Why Startups Fail: A New Roadmap for Entrepreneurial Success

by Tom Eisenmann

If you want your startup to succeed, you need to understand why startups fail.“Whether you’re a first-time founder or looking to bring innovation into a corporate environment, Why Startups Fail is essential reading.”—Eric Ries, founder and CEO, LTSE, and New York Times bestselling author of The Lean Startup and The Startup WayWhy do startups fail? That question caught Harvard Business School professor Tom Eisenmann by surprise when he realized he couldn’t answer it.So he launched a multiyear research project to find out. In Why Startups Fail, Eisenmann reveals his six distinct patterns that account for the vast majority of startup failures.• 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.• 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.• False Promises. Success with early adopters can be misleading and give founders unwarranted confidence to expand.• Speed Traps. Despite the pressure to “get big fast,” hypergrowth can spell disaster for even the most promising ventures.• 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.• Cascading Miracles. Silicon Valley exhorts entrepreneurs to dream big. But the bigger the vision, the more things that can go wrong.Drawing on fascinating stories of ventures that failed to fulfill their early promise—from a home-furnishings retailer to a concierge dog-walking service, from a dating app to the inventor of a sophisticated social robot, from a fashion brand to a startup deploying a vast network of charging stations for electric vehicles—Eisenmann offers frameworks for detecting when a venture is vulnerable to these patterns, along with a wealth of strategies and tactics for avoiding them.A must-read for founders at any stage of their entrepreneurial journey, Why Startups Fail is not merely a guide to preventing failure but also a roadmap charting the path to startup success.

Genres: Business, Entrepreneurship, Startup, Nonfiction, Audiobook, Economics, Management

329 pages, Kindle Edition

Published March 30, 2021

Reviews

[Gretchen Rubin]

Fascinating and written with such clarity that it was easy for a non-business-type person like me to understand.

[Daniel · Rating 5 out of 5]

Odds of failure are very high in the business world. Numbers from different sources suggest that around 90% of startups fail in their first 5 years of founding.

Next, 2 common questions that arise from these stats are:

1) Why do many startups fail? 
2) What can they do to reduce their odds of failing?

The author, Dr. Thomas Eisenmann is in the very right position to answer these questions and write on this topic as he is the professor of entrepreneurship at Harvard Business School and teaches classes on Startup Failures, and has been involved in a number of startups himself.

He tries to find common patterns that cause a startup to fail in different stages. The author conducted a survey with around 470 startup founders/CEOs and this book is the result of statistical inferences of this survey + his own knowledge and experience in this area + a number of interviews with a handful of selected case studies for each failure pattern.

The writing style is content-rich and engaging. The ideas, concepts, and solutions that are laid out in the book are well thought out and the way that the book is structured is very close to how actual companies start, face different challenges, and evolve.

Absolutely essential read for entrepreneurs and those who are employed in business-related positions like CEOs, product managers/owners, and business development strategists.

I learned so much on how to reduce the odds of failure and navigate the tricky waters of building a business.

A lifetime's worth of practical business education and wisdom.

In total it took me 35 reading sessions with a total of 26 hours of reading time to finish this book.

[Susana · Rating 5 out of 5]

Un libro de lectura obligatoria para todos los que están involucrados con startups, bien sea que hayan fracasado o que se encuentren en el camino, intentando que prospere. Tal vez, no se lo recomendaría tanto a aquéllos que están pensando iniciar un startup, ver tantos escollos en el camino, tantas maneras y razones para fracasar, puede paralizar de terror a más de uno, sin contar lo que parecieran ser recomendaciones contradictorias a lo largo del libro para evitar posibles fracasos.

Las preguntas que Eisenmann propone para evaluar si un startup va en buen camino, me parecen perfectas para hacer el postmorten de cualquier startup que fracase y obligatorias para que los involucrados en un startup en marcha se hagan con frecuencia (¿trimestralmente?), de manera de determinar si están en el camino correcto.

Evaluar objetivamente, o lo más objetivamente posible, el desempeño de un startup puede ser la diferencia entre el fracaso y el éxito.

Altamente recomendable.

