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 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.
Tom Eisenmann, 6 patterns account of startup failures, at early-stage as well as late-stage:
- Pattern #1: Bad Bedfellows
- Pattern #2: False Start
- Pattern #3: False Positive
- Pattern #4: Speed Trap
- Pattern #5: Help Wanted
- Pattern #6: Cascading Miracles
To know more about the pattern so do Listen to the whole NFX podcast of Prof. Tom Eisenmann (HBS) on Hidden Patterns of Startup Failure. Click here.
3 Early-Stage Failure Modes
1. Bad Bedfellows
Changing startup models 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 take a false step that's why some startup fails 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.
To know more on 5 false positives common to a new startup, Click here.
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 with proper business strategies to move forward, 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 a 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 any one of them doesn't, the venture fails. Like a math equation, when you multiply a bunch of outcomes and if any one of them is zero, the value of the whole equation is zero.
To know more on, 7 Reasons Startups Fail--and How to Avoid Them, Click here.
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