Why Startups Fail? Entrepreneurs Perspective – Keep the Founder Around May 23, 2008Posted by John in Technology.
Tags: entrepreneurship, silicon valley, startups, venture capital, why startups fail
Why do startups fail? There are many reasons. Here is a post from a VC in Silicon Valley called VCDave – David Feinleib is a partner at MDV – Mohr Davidow Ventures – He invests in Internet-enabled companies.
This is a great post from VCDave, but I would add that the faster the market moves the more the founder needs to be in charge. Finding a founder with vision, product skill, and deal making ability is ideal. Venture capitalists need to let the founder run the ship. If VCs run interference with the founder then the entire venture slows down. Building a startup from nothing is difficult and navigating the market landscape with imperfect information is key. Entrepreneurs are good at dealing with ambiguities.
Once a venture enters the market the venture plan has to be in a constant state of reinvention to ‘hit’ the tipping point for the preferred business model for the proverbial ‘big opportunity’. One thing often over looked is the important objective of getting the new venture in a position in the market to seize the growth opportunity contemplated by the entrepreneur and the investor.
Entrepreneurs and VCs need to deal with change as a positive not a negative. If the ventures position in a growing market is good then the change is a normal characteristic. To me it’s about letting the founder stay in control until the venture hits calmer waters. Founders know best in the early stages. Creative, product, sales, and deal making skills matters the most. VCs shouldn’t just replace founders because a few waves crash on the ship.
If investors want a return remember that the founders know best. Don’t replace the founder to early.
Two important points Donna and Jason make: 1) build a good sustainable venture and 2) if the market is slowly developing then there is no market.
Here is a good section from end of Jason’s post “If the entrepreneur finds themselves in a situation they can’t control it’s almost certainly because they put themselves in that position — either by borrowing too much, spending too much, rushing too fast, creating a false sense of urgency, hiring the wrong people, attacking a market that doesn’t exist, or not focusing on generating revenue early enough. Natural disasters are out of our control, bad business decisions are in your control.”
My advice to entrepreneurs: try to maintain control for as long as you can (control > 50%) at all costs. Only go over 50% dilution if you need to scale and never run out of money.