Nota: la nueva tendencia del uso del lenguaje inclusivo en inglés, de utilizar "she / her" en lugar de "he / his" al referirse al fundador o fundadora de un startup me resultó un tanto molesto. Como sabemos, en el mundo de los startups las mujeres siguen estando subrepresentadas, pero al escuchar / leer permanentemente sobre los fracasos o errores de LA FUNDADORA, parecía indicar que las mujeres fallan más que los hombres en startups. ¿Paranoia femenina?

[Qaiser Kakakhel · Rating 5 out of 5]

Summary and culmination of current thinking on startups presented concisely and logically. Considering the fact that no one has cracked the code.

Well edited and paced. Case studies give a well-structured narrative that is lacking in other books relating to the topic.

The aftermath of a failed startup is sobering and needed chapter, considering the percentage of startups that actually fail. Great read.

[Jung · Rating 5 out of 5]

When startups fail, there’s a temptation to oversimplify why they weren’t a success. But these explanations are rarely accurate or insightful – so 50 percent of founders who go on to launch another startup are at risk of repeating their mistakes. By using a solid framework to regularly evaluate your startup’s health, you’ll be able to identify where you need to course-correct before it’s too late. And in the event of failure, that framework will guide you in conducting a postmortem, so you’ll have a better chance of success next time.

And here’s some more actionable advice:

Hire an executive coach.

Founders are, by nature, passionate and determined. But some are so focused on their goal that they develop tunnel vision and end up dismissing advice and feedback alike. This causes their relationships to break down – often at moments when backing from their team is essential. Avoid this by working with a professional coach who will help you build awareness about your workplace practices. They’ll help you moderate your leadership when you need to, so you can lead a productive enterprise.

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To evaluate the health of your startup, you need a reliable framework.

Professor Tom Eisenmann of Harvard Business School is an expert on startups. But after over 20 years of research, he had a huge wake-up call. Looking at two ventures founded by former students of his – one of which he’d had so much faith in that he’d even become an investor – he couldn’t pinpoint why they’d both failed. It completely unnerved him.

So he started analyzing why startups fail, looking beyond typical excuses like blaming the economy. This research led him to create a framework that identifies four crucial opportunities every startup has. To achieve success, a startup needs to capitalize on these opportunities and ensure they’re working together. You can use this framework to check the health of your own venture and course-correct where necessary.

The key message here is: To evaluate the health of your startup, you need a reliable framework.

The opportunities that Eisenmann identified are your startup’s resources, which work together to create, build, manage, and sell a product or service in a profitable way.

The first is your brilliant idea. As founder, you’ll have come up with a unique solution that meets a specific customer need. It will effectively solve an important problem that customers face – and be different from anything else on the market.

The second is technology and operations. These are the systems you need to build your product, deliver it to customers, and maintain products after sale. This will include the ways you manage inventory and shipping, as well as sales and booking platforms your customers use.

Third is your profit formula. This projects the revenue you’ll earn through sales, as well as the cost of earning that revenue – including your operational costs. A solid profit formula helps you confidently manage your cash flow.

Finally, there’s marketing – how you’ll communicate with potential customers and entice them to buy your product. Hopefully your marketing strategies will be so effective that your customers will become loyal brand ambassadors, so you can rely on them for repeat sales.

These four opportunities are supported by the people involved in your startup – you and your cofounders, your hardworking team, the investors providing you with venture capital, and any partners offering guidance or expertise. If your opportunities are a racehorse, collectively these people are the jockey. To win the race, they need to complement both each other and the startup as a whole.

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Founders who lack industry knowledge fail.

In March 2012, Harvard Business School graduates Alexandra Nelson and Christina Wallace launched Quincy Apparel – a company which promised that its unique sizing system would provide women with business clothes that fit well. Nelson and Wallace were astute founders. They’d done market research, held trunk shows where women could try on samples, and raised $950,000 in seed capital.

Initially, sales were promising, and 39 percent of women who purchased items in the spring bought more in the fall. But problems were emerging behind the scenes. While the founders had recruited some fashion experts, they themselves didn’t have industry knowledge. This ultimately led to the collapse of the company – less than a year after its launch.

The key message here is: Founders who lack industry knowledge fail.

As cofounders, Nelson and Wallace were the perfect pairing – at least on paper. Wallace was charismatic and could sell Quincy’s vision. Nelson, a trained engineer, was analytical: the perfect person for managing strategy and operations. She’d also spent the summer after graduation working at Hermès on inventory optimization.

