Startup Failure – Whose Fault, The Founder or The Community?

Startups fail. It happens every day. As we all know it is the nature of this thing we call entrepreneurship. The question for today is can fault be applied? I am not talking about the “we could not find product market fit” or the “market shifted” or “we ran out of operating cash” kind of fault. I am thinking of whether the founder failed or did the community fail this startup.

In developing ecosystems, it is important to understand the roots of the failure so that as a community, we may be able to identify, rectify and possibly prevent that failure from happening again.

This post is for both startup founders and startup community leaders. Yes, I typically write about one or the other but this time, this observation and maybe a lesson, is for both of you and it is really important. So read on. But first a story.

I met this founder almost 7 years ago when he attended one of our workshops on how to get an idea off the ground. He was experienced, technical, business savvy and had a ton of domain knowledge in an emerging and critical sector. He also lived in an area/region that I consider to be a nascent startup community (my least mature level on my 4-level scale). No judgment here, but that fact is important to the story.

When he returned to his nascent city, he was clearly the best startup in the area and to that end, he became the darling of their entrepreneurial efforts. He raised quick and substantial capital, and he frequently was asked to share his story with secondary stakeholders. He was also flooded with local leaders who wanted to help him succeed.

He was the proverbial big fish in a small pond. And it felt good. He was a celebrity.

Fast forward 6 years later (I lost track of the founder) we reconnected. We had a lot to catch up on. He had closed down his startup within the past year and frankly went into a shell for a few months but was now emerging. He had one question, “Chris – how can I help others not make the same mistakes I had made”?

I then asked him the obvious follow up question, “why do you think you failed”? He summed things up pretty nicely (he has obviously thought a lot about this over the past year).

• The fame got to his head. It felt good being that big fish and lots of people wanted his time but in hindsight he should have been more grounded and not spent time on vanity activities.
• He spent the capital too fast. Got money? Spend it and move faster than everyone else. He thought that by hiring lots of people he would get more done.
• He did not focus enough on revenue. Somewhat related to spending capital too fast, he should have applied his revenue model sooner and stopped building product.
• He had the wrong mentors. He relied on two key mentors, one was in his 70’s (no ageism here just relating age to current best practices) and the other was a PE (Private Equity) guy who was also one of his investors.

I wish that summary was unique but it is very common in nascent and developing startup communities. You see all capital is not created equal. You see all mentors are not all good mentors. You see that more people attacking the problem does not mean you get there faster. But you have to have seen this to understand those somewhat nuanced but critical factors.

So, let’s get to my question, is this the fault of the founder or the fault of the community? (Feel free to add your thoughts in the comments section.)

I believe that his community let him down. Leaders must know that they know and what they don’t know. His mentors should have connected him with people who have recently and successfully scaled a company from scratch. In the words of Steve Blank – “startups are not small versions of large companies”.?

This is why I believe that great founders more frequently come from great communities. And it is why it is incumbent upon leaders to surround new founders with entrepreneurs and not stakeholders, local institution business icons, and government. Yes, it is who you know but also who you get mentorship from.