Learning from Failure

Failure is an inevitable part of entrepreneurship, but the way founders approach and learn from failure can make all the difference. This week in my Harvard course, we explored the concept of failing well and how to transform setbacks into stepping stones for future success. Our guest speaker, Professor Thomas Eisenmann of 美国哈佛商学院 , shared fascinating insights from his research on why startups fail and how entrepreneurs can navigate these challenges effectively. We were also joined by two inspiring entrepreneurs, Terry Boyle (CEO of Trove and formerly CEO of Zulily and Trunk Club) and Evan Reece (formerly co-founder and CEO of Liftopia) who shared personal stories of overcoming business setbacks and rebuilding with resilience.

The Reality of Startup Failure

Did you know that two-thirds of venture-backed startups fail? Failure, as defined by Professor Eisenmann who literally wrote the book on startup failures, means that early investors either don’t or won’t see positive financial returns. There are many potential causes of a startup's failure — uncontrolled surprises, management error, flawed assumptions, or external shocks—can derail even the most promising ventures.

The students in my class highlighted critical contributors to failure, including:

• Mistakes made by senior management.
• Crucial, plausible, and well-researched assumptions that ultimately proved false.
• Surprises beyond the founders’ control.

Types of Failures and Lessons Learned

Right Opportunity, Wrong Resources We discussed cases where founders had a great market opportunity but lacked the right team, funding strategy, or industry expertise. For example, a D2C clothing startup had a viable idea but faltered because it:

• Hired poorly, prioritizing speed over skill.
• Relied too heavily on venture capital instead of exploring alternative funding sources.

Wrong Opportunity, Right Resources On the flip side, some startups with strong teams and funding pursued markets that simply weren’t viable.

Avoiding Common Startup Pitfalls

Eisenmann emphasized strategies to prevent missteps, such as:

• Founders ensuring they have relevant experience before taking the leap.
• Conducting deep research before quitting a job or launching a venture.
• Hiring for attitude as much as skill.
• Setting clear "stopping rules" to know when it’s time to pivot or exit.

We also covered the dangers of false starts, where founders act on unvalidated ideas, often due to overconfidence or a “fail fast” mentality. One solution is adopting the Double-Diamond Design Process, which emphasizes customer discovery before solution development.

Managing the Speed Trap and Cascading Miracles

Many startups experience early growth spurts, but unchecked growth can lead to overvaluation, fierce competition, and eventual stagnation. We also examined the concept of cascading miracles, where overly ambitious visions require multiple improbable successes to align—a setup that often ends in disappointment.

Failing Well and Bouncing Back

The key to failing well is knowing when to pull the plug. Eisenmann posed four crucial questions:

1. Are you out of moves?
2. Are you miserable?
3. Are you still excited?
4. Can you shut down gracefully?

Recovery is just as important. Following the Kubler-Ross stages of grief, entrepreneurs can move from denial and anger to acceptance and eventually bounce back stronger.

Case Studies in Failure

We ended the lecture with real-world examples:

• Terry Boyle (Behold): His startup, Behold, was ahead of its time in using artificial intelligence to do custom fashion design for consumers.
• Evan Reece (Liftopia): Despite initial success in selling ski lift tickets online, external shocks like the pandemic led to insolvency, testing his resilience as the business unraveled.

Both stories underscored the importance of resilience and adaptability in the face of massive challenges.

Final Thoughts

Failure is part of the entrepreneurial journey, but it doesn’t have to define it. By internalizing lessons from failure, building strong foundations, and knowing when to move on, founders can transform setbacks into opportunities for growth.

I concluded the class by walking students through over 20 of my own startup investments which failed. There were various reasons for their demise, ranging from the founder's inability to raise additional capital to market headwinds. The key lesson of the course came through this week loud and clear: startups are hard, and if you want to do something easy then do something else!