But neither Nelson nor Wallace understood the specialized roles that garment manufacturing requires – like pattern making, sample making, and technical design. In fact, they thought they’d manage garment design themselves and hire just one production manager to oversee manufacturing.

This lack of knowledge created a range of operational issues – from ordering unsuitable fabric to not understanding sizing conventions. Quincy’s garment return rate was 15 percent higher than Nelson had projected, and 68 percent of those customers returned items because of poor fit. This meant that Quincy had failed to deliver its core promise – business attire that fit well – and all those returns ate into profit margins.

Quincy had three of the author’s core opportunities in place – a great idea, solid marketing, and a viable profit formula. But its operations weren’t sound, due to its founders’ lack of knowledge. This weakness led to its undoing.

If your startup belongs to a sector outside your expertise, put some measures in place to compensate for your lack of knowledge. Bring on a cofounder with the right experience, or develop a partnership with an expert who can provide you with advice. Alternatively, equip yourself with enough industry knowledge to guide your recruitment strategy. That way, you’ll have a clear picture of how to build the team you need and avoid fatal mistakes.

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Startups without the right senior management fail.

Dot & Bo was an e-commerce company that sold home decor as curated packages, which were designed to look like sets from imaginary TV shows – think “Einstein’s Office.” Founded by seasoned entrepreneur Anthony Soohoo in early 2013, its ever-expanding customer base generated $15 million in revenue in 2014 alone.

This huge demand placed extraordinary pressure on the warehouse and shipping teams, so Soohoo hired a Vice President of Operations. His chosen candidate had an impressive CV but no experience in e-commerce operations. This lack of experience undermined the whole company, even though it continued to have solid customer growth. When Soohoo realized this, he hired a new VP of Operations. But by then, it was too late. In September 2016, Dot & Bo went into liquidation.

The key message here is: Startups without the right senior management fail.

When that first VP of Operations came on board, his initial task was to select an enterprise resource planning – or ERP – system. ERPs manage operations, like tracking inventory and deliveries. But the system the VPO chose couldn’t handle the variations between different suppliers’ delivery times.

Because of this, the customer service team was inundated with queries about missing or late deliveries. They couldn’t keep up with rising demand, and email response times dragged out to eleven days. To make matters worse, the system was so shoddy that staff often couldn’t tell where a delivery was.

To compensate for delays, staff express-shipped orders – which cut into profit margins. At the same time, social media hype increased sales; this placed even more pressure on operations that were now hanging by a thread.

Superficially, Dot & Bo’s operational problems could be blamed on technology, but it was the VPO’s lack of sector experience that led to the company’s demise. Someone with specialist knowledge would have chosen a better ERP – one that could cope with Dot & Bo’s complex supplier model.

If you want your startup to survive scaling, you need the right senior management team in place. And that means hiring specialists over generalists – even if they have impressive experience. Remember, without the right jockey, your racehorse won’t cross the line.

If you’re not at the stage where you can afford a senior specialist, find a mid-level one instead. They’ll come with a cheaper price tag while still having the expertise your company needs to support its growth.

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Overly ambitious ventures are susceptible to failure.

Entrepreneurs play an important role in society – their ability to dream big and pursue ambitious projects drive life-changing innovations. That’s what Shai Agassi aspired to do back in 2007, when he dreamed of making electric cars mainstream and reducing the environmental impact of household vehicles. But despite this honorable mission and $900 million worth of investment, his company, Better Place, sold fewer than 1,500 cars.

Venturing into uncharted waters always encompasses an element of risk. Agassi’s problem? His vision was just a little too ambitious.

The key message here is: Overly ambitious ventures are susceptible to failure.

To pull off his project, Agassi had to rely on a multitude of factors outside his control. For instance, to make his electrical vehicle affordable, he needed enough customers to embrace it. He also needed them to have confidence in recharging and battery exchange stations. And he needed several car manufacturing partners to collaborate because not every customer wanted the same car model.

In the end, Agassi didn’t manage to create a product with enough market appeal and the required infrastructure at a price point that would yield returns. Initial research had shown that 20 percent of households in Israel, where Agassi was launching Better Place, would consider buying one of his vehicles – even if it cost 10 percent more than a regular car. Agassi had been banking on selling to at least half of those households, but he didn’t even manage that.

