixed.

While I would like to say that the point of failure was the site breaking, the actual point of failure was me not being able to focus on it like I should have.

Related, but had I given it the focus it deserved, my other business might not have been as successful and my life would likely look incredibly different now.

softwaredoug 5 years ago |

There’s a pretty big opportunity cost to your time in life. It’s easy to get in sunk cost traps, including bad marriages and startups.

Life is short. Sometimes (as I learned) you need something new. Sometimes it just doesn’t seem to be working and being a kajillionare isn’t what’s most important in life. Sometimes whatever mission or product isn’t what you prioritize or even believe in anymore.

And that can be a good thing!

There’s nothing wrong with regularly reevaluating priorities. In fact too many people say they’re being “persistent” when they’re really just on autopilot and never gaining perspective. Some people are masochistically entrepreneurial by nature, and just go on autopilot doing that when it’s not a healthy thing for them to keep taking extreme professional risks all the time.

seibelj 5 years ago |

Product - market fit was the root cause every time. Every situation is different but if there aren’t buyers it just won’t work.

Interesting enough that the successful exit was because of astute cap table management. The founder was very ruthless about managing the cap table and negotiating to maintain a huge amount of equity, which turned into a fairly good exit for the founders / execs / early engineers despite a relatively low acquisition price. And the reason the acquisition happened at all was for IP rather than customers, so I guess even without strong product / market fit a successful exit can still be accomplished if the founder is clever.

thecleaner 5 years ago | |

I mean essentially people pay for something of value. Customers will pay for your product if its great. Acquirers will pay for the assets like brand value or IP. Building a startup for acquisition is also just fine. Atleast you come out stronger in the end.

bjornsing 5 years ago |

First nail in the coffin was when we couldn’t close the deals we needed. Second was when M&A discussions fell through. Third was when we ran out of VC money.

jlbnjmn 5 years ago | |

Out of curiosity, why was the company started?

smt88 5 years ago |

This is like asking, "What was the point of buying a lottery ticket?"

For most people, the point is having a chance at being wealthy. Most founders believe they have a 90-100% chance of success, even though it's more like 0.01%.

Some others may start companies in order to get out of a painful career track or because they want to understand the process or some other ancillary reason, and they'll get more value out of the process than others would

missedthecue 5 years ago | |

I think you are misreading the title. He's asking what the turning point was that lead to failure, not what the idea behind failing was.

jlbnjmn 5 years ago | |

Sorry, the title was vague.

More specifically the question is "what were the specific, direct causes of failure?"

"My car broke down" vs. "the alternator went out so my battery died and my car wouldn't start".

smt88 5 years ago | | |

My mistake, sorry.

Years ago, there was a survey for founders called Startup Genome that asked about what went wrong.

It found that most companies failed because they had the wrong team or because they scaled prematurely (e.g. hiring full-time people to do part-time work).

My anecdata tells me most people never even get that far because they underestimate the cost of customer acquisition, and they can't survive the time it takes to get someone to write a check.

codingdave 5 years ago |

The one I see often is timing - if an idea is too early, the market isn't ready to adopt it. If it is too late, the problems are solved and the solutions are now commodities.

Success often boils down to getting the product to market at the time they are ready for it, yet before everyone else has figured it out.

giantg2 5 years ago |

I've had some ideas for inventions or companies over the years. They fail before they ever get off the ground because I don't have the flexibility to quit my stable job (or I was a little kid). They likely weren't good or unique ideas anyways.

benibela 5 years ago |

When I wrote a Windows app for my university's library and they told me they do not want a commercial app

Then I spent years sending them emails. I did not receive an answer, but it kept me too busy to any other projects or jobs.

Now they have a mobile app, probably bought from some company

netsectoday 5 years ago |

Serial founder here.

Actual Points of Failure

1) First Company: When I realized the business couldn't scale on my expertise and hours alone. I would never be able to bootstrap enough money to hire/train my first employee. I saw myself charging hourly for this highly-specific and difficult work, forever. I packed my bags and literally moved out-of-state to get a fresh start after realizing this. The company was very profitable until the day I stopped answering calls.

2) Next Company: I couldn't find product market fit. It was cool tech, but there was no income after 6 months of work, no customers, and no foreseeable way to monetize the idea without a miracle. Running a simple business plan is difficult enough; there's no reason to think some Rube Goldberg type of business plan is going to work.

3) Next Company: I found product market fit after 6 months. There were paying customers, a scaleable business model, but I had to be careful how I operated and the industry was dangerous. I figured out exactly what I had to do to succeed and made a pretty penny finding product-market fit, but then quit cold-turkey once things were crystal clear this was the product/service direction.

Failure is just a step in the learning process. Here are some hard-learned lessons:

a) If you build it; nobody will care. If you market it, nobody will care. If you try to give it away for free, nobody will care. EVERYTHING in this world is this difficult. You basically have to sell a commodity that has current demand if you want to get anywhere. If you don't see other businesses that sell your product or service it's because people won't pay for it.

b) I hate saying this: you NEED a business partner. If you build the product; the other person needs to talk to customers and sell it. You don't have enough time to handle everything when customers start calling. Forget this grand idea of training a handful of employees and letting your startup bootstrap itself. The person or people you work with need to be as invested as yourself.

c) A note on the business partner: This needs to be a very special kind of person. You WILL blow up on each other. You WILL have arguments. You WILL consider walking away from the entire business and them. This kind of person needs to be someone where if this happens; you both understand each other, can call each other an idiot, but you will ALWAYS be able to (eventually) drop the issue or figure out a solution.

d) After years of failure it's a little jarring hitting success. All of the sudden you are doubling-down on the business model instead of brainstorming the next pivot. You begin working out sticky scalability issues and operate in partial-failure mode as things start to accelerate and break, while your attention is on the biggest fire.

