The New Roadmap For Entrepreneurial Success

 

Rather than writing yet another how-to guide for people wanting to launch a startup, Tom Eisenmann conducted original research on startup failure to better understand startup success.

 

During his multiyear research project he conducted 470 interviews with failed entrepreneurs and investors, and provided a series of case studies—from a home-furnishings retailer (Fab.com) to a concierge dog-walking service (Baroo) to a sophisticated social robot (Jibo)—and he identified six distinct patterns that account for most startup failures: 

1. Bad Bedfellows. Startup success is thought to rest largely on the founder’s talents and instincts. But the wrong team, investors, or partners can sink a venture just as quickly.
2. False Starts. In following the oft-cited advice to “fail fast” and to “launch before you’re ready,” founders risk wasting time and capital on the wrong solutions.
3. False Promises. Success with early adopters can be misleading and give founders unwarranted confidence to expand.
4. Speed Traps. Despite the pressure to “get big fast,” hypergrowth can spell disaster for even the most promising ventures.
5. Help Wanted. Rapidly scaling startups need lots of capital and talent, but they can make mistakes that leave them suddenly in short supply of both.
6. Cascading Miracles. Silicon Valley exhorts entrepreneurs to dream big. But the bigger the vision, the more things that can go wrong. 

Eisenmann features all his research findings and expert advice in his new book, Why Startups Fail. It’s a must-read for founders at any stage of their entrepreneurial journey, and a roadmap charting the path to startups success.

 

In short, “If you want your startup to succeed, you need to understand why startups fail,” explains Eisenmann.

Tom Eisenmann

 

Today, Eisenmann, a Harvard Business School professor for the past 24 years, and who has guided over 1,000 Harvard Business students and alumni as they launched new ventures answered these questions for me:

 

Question: Do you believe reading your book about why startups fail versus a book about how to become an entrepreneur will be more useful for someone considering entrepreneurship? If so, why?

 

Eisenmann: There are lots of excellent books about how to succeed as an entrepreneur, and aspiring founders should read them. There are far fewer books about why startups fail – and how founders can anticipate and avoid common failure patterns.

 

Some of the advice on how to succeed as an entrepreneur can backfire. For example, growth is a priority for many founders. But growing too fast can strain a startup in ways that boost failure odds. Understanding why startups fail can help avoid such traps.

 

Question: Do you believe someone is more likely to be a successful entrepreneur if they previously worked in a non-entrepreneur business?

 

Eisenmann: Consider three types of prior experience that can be valuable for an entrepreneur. All three types can be gained by working for a big company before launching a venture. 

1. Prior industry experience is very important for entrepreneurs targeting some markets, but less important for other markets. If you launch a beverage brand or a fashion apparel company, industry experience is super valuable. But founders can launch a startup like Instagram without prior experience in photo sharing.
2. Prior functional experience can be very valuable for an entrepreneur. If they’ve been a product manager or a salesperson in the past, they’ll be better able to recruit individuals to lead that function for their startup.
3. Prior experiences at each stage of a company’s life cycle, from seed-stage startup to mature public corporation, is valuable because entrepreneurs will know what management challenges to expect when their venture reaches that stage. 

Question: What can a budding entrepreneur learn from watching television shows, such as Shark Tank?

 

Eisenmann: The show is terrific! The sharks do an excellent job of probing an entrepreneur’s motivations and probing for problems with a venture’s product design and marketing plans. In this way, the show mirrors the case study approach we use to train students at Harvard Business School.

 

Question: What is the largest change in entrepreneurship you've seen during your 24 years teaching?

 

Eisenmann: The Lean Startup movement swept out of Silicon Valley starting in 2008 or so and has since been embraced by entrepreneurs around the world. Founders following Lean Startup principles state assumptions about the problems and solutions they’ve identified and devise efficient experiments to rigorously validate these assumptions. Essentially, they apply the scientific method to their startup by testing hypotheses. And, they do so with a minimum of wasted effort – hence the term, Minimum Viable Product. Done right, the Lean Startup approach helps entrepreneurs avoid wasting time and effort building and trying to sell a product that no-one wants.

 

Before Lean Startup logic took hold, some smart entrepreneurs would test demand before launching their business. But now everyone has a playbook for how to do this.

  

Question: What is your advice for entrepreneurs for a post-pandemic time?

 

Eisenmann: Post-pandemic, entrepreneurs will enjoy demand-side and supply-side boosters. With respect to demand, Covid-19 has fundamentally changed the way we live and work, and that will open up countless opportunities for new ventures.

 

On the supply side, we’ve learned a lot about working from home. Entrepreneurs will find it easier to recruit talented employees who can work from anywhere in the world. It’ll be less crucial to be in a startup hub like the Bay Area.

 

Question: Why did you end your book with a "Letter to a First-Time Founder?"

 

Eisenmann: There’s lots of conventional wisdom about what makes for a great entrepreneur. For example: Be passionate! Trust your gut! Be persistent! Be frugal! Stay focused! Most of this is good advice – most of the time. But followed blindly, the advice can actually boost a founder’s odds of failing. Consider the exhortation to be persistent. If persistence turns to stubbornness, an entrepreneur may be unwilling to pivot when their product fails to meet customer needs. If they don’t pivot, they’ll burn through cash and imperil their venture. My letter encourages first-time founders to think deeply about whether and when conventional wisdom makes sense.

Thank you to the book's publisher for sending me an advance copy of the book.