If your concept is high-risk like Agassi’s, there are steps you can take to mitigate some of that risk. First, keep in mind that humans are afraid of radical change, even when it’s for a good cause. Moderate your innovation so that customers don’t need to go too far out of their comfort zones to incorporate it into their lives.

Second, create nonfunctioning prototypes, and get feedback from focus groups. This will help guide the next stage of design while also gauging people’s interest in the product – always a tricky issue if you’re bringing something completely new to the market.

Finally, don’t fall into the trap of inflating market demand just to impress investors. All you’ll end up doing is setting sales targets you can’t reach. By being honest about your potential customer pool, you’ll make it easier to project how long it will take to recoup any investments.

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Recovery from failure is possible.

The unfortunate truth is that most startups fail. But failure doesn’t mean that all is lost. After the collapse of Quincy Apparel – the women’s clothing startup – Christina Wallace hit rock bottom. Her experience as a founder had left her with a failed startup, a broken dream, and crippling debt.

Wallace had no choice but to get a job. And while she couldn’t imagine ever leading a startup again, she was happy to work for one. A role at an immersive training program in New York City called the Startup Institute was her first step to recovery. And she went on to found another startup, an EdTech company supporting women in science, before ending up teaching at Harvard Business School. The failure of her startup didn’t hamper her long-term success at all.

The key message here is: Recovery from failure is possible.

When you’re in the throes of failure, a pathway to success might seem as hard to find as a unicorn in your local park. But by following the Three Rs, you can walk that path all the way to the finish line.

The first phase a founder experiences after failure is Recovery. If your startup fails, you’ll likely find yourself in a state of financial ruin, as Wallace did. It’s common for founders to accrue massive credit card debt while simultaneously deferring their salary to maximize investment in their company.

At the same time, you’ll find that your personal relationships have deteriorated too; all those long hours at work have forced you to neglect your loved ones. This sense of isolation gets compounded by failure’s negative emotions – things like grief, shame, or guilt. To avoid getting depressed, find ways to support yourself during this time. Implement healthy lifestyle habits, give therapy a shot, and reconnect with activities you enjoy.

Once you’ve processed those difficult emotions, you can move on to the second of the three Rs: Reflection. In this phase, you’ll identify what you’ve learned by exploring your experiences objectively. This can be challenging. Our egos always try to preserve us by blaming someone else for our own mistakes. But if you can overcome this tendency, you’ll be in a position to gain valuable knowledge.

The final phase of your journey is Reentry. Despite the hardship of failure, around 50 percent of unsuccessful entrepreneurs found new startups. You might be concerned that your previous failure will send potential investors running, but there’s a way to avoid this: articulate how what you’ve learned in Phase Two has informed your new business plan. That way, you can demonstrate to investors that you’re starting afresh from a place of experience and wisdom.

[Pavel Annenkov · Rating 5 out of 5]

О ЧЕМ КНИГА:
Люблю системные книги, написанные профессорами топовых американских университетов. Они всегда очень четко и системно раскрывают тему. Плюс часто их студенты - это действующие предприниматели и поэтому в книге не просто голая теория, а много примеров из жизни. Книга Эйзенмана именно такая.

Я бы назвал эту книгу «Ловушки в которые попадают основатели стартапов». Автор разбирает 6 главных причин почему стартапы терпят неудачу. Три в самой ранней стадии и три в стадии роста.

Всем фаундерам и VC читать обязательно. Работа совсем свежая с большим количеством кейсов стартапов, которые только сейчас выходят на траекторию роста.

Автор кажется перечислил все мыслимые риски и проблемы с которыми может столкнуться стартап и прочитав книгу, ты понимаешь, какая высокая вероятность этих ловушек для каждой компании. Вывод для VC только один - конечно детальная оценка компании важна, но все равно надо проинвестировать в большое количество стартапов, чтобы получить позитивный результат через 7-8 лет.

Отдельно рекомендую главу про когортный анализ. Вроде все его делают, но как я вижу, всё равно, глубоко не разбираются.

ГЛАВНАЯ МЫСЛЬ КНИГИ:
Можно инвестировать в стартап, который обречен на успех по всем критериям. Но все равно есть много непредсказуемых факторов, которые повлияют на его будущие результаты. Фильтры для отсева компаний делать нужно, но дальше, даже самые сильные бизнесы могут сойти с дистанции. Поэтому в венчурных инвестициях работает только подход вложений в десятки компаний.