Final advice: become a cockroach. Blow past the end of your runway and keep going. You'll still be alive when you run out of cash, so get creative and keep moving forward. What would you expect it to cost to build a successful company? It takes everything you have to give, for decades. Just keep pivoting.

krp 5 years ago |

Solo technical founder here.

I've helped build several other startups since 2012 but this was my first time solo founding. Mid last year I had a lot of runway and had been meaning to learn Flutter for a while. I decided to build project that had been floating around my mind for a few years.

My largest mistakes were:

* Choosing 3 different revenue streams instead of just 1, which meant I was building for 3 different customers. I'd interviewed a few dozen people early on and identified those 3 key pain points, but I should have just left two as an optional pivot. This also meant that I was juggling too much and context switching too often.

* Choosing a technology stack I'd had minimal experience with (mobile & Flutter for the frontend), so the MVP that could have taken a month to build took around 4 months. There are so many annoyances to deploying mobile apps that don't exist with web apps. Nobody but friends want to install your app just to try it out. Use technology that you're already familiar with so that you can move fast.

* Getting a shitty MVP version onto people's phones. Note: Good luck getting your shitty MVP onto Apple's App Store. Google's store had some decent functionality for running a closed-alpha. Overall web is a much better platform for testing ideas with minimal friction (imho).

* Spending too much time integrating Segment, Stripe, and all the other swag you can get as a startup these days. Each new integration has their own learning curve and every new one slows you down.

* Wasting time meeting with and talking to investors when I knew deep down that I wanted to bootstrap. I met some cool people but I should have been laser focused on iterating instead.

* COVID happened and my app depended on countries not being locked down, so as a precaution against burning through my runway I put the startup on hold and took on another contract to increase it instead.

I've had some ideas for a pivot since February along with a few other things in different spaces that reuse what I've got so far. I'll try out some experiments to try over the new year period, so I don't consider it failed yet, but it does feel like I'll almost be starting from scratch.

edit: I might as well talk about other startups I've worked with that eventually failed.

* A: After raising a seed, instead of using the money to fund development, it was used to bring on big-name executives in the hopes of raising a larger round. The next round was successful but nothing had been built, so milestones were missed and investors pulled out. The company lasted a little bit over 1 year.

* B: After a few months the founder brings on a CFO who thinks current devs are too expensive and wants to outsource to India. A handover occurs and it goes as you'd expect. The company lasted around 2 years.

* C: The CTO lacked the technical experience to realise they were over-promising and lacked the humility to receive constructive criticism, then went on a power trip which led to an exodus. Yes-men devs were hired from a different part of the country and completely isolated from the rest of the company, so that the CTO could have complete control over the flow of information, then those devs were unable to deliver what had been over-promised. Fast-forward a year or two and there's an external audit to find out what's taking so long, investors discover they'd been paying for unicorn farts, they pull out and publicly fire the CTO on their way out. The company lasted around 3 years.

muzani 5 years ago |

One startup success, some profitable projects. Founded many which failed, invested in some failures, worked in several startups that failed.

1. Dishonest and manipulative cofounder. He pissed off every partner with aggressive negotiation, blatant lies, and bad deals. He was the type to agree to a deal, then back out and offer a worse one.

2. Founders were not committed. They invested a lot, sure, but didn't close deals. The key partner was rich but technically incompetent and didn't take the joint venture seriously. Project was simple but it dragged on for over a year, and neither party committed to get it done.

3. Good product. But founder oversold it. It didn't meet expectations, the blame was pushed to staff, eventually imploded.

4. Good product, good demand, but unit price economics didn't work.

5. Company was acquired for a profit. Acquiring company had no plans what to do with it. They cut off the primary target market immediately upon acquisition, lost a good chunk of sales. Nobody wanted to take responsibility for it and it died slowly after 3 years, and likely split the parent company as well.

6. Feature bloat. Hit crisis mode where everyone did everything and got nothing done. Pushing bad code to production, which broke. Had progress report meetings every 4 hours by the end of the project before everyone left.

7. Product was built. Sales co-founder lost nerve, despite a major airline showing interest, and abandoned it.

8. Company faked traction, e.g. buying products from the users and justifying it as marketing costs. Main investor lost nerve and pulled out. Founder could have saved it but was exhausted and pulled the plug.

9. Good product. Great team. Huge market. But one of the heads had very aggressively pushed the schedule, screwing over the entire product development plan. E.g. 6 months to release. Marketing wanted 2 months, QA wanted 2 months, leaving development with just 2 months. Dev ran on agile, QA ran on waterfall because they had to deal with visas and all. Crisis mode and meltdown.

10. Experienced, intelligent founders. Good business plan. But no budget and founder ran out of cash to keep it going. Would likely have gone well if founders had the money. Founder went on to do a startup about getting funding and it's still going.

tldr: A lot of this is just human problems. I think the point of failure for many startups is just stopping. Too many founders start a startup because it's to stroke their personal ego and once they have one, it gets neglected. Most people want some kind of passive income thing and won't commit to their startups.