Startup FAILS: learning from the mistakes of others

The great American entrepreneur Henry Ford said “The only real mistake is the one from which we learn nothing.”  All startup founders should be familiar with the sting of making mistakes, but how much attention do we pay to the mistakes of others, those cautionary tales we should all heed to avoid the same pitfalls?

Aside from following the splashy headlines after a public failing – think GigaOm, Twitpic, Gowalla – there are several research tactics you can use to compile important lessons, and learn about your competition. 

CB Insights published this fascinating post-mortem on 146 failed startups. In addition to linking to the details on each company’s end story, there is value in seeing the repeating trends amongst the companies listed.  Business media abounds with Top 10 lists for why startups fail, but this kind of representative sample from CBI is incredibly useful for identifying mistakes amongst companies in your same market niche.

For more information on privately held companies, the local business journals are an invaluable source for interviews with company leaders. These publications are often able to glean valuable details on the growth or missteps of startup darlings which would be otherwise ignored by national media. The Business Journals, Inc. covers over 40 metro US cities.

Look for publicly traded companies in your industry. You'll find regular updates on the health of the company at their investor relations website (Google: Company name investor relations). Here you’ll find a digital copy of the “Glossy” annual report, often containing a SWOT analysis and audio files of the quarterly analysts calls – phone discussions between the C-suite and financial analysts on the current challenges and opportunities facing the company.

Another place to look for competitive clues is in SEC filings, particularly regarding the challenges faced by recent IPO companies. The S1 filing, which can be found on the SEC website includes discussion of executive personnel, management challenges, legal issues, risk factors and regulatory concerns.

Every startup will experience bumps in the road, but how those bumps are handled will ultimately determine whether the company survives intact. Performing a survey of how similarly positioned companies handled their bumps can lend crucial lessons in survival and a roadmap to success.

I just started my startup so why would I pivot?

Anyone who has founded a startup can tell you. It’s a roller coaster.  Expect the unexpected.  Make a plan B, and C and probably D too.

One of the most critical skill sets for a startup founder is agility. It can be difficult, especially when you’ve poured your heart and soul and personal savings into your big idea. But often times, the most successful founders are the ones who were willing to make necessary adjustments, either in the product or the business model. This is the pivot.  This is the moment when you acknowledge and act to chart a new course.  So how do you know when it’s time to pivot?

There’s no perfect answer, but conducting a bit of market and competitor research will often reveal important pivot points.  Most pivots arise from gaining a piece of competitive intelligence that invalidates a prior assumption. For example, have you made assumptions about your market size being larger than it really is? Have you made assumptions about the age or habits or disposable income of your buyers? Have you made assumptions about the likelihood of being granted a patent?

Here are three real life examples we’ve seen recently:

1.     The founder made an assumption that her customers would be predominantly Millennial generation because the product would be sold through online channels. After we researched her market segment, we learned that in fact, buyers in this category of ecommerce were almost evenly split between Millennials, GenX-ers and Baby Boomers.  The research opened up two entirely new verticals to market towards and provided more detailed definition to the market size.

2.     The founder made an assumption about the most compatible retail outlet for his product, a “fit food”.  When we researched the market segment, we could see that the grocery market was saturated, but the open opportunity was distribution through sporting goods stores. The likelihood of capturing market share was far greater with the less obvious channel partner.

3.     The founder made an assumption about the adoption of his product by government agencies as the primary sales channel.  However, the research showed the inefficiency of landing contracts with those agencies in relation to the sales pipeline necessary to hit investor growth targets. The decision was made to pivot to private contractors for the initial go-to-market strategy and develop a secondary long play for government agencies.

In each of these cases, the research invalidated an assumption the founder had made regarding his or her market segment or primary buyer.  But by analyzing and accepting the research, each was able to make a critical pivot to their startup and undoubtedly improved their chance of success.