From the entrepreneur’s corner (18): when a startup just fails

The founder’s catch-22 is: If your product doesn’t have traction, you won’t have enough money to build it.

You, as a founder, need complete and utter belief in what you’re making, and a board that’s fully behind you and your vision. There needs to be governance; “having a board is magical, it builds gravitas.” (Jason Calacanis)

Some say effort and time spent correlate with success; you have to want to win more and can’t do it part-time… it might not be so easy.

On a side note, putting the word tech in the title of the company or its deck/prospectus, ( like “rising consciousness at a desk” b/isht terminology in the pre-IPO prospectus of this real estate + tech behemoth, with $30b+ in paper value evaporated in a few weeks,) and selling a bunch of non-sense with plenty of tech buzzwords, don’t go anymore these days… failure is already there (no need of crisis,) and you’re dealing with “garbage in need of regulation.” (CBInsights)

In an ideal world, all’s good with great planning, team, vision, demand and rest, and the founders never miss the targets. Reality is different though. Most startups fail.

Reasons? There are plenty; and here are a few I’ve noticed during the last three years.

Founders have sometimes competing visions; add some investors who put pressure to grow at double digits and go in specific directions, put all their visions into a melting pot and trust that whatever comes out will be a winner… Really? And pouring money into marketing channels won’t compensate for the lack of a clear vision, with a consistent message either.

Most startups don’t get it right out of the gate, even if VC-backed, and we know that search for product-market fit is an iterative process, with trials and errors. When things go wrong, an ill-conceived board (investors especially) may push for radical changes. This translates into additional pressure on the founders, and a few may opt to part ways; this is painful and difficult for the remaining founders. They have to sharpen the vision, pivot and rebuild. Even if the now-CEO makes it clear to the board: take it or leave it, looking for 100% buy-in, it’s not guaranteed that the strategy will come to fruition.

Rebuilding,… it’s about refocusing. There’s a massive reorganization (some business lines definitely don’t work,) you need to personalize it, and cannot lie; in fact, you have to be incredible honest where you’ve made mistakes. You know what you’re doing, you need the board to give you the respect you deserve, and then make it a soft landing followed by a fresh take off (if you can.)

Here’s a recent one, after pivoting: While building a motivated team, getting great feedback from the customers, feeling almost like achieving product-market fit and with numbers trending in the right direction, the founders burned all the seed round before being in the Series A territory. They got immediate support from one of their investors, received commitments from other existing investors, but still had to bring outside capital. With the founders still new to fundraising (seed went smooth,) they went into the process confident and enthusiastic. The CEO spoke to nearly 150 potential investors and heard some version of ”… very impressive, but given the […], this investment is too risky for us/ too early.” When you keep hearing “thanks but no thanks”, don’t be surprised when an existing investor, who previously committed some serious bucks, pulls out. The CEO came with a new option: recapitalizing the business and raising money at a significantly lower valuation…. It never happened. Don’t need to tell you about the physical, mental and emotional moments that followed. Finally, they’ve all (founders and board) realized it’s over. The board orchestrated a quick sale of the business (not the TechCrunch-type), and the entire team was laid off.

Entrepreneurs know what’s like spending every minute trying to realize their dream(s), and it might not happen (at least not till date.) There’s no shame in the failure, even if there’s no “getting right back on the horse.”

Experience a failure, at least one time, and you’ll discover the free time’s immensity, what’s like beginning to read again (and maybe write,) dealing with real-life challenges, listening music, and, as Jasper Diamond Nathaniel nicely concludes in a post you can read here, being ”able to separate my full identity from my ’founder identity,’ a feat that can be really hard for us entrepreneurial types to accomplish.”

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