ЗАЧЕМ ЧИТАТЬ ЭТУ КНИГУ?
Чтобы сделать свой чек-лист основных причин неудач при развитии стартапа и потом проверять по нему свои компании.

МЫСЛИ И ВЫВОДЫ ИЗ КНИГИ:
- Соответствие каждому критерию успешности стартапа снижает процент риска его неудачи. Чем по большим критериям оценил, тем больше шанс, что компания, в которую ты вложился, выживет. Надо безэмоционально проверять все компании по этим критериям.

- Когда считаешь LTV не нужно забывать про "коэффициент виральности".

- Очень важно ещё разбирать истории компаний, которые едва избежали провала, но выжили.

- Наименьшая вероятность выжить у стартапа, которому для успеха нужна цепочка «чудесных событий», таких как адаптация совершенно новой технологии, изменение поведения большого количества клиентов, партнёрство с крупными корпорациями, очень много инвестиций. Если хотя бы одно из этих событий не случится, то такой стартап обречён. Tesla, как раз, была таким стартапом)

- Всего есть 4 типа предпринимательских рисков:
1. Риск спроса.
2. Технологический риск.
3. Риск исполнения.
4. Финансовый риск.

- Частая причина провалов - простое невезение. Его тоже не нужно отметать.

- Стартап считается провалом если его ранние инвесторы не получили или никогда не получат обратно деньги, которые они инвестировали в эту компанию.

- В 32% случаев провала у компании были все ресурсы, но она не смогла найти своё конкурентное преимущество.

- Для успеха важен опыт в отрасли. Если его нет, то надо искать себе сооснователя с таким опытом или собирать сильный Консультационный совет.

- Замену ключевых людей в команде часто делается не потому, что текущие люди плохо работают, а потому, что у старой команды просто нет знаний и навыков, чтобы развивать бизнес дальше и выводить его на новый уровень.

ЧТО Я БУДУ ПРИМЕНЯТЬ:
Тест, который должен выявить готов ли стартап к масштабированию
The RAWI Test
Всего 4 вопроса:

Ready? Does the startup have a proven business model? Is its target market large enough to keep growing? When it starts scaling, does it have a high enough profit margin to withstand a price/cost squeeze if new customers become harder to attract?

Able? Can the startup access the human and capital resources required to expand rapidly? Can it train large numbers of new workers and coordinate their efforts?

Willing? Are the founders eager to grow their business? Will doing so advance their original vision? Are they willing to incur the equity dilution that comes with raising lots of venture capital; risk getting fired, as investors take control of the startup’s board; and suffer the toll that long hours at work take on personal relationships?

Impelled? Does the startup have aggressive rivals? Is it at risk of waking sleeping dragons?

ЕЩЕ НА ЭТУ ТЕМУ:
Bred Feld, Jason Mendelson «Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist» 

[Boni Aditya · Rating 5 out of 5]

Towards the end the book became a lot more tragic, nostalgic and monotonous.

But the book itself has validated a lot of stuff that i have learned by working in various startups throughout my career.

The headstrong CEO, the charismatic founder, the false start, refusal to pivot, pivoting over and over again till you run out of funds, the false start, the struggle to find the next investor, the investors trying to wrest control and oust the CEO, startup struggling to scale up, the startup founders becoming bitter enemies, the startup being unable to land good talent. I have seen all of these happen with my own two eyes across multiple startups and this is what makes the books special and interesting.

The book also has multiple case studies, what stuck a nerve with me is the electric car case study.

The author seems to have a few quirks, in the book whenever the founder is a hero i.e. does a good thing, he would use the pronoun "he", and when ever the founder is at fault, the author almost always users "she" to describe the founder. Another quirk from the founder is the need to fall back to example to make a point.

