Why startups fail and when it's time to pivot
Every once in a while throughout a founder's journey, there is a new data-point, or piece of information that comes to light that is a game-changer. As a founder, you often hear about the importance of perseverance and often times it's tough to distinguish when you need to keep chipping away at a problem, and when you're just banging your head against the wall and need to pivot. Here are the most common reasons startups fail, so you can avoid making these mistakes:
- The timing is wrong - Kodak invented and released the first digital camera in 1975. Jack Dorsey tried to build Twitter in the year 2000. Reid Hoffman (Founder of Linkedin) tried to build a social network in 1997.
Webvan was valued at over $4.8b and had 3,500 employees in 1999 - 18 months later, it went bankrupt.
They tried to scale too fast without having the infrastructure in place to do so in a cost-effective way, instead of trying to partner with grocery stores and expand 1 city at a time. In 2017, Amazon bought whole foods and shortly after began rolling out Prime Now, their 2-hour grocery delivery service, at stores all around the world.
- You can't find a small number of people who LOVE your product - Remember Segways? The Founders were projecting to sell 10,000 units per week and ended up selling 10,000 units in their first 2 years. The reason? The product was not designed to fulfill a specific need for a particular audience. Instead, it was created as a cool new invention that could serve the masses for a variety of different needs. In other words, the masses thought it was a cool product, but they didn't "need to have one." Same thing with the Google Glass. And certainly the same with Magic Leap, who tried to build a product for both enterprise and the masses simultaneously, but ended up with a lackluster product on both fronts. Finally in 2020, they killed their consumer product to focus on enterprise (probably something they should have done from the start if they were going to take 7 years to release their first product, but easy for me to say from the outside).
- Your product has a lot of features that are good, instead of a few AMAZING features - A common mistake that startups make is they tend to think that adding more features will equal a better product; so they begin adding as many features as they can think of. If you take a look at most innovative products throughout history, people primarily use the product in the beginning for 1 big reason, as opposed to many small reasons. A good example is Amazon Prime.
When Prime launched in 2005 for $79/year, the only thing included was 2-day shipping on a large selection of items.
From 2005-2011, they went from 0-3 million prime members without adding any other features. Think about what would have happened if instead they offered guaranteed 4-day shipping but you also get access to a bunch of other half-baked features. This is also what happened to MySpace: Shawn Gold, Myspace's former head of marketing and content, said
"Myspace went too wide and not deep enough in its product development. We went with a lot of products that were shallow and not the best products in the world."
They introduced many features (communication tools such as instant messaging, a video player, a music player, a virtual karaoke machine, a self-serve advertising platform, profile-editing tools, security systems, privacy filters, and Myspace book lists, among others). However, the features were often buggy and slow as there was insufficient testing, measuring, and iterating. Meanwhile, Facebook focused on user-engagement over revenue, and only added features that would improve the social networking experience for users.
As a founder, it can be hard to tell when you're falling into one of these traps because you're so consumed by the operations day-in and day-out.
This is why I often tell founders to fail fast and move quickly, because there's nothing worse than working on a product for 3 years, only to find out that users are not interested. It is also a good idea to get perspective/input from other successful entrepreneurs to avoid making any of these mistakes for longer than you need to.
At the ONESIXONE Group, we have a virtual accelerator for early stage startups where founders go through multiple cycles of building product, gathering user feedback and adapting accordingly in just a 10-week period. At the end of our program, those who are ready to raise capital have the opportunity to pitch accredited investors at our virtual demo day.
Applications are currently open until this upcoming Friday, September 25th. Here is the link to apply: https://forms.gle/2kx8QJFFhUE7SMpt5
o learn more about our program, read this previous post: https://www.dhirubhai.net/pulse/why-early-founders-should-apply-our-fall-program-pablo-casilimas/
Sources:
https://en.wikipedia.org/wiki/Myspace#2008%E2%80%932016:_Decline_and_sale_by_News_Corp.
https://www.practicalecommerce.com/Amazon-Prime-5-Million-Members-20-Percent-Growth
https://pattern.com/blog/amazon-prime-a-timeline-from-2005-to-2020/
https://money.cnn.com/2018/04/28/technology/amazon-prime-timeline/index.html
https://timkastelle.org/blog/2012/08/the-right-idea-at-the-wrong-time-is-still-wrong/
https://en.wikipedia.org/wiki/Prime_Now
https://www.forbes.com/sites/adamhartung/2015/02/12/the-reason-why-google-glass-amazon-firephone-and-segway-all-failed/#5e8e95aac05c
https://www.forbes.com/sites/moorinsights/2020/04/22/instead-of-being-acquired-for-billions-magic-leap-lays-off-over-50-of-workforce/#6f9de6873463
https://www.magicleap.com/static/magic-leap-fact-sheet.pdf