What we can all learn from failed startups

These days it seems like startups are springing up everywhere every single day and it’s a bit tiresome really to take it all in. All of a sudden myriads of people want to start companies, they don’t care if they have what it takes or not, they just want to build something successful. Just like me, they are on Techcrunch everyday, they read all these success stories and feel a renewed confidence in their ability to build something better than Facebook. I am no pessimist, but I like being very pragmatic. The truth is that not all of us can do what Zuckerberg has done, but those people who actually have what it takes to cut it need to pay attention, learn from other start-up stories, ask questions and hopefully they will achieve what they have set out for.

One thing I like to do is study failed start-ups, infact I study them as much as I do successful startups. When I read about Mint.com, which is a fantastic company by the way, I also like to read about Thought Inc or playcafe for example. A friend of mine once asked why I was reading about a man investing all his life savings in an idea he has only to see it fail in only a few months. He reckoned that would be too painful for him to read and would put him off ever wanting to build a start-up. Not me. When I read about failed businesses, I actually study. I study how they started, how they sought funds, what equity did they give out? did they even get funded? all these questions and more are what I ask myself while doing this ‘postmortem’.

I am currently working on a startup as well, so you can understand why I would want to know what others have done wrong just so I won’t make those mistakes myself. While many mistakes to one startup might actually be a good move for another, it is up to you to sort through the list and decide which is which with respect to your own startup. Here are some things I have learned:

1.) Find a market for your product first. You would imagine that this is something everyone knows, but it will surprise you how many people fail to do a market survey before ordering the manufacture of 1 million pieces of their new product, or building a software that they like personally with the hope that others will like it. Many times this is born out of the thought that their ideas must be kept secret until the product is released. I disagree with this reasoning. It’s always a good idea to check if people will buy your product, find yourself a customer base, a group of people you can actually market to when it’s time to start selling. What if you invest all this money into the business and find out no one really finds it worthwhile? You’ld have wasted money and valuable time.

2.) If you don’t find the right people, chances are you’ll fail. Simple as that. It takes a skilled sailor to successfully navigate troubled waters and trust me, startups are ‘troubled waters’. I have worked in a few and currently am so I have seen the high tides and low tides. You need the right people on board should in case you encounter unexpected snags. Those times when an investor who promised to invest suddenly pulls out in the last minutes, when you get hacked in the least expected time or when you experience a DoS attack, will you have people to put it right?

3.) Having too much money or not having enough. I know these are two ends of the stick and so you might wonder why I have the two. Have you ever had something too sweet? or had it too bitter? both aren’t as good as having the right balance. When you don’t have enough money, it’s obvious to see how failure can spring up there isn’t it? you don’t have enough to pay your team members, no money to advertise or market your product, no money to keep the servers running etc… these are all obvious. How about having too much money. Ever heard of Monitor110? classic case of having too much money. They apparently raised about $20million in their 3 rounds of funding and still didn’t succeed. Just like me you are probably thinking what the heck? if I had all that money, there’s NO WAY I will fail or not succeed with my startup. The truth is that often times when these people have all this money, they forget the little things and instead start splurging on things that are not even necessary. They will probably go advertise on the biggest TV networks, wall street journal, websites with unrealistically large following and forget to come up with a little feedback page or an interaction outlet between them and their customers. I am not saying it’s a bad idea to advertise on Newsweek, if you have the money and your market happens to be readers, then by all means go ahead! Just don’t forget the little things that happen to be terribly important. Sometimes when you have access to so much money, you might even lose focus and forget the origin of the company, how and why you started it in the first place. Everyone’s idea changes and it becomes all about the money. If you have all that money, why not spend it on strengthening relationships with customers, starting contests and giving away free stuff to winners, why not spend on gift-cards for the most active customers you have etc… Advice: keep up the channel of communication with customers, get the money that you need and not much more. These will keep you grounded.

4.) Marketing is just as important as developing. Never neglect the marketing end of the process. Your development and marketing should go hand in hand. When you are bringing in the best coders around, also make sure to bring in kick ass marketers. If you need some leads, I will be glad to point you in the direction of a few people. Merely creating a Google Adwords campaign isn’t marketing, neither is creating a Twitter account to follow people and hope they follow you back. It’s a lot more comprehensive than that. The emergence of social media has made it alot easier to connect with your fans/customers as well as new ones, but advertising is still a major part of Marketing. PlayCafe failed in this department and despite all the money they had in their disposal, they never really got their Marketing right.

5.) Lack of Organization kills startups. Lack of organization kills anything, period! It’s important early on to get the right people doing the right things. Negotiate you equity vs. investment appropriately, have an actual CEO on board when the time comes (if you know you can’t handle it- and most entrepreneurs can’t if we are being real) and most importantly create a business plan and follow it. The business plan that you submit when you are looking for investment should be different from what you are using as a  guide for yourself. The former is more optimistic that it actually should be and the later must be more realistic.

The more you know about start-ups, the better equipped you will be as an entrepreneur. Take time out to study different startups, read their stories to understand what makes them solid, also pay attention to those that have failed or aren’t doing quite well. It will give you a better understanding and appreciation for what Entrepreneurship is really about. That’s the beauty of it.

Related articles by Zemanta

• Your Startup Sucks (centernetworks.com)
• You: The long lost formula for start-up success. No, really (uk.techcrunch.com)

Tagged as: business, Denial-of-service attack, Facebook, failed startup, marketing, Start Up