Saturday, January 11, 2014

Why most entrepreneurs fail?

"I’ve missed more than 9000 shots in my career. I’ve lost almost 300 games. 26 times I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed." – Michael Jordan

Entrepreneurship is very hard! It takes a lot of things to succeed. 

Tarang Shah wrote an amazing first-hand resource book for technology entrepreneurs that addresses three critical questions:
1. Why do most startups and entrepreneurs fail, and what you can learn from these failures?
2. Why do few entrepreneurs succeed, and what is their secret sauce?
3. What do startups need to get funded, and what are VCs looking from startups?

Rather than present anecdotal study or sharing grapevine stories, Tarang went straight to the source: interviewing best venture capitalists that evaluate, fund and mentor these start-ups (many of whom have been entrepreneurs themselves), and founders of today's hot technology start-ups who are leading in a highly competitive marketplace. This is what sets this book apart. It is real information presented in an easy to comprehend question - answer interview format. 

I recommend this book for every technology entrepreneur or investor looking to build or fund a successful start-up, and make sure they don't fail. If you don't want the label failed entrepreneur next to your name, this book is a must read for all startup founders and executives.

Why entrepreneurs fail? Some Answers

Some answers from Venture Capitalists and Entrepreneurs on why most start-ups fail:
Mike Maples of Floodgate Fund: "The most obvious answer is they run out of money! But I think it’s a little deeper than that. I have a little bit of a different view on start-ups. I basically believe most start-ups are not meant to be successful and the hightech business is a business of “exceptionalism” and winner-take-all. What happens is, there are very disruptive technology shifts that occur from time to time and a small number of companies ride the wave created by these shifts. And through a combination of luck and skill and timing, produce huge outcomes that were just meant to be."

George Zachary of Charles River Ventures: "I would say if there is one main answer, it is the real failure on the part of the founders to find the right product-market fit. And there is usually missing a relentless, robust process to find it. It is as much a science as it is an art.While getting to product-market fit is really important, I think something that is more important from a personality perspective is that if you are not relentless as an entrepreneur, you are probably going to fail. You are exposing yourself way more to luck. The relentless drive of founders is what allows them to get opportunities and not just be subject to luck."

Sean Dalton of Highland Capital Partners: "In my experience, there are two ways in which start-ups fail. The first one is when the board, despite very clear evidence to the contrary, continues to fund a losing proposition. This is really a variant of the definition of insanity—doing the same thing over and over again, and expecting different results. There is a second, less common but I think more honorable way that a startup company fails. That is when the VC and the CEO or management team sits down and basically says, “Look, we got into business to do X. It is not working. We have tried to make other things work and they too are just not working, so let’s call a spade a spade and figure out how to gracefully exit from this. Then we can find the next great opportunity to work on together.”"

Howard Morgan of Idealab: "two reasons why they fail … people do not buy their product, that’s number one. Number two is being undercapitalized. They do not have enough money to sell it after they have it built. I think much more rarely they cannot build it. In today’s world, that is less common, mainly because we usually do not see the product until they have built a pretty good prototype. Certainly in the software side of the world that is true. In the hardware side, it is a little tougher. Then of course, [there are] people issues."

Tim Draper of Draper, Fisher, Jurvetson: "The first one is that they run out of money and run out of energy. The great entrepreneurs, they go and go and go and run on fumes, and keep their company alive. So it really has to do with runway. The company has to be able to be in business long enough for people to start to notice them. So how you would fail, it would be that runway ends either sharply or too soon. The runway can end sharply like when a bank calls the loan, or an entrepreneur just gives up and quits, or a number of other ways. People don’t get along and don’t believe anymore. Those kinds of things can happen."

Michael Birch of Bebo:"It generally always comes down to execution. Most companies are not executing the business or product. I think the hardest thing to do is build great products. If you build great products, you generally do quite well."

Gus Tai of Trinity Ventures: "I believe the number-one reason start-ups fail is that the management team doesn’t take enough time to truly understand the customer. I will put this under “cherishing the customer. The number-two reason they fail is that they don’t put together the right team to do the right things. I will put this under “creating the right team to tackle the right problems.”

Ann Winblad of Hummer Winblad Venture Partners: "To me, most start-ups that get off track are usually due to leadership. You are looking at people with families and people that you may have worked with forever. You are saying to the CEO, “You are not it.” You have to be very strict to do this. Adherence to the strict success metrics is really one of the big reasons for success. You have to be very tough about following key metrics."

Roger Lee of Battery Ventures: "There are three different axes against which you evaluate a start-up in the rear view mirror. One is the team, two is the market, and three is timing. You really need all three of those things to come together in order for a company to succeed."

Mike Hodges of ATA Ventures: "Start-ups fail for the following key reasons: 1) poor product specifications, 2) poor project management, 3) a product no one wants—and hence poor gross margins, and 4) general chaos caused by an undisciplined CEO."

What you will learn from this book:

1. Many more reasons why startups fail
2. Common entrepreneurial mistakes you can avoid
3. How to build an “A” team and a culture of success
4. Successful relationship dynamics between entrepreneur and investors
5. When to slow down, ramp up, and scale companies
6. Knowing when to sell a business, keep growing, or shut it down
7. How venture capitalists identify promising markets, entrepreneurs, and companies
8. What venture capitalists are looking for in entrepreneurs and business plans

Most helpful customer review (from Amazon.com):
Invaluable look at technology entrepreneurship and venture capital 
By ASG 

Tarang Shah has provided an insightful and expansive look at technology venture investing. Drawing upon his tenure at global venture firm SoftBank Capital and world-class network of entrepreneurs and investors, Shah presents 35 in-depth interviews with well-known investors such as Roelof Botha at Sequoia Capital, Mike Maples at Floodgate Fund and George Zachary at Charles River Ventures.

When reading Shah's book, it feels as if you're in the same room with Shah and his interviewees. While Shah rightly asks identical questions of each investor, the answers are fascinatingly diverse and thoughtful. 

If you're a new or experienced entrepreneur, the advice and insights in Shah's book are priceless.

References and link to the book:

Venture Capitalists at Work: How VCs Identify and Build Billion-Dollar Successes

By Tarang Shah, Sheetal Shah

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