The last chapter is where the author uses a letter to the founder to sum up all that he has put up in the book as

six patterns that account for the majority of startup failures:
Bad Bedfellows
False Starts
False Promises
Speed Traps
Help Wanted
Cascading Miracles


I’m a big fan of tools and frameworks, and each of those introductory chapters provides a framework for understanding the “mechanics” (for lack of a better word) behind the failure patterns that follow. I have covered the Diamond-and-Square framework and the Six S framework

Good Idea, Bad Bedfellows
Professor Eisenmann explains that people are the most common cause for failure. In 'Good Idea, Bad Bedfellows', he highlights and documents how lack of founder-market-fit, founder conflict and the lack of clarity of who is in charge can lead to failure. These early dynamics can cause undercapitalization and the involvement of the wrong investors. Eisenmann stresses the importance of funder fit and ensuring that the investor is the right one for the business. He notes how obsession with venture capital as the only viable source of funding can lead to failure.

False Starts
This chapter focuses on startups that fail from neglecting to find the right customer. The problem with MVPs - which I've written about here - is that the founders don't get the viability right. Similarly, Eisenmann argues that startups encouraged by the fail-fast culture keep pivoting without finding the right customer. Even worse, the founders will often possess an 'I will build it, they will come' mentality. Lacking understanding of customer pain points is another common reason why startups fail. This chapter highlights how failures such as low growth and limited revenue potential are both due to limited customer demand.

The conclusion is clear - lack of clarity around the customer problem, in combination with a hard-headed founder who isn't self-reflective, causes failure. Customer discovery is absolutely critical in order to avoid this. This is especially important for the founders who don't have strong founder market fit and venturing into a new industry. The chapter ends with dozens of helpful tips and tools to help the founders avoid the false starts.

False Positives
A startup that has had early success can still fail. In 'False Positives', Professor Eisenmann documents the failure that results from premature scaling and mistaking early success for a larger opportunity. This is a difficult failure to forecast, particularly within a culture which encourages going fast and pouring gasoline on the fire. When a startup doesn't have strong infrastructure in place on the product and operations side, and, more importantly, doesn't prove repeatable demand and growth engine, the scaling is likely premature.

The Later Stage Failure
My second startup failed after 6 years and I can personally attest to how painful later stage failure can be.

In the second part of the book, Professor Eisenmann dissects later stage failure. He specifically zooms in on why it is difficult to scale by expanding vertically, by launching more products, and geographically. To analyze later stage failure, Eisenmann proposes a 'Six S's' framework:

Speed - how quickly can the startup build their brand, tap into network effects and economies of scale and saturate their market?

Scope - how well will the management make an expansion decision - to grow geographically, to launch new products or to expand vertically - and can the startup grow successfully by making acquisitions?

Series X - fast growth is usually at odds with profitability and startups are constantly hungry for more capital as they scale. Can the startup attract the right growth stage investors? Can the startup do a smooth CEO transition?

Staff - early startups are built by generalists, but later stage startups need specialists. How do you create a foundation for a successful transition, particularly for the management team and the CEO?

Structure - early stage startups are wonderfully chaotic, but later stage startups need structure. These transitions are tricky and, when done incorrectly, can lead to failure.

Shared Values - last but not least, it is essential to hone culture. Locking down the startup's true north is critical for communication, making decisions, better HR practices and, ultimately, scaling the business.

Speed Trap
Hyper growth can lead to a failure even for the most promising startups. In this chapter Eisenmann documents the failure of Fab.com. Its early traction attracted not only a lot of capital, but also a lot of competition. Fab didn't pay close enough attention to the CAC to LTV ratio, and was overspending on customers at the expense of long term revenues. The company also had a hard time hiring and implementing management structure. A combination of rapid growth and a lack of focus and internal alignment led to a failure.

Eisenmann argues that the CAC/LTV ratio is a critical factor in assessing whether or not it is the right time to scale. Without strong LTV the startup is running a risk of unsustainable growth. He recognizes a fatal pattern when an increase in CAC leads to a reality check as the insiders and downstream investors aren't willing to write the next check.

Help Wanted
Next, the book tackles the ability to secure capital and hire an appropriate management team as crucial variables determining a startup's failure or success. The capital problem is a dilemma as downstream investors always weigh the risk-reward opportunities. Even when startup is growing, the question is: is it growing fast enough to warrant more capital infusion? Is the price of the round and the stage risk map onto the expected upside?

Another risk is building out the management team. Given the sheer amount of successful later stage startups, unicorns and decacorns, the competition for quality talent, especially in the bay area and other startup hotbeds is fierce. Hiring is expensive and difficult, but while "distracting" is key to scale. Without a proper management team in place