Harvard Business Review pp77-85 “Why Start-Ups Fail” “It’s not always the horse or the jockey” by Harvard Business School Professor Tom Eisenmann. It has a book with the same title.
Read the article for all detail.
Summary
See HBR pp160 for an official summary
2244 Notes: This is an essential read for anyone engaged in or thinking about being leadership in a start-up.
Having “interviewed or surveyed hundreds of founders and investors, read scores of first- and third-person published accounts of entrepreneurial setbacks, and wrote and taught more than 20 case studies about unsuccessful ventures,” Tom Eisenmann wrote the book and this article.
He uses two examples to highlight common challenges in start-ups.
The first “Good Idea, Bad Bedfellows”
Two new entrepreneurs had a good idea, used the lean start-up method creating the “perfect minimum viable product (MVP)", got some initial funding, did the appropriate market research, had some success but without industry experience or industry leverage production problems including delays and the cost of dealing with returned merchandise shrunk margins and investors (Bad Bedfellows) weren’t willing to further fund the nascent venture. Hiring help for the founder’s lack of industry was a good idea but executives hired from larger firms have highly specialized skills and were unable to effectively manage all the issues (Bad Bedfellows). The author believes a better path would have been having a third co-founder, a jack-of-all-of-the-trade and getting financial backing from the manufacturer might have created enough alignment to eliminate critical issues.
The second “False Starts”
This entrepreneur was essentially too visionary and action-oriented. He followed lean start-up movement “launch early and often” and “fail fast” which the author believes leads to “ready, fire, aim.” In this case, the founder skipped key market research to define a service that early adopter and mainstream customers would use and that would create a sustainable business model. The founder’s team was successful in building an initial service (False Start) and pivoted with adaptions (False Starts) that might be more viable but ultimately the mark was missed with the cost of acquiring customers exceeding the revenue the service would deliver.
Other patterns that doom start-ups.
False positives and Speed traps-encouraged by enthusiastic early adopters a start-up runs the risk of rushing to market a product or service that won’t be as attractive by other customers.
Help wanted. Being able to create and then to scale a new service or product requires talent with the requisite skill set for each element and stage of the start-up. Cutting corners or getting the wrong talent can “lead to strategic drift, spiraling costs, and a dysfunctional culture.”
Cascading Miracles. Challenges faced by start-ups are significant. The author mentions five and if you had a 50/50 chance for each essential step your likelihood of success is about 3%.
The author then details the key steps to increase start-up success. 1) Define the problem. 2) Develop the solution and 3) Validate the solution. Finally, the author notes the need for balance. Just do it!-needs to be tempered, Be Persistent-not to the level of being stubborn, Bring Passion-but not to the level of being overconfident or being unable to see “their product isn’t meeting customer needs and Grow-but don’t “curtail customer research and prematurely launch their product” and don’t ignore that “heavy demands on team members and partners.”
Ultimately, the author suggests that “Founders should take conventional entrepreneurial advice with a grain of salt…they should also find the right investors and management team and avoid giving short shrift to customer interviews or research.”