Prof.Tom Eisenmann (HBS) on Hidden Patterns of Startup Failure

  • 19th Nov'20
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Startup these days is a common thing. Every 4th person you meet is planning to start their own business due to various reasons. But, have you ever thought about why most of them fail? Most of us try to replicate the other success patterns. And it is a good thing, but what we always forget is that avoiding failure patterns has an equally important role to play in finding success. When you avoid the failures, success will automatically come to you. 

 

Harvard Business School professor, Tom Eisenmann who has been teaching entrepreneurship for more than a decade has uncovered patterns of startup failure that every Founder must know so that they can avoid making the same mistakes.

 

According to Tom Eisenmann, 6 patterns that account for the vast majority of startup failures, at early-stage as well as late-stage. These are:

 

  1. Pattern #1: Bad Bedfellows
  2. Pattern #2: False Start
  3. Pattern #3: False Positive
  4. Pattern #4: Speed Trap
  5. Pattern #5: Help Wanted
  6. Pattern #6: Cascading Miracles

 

Listen to the whole NFX podcast of Prof. Tom Eisenmann (HBS) on Hidden Patterns of Startup Failure.


 

3 Early-Stage Failure Modes

 

1. Bad Bedfellows

A startup is not something that you can take forward on your own. You need an excellent team, great investors, and various other factors to achieve great heights. A good idea that never gets traction due to poor founder fit, weak team, and poor investor fit. 

 

2. False start

Entrepreneurs love to build. They are told to launch early and often. False start refers to when you avoid studying the market, customer needs, and good minimum viable product tests and start building quickly. You have good founders/ team/ investors, but when they start building too quickly, they waste their capital on a bad product. You get going too fast and you waste a pivot, so you have less capital available and you can try fewer things. 

 

3. False Positive

The false positive is when you receive signals that appear to be positively pointing towards growth, but upon careful analysis are actually false positives. Your start is great with early adopters and then it turns out that mainstream demand doesn't share the same needs. 

 

Also read, 5 False Positives Common To New Startups.

 

3 Late-Stage Failure Pattern

 

1. Speed Trap

You need a team to run your business smoothly. So, you're hiring legions of employees that you have to train, you have to layer in middle managers, you have to create processes, and so forth, and you're going as fast as you can. But, moving fast is not the correct move. The right way is to slow down and fix things, but you have a lot of pressure to keep going and that's where the speed trap comes.

 

2. Help Wanted

A late-stage venture that has product-market fit, customers love the product, everything is on track, but something on the resource front goes awry. It might be a mistake made, or it might just be misfortune.

 

3. Cascading Miracles

The term ‘cascading Miracles’ first came from John Malone, an entrepreneur who built TCI, Tele-Communications Inc, the biggest US cable company. It basically means that many things have to go right and if anyone of them doesn't, the venture fails. Like a math equation, when you multiply a bunch of outcomes and if anyone of them is zero, the value of the whole equation is zero.

 

Also read, 7 Reasons Startups Fail--and How to Avoid Them.

 

We, at OpenGrowth, are continually looking for trending startups in the ecosystem. 

If you want to know any further information about the startup ecosystem or have any mind-boggling ideas, do refer to the other blogs at OpenGrowth. If you have any suggestions, do let us know in the comment section below.

 

Sources/References:

*Note: The content published above was made in collaboration with members of OpenGrowth.

About the author:

Jyotshana Rani

Jyotsana is very keen to express her views on new topics and wants readers to remember her through her writing. She is passionate about reading and believes that words wield the power of changing the scenario and she uses them to encourage people to the best of her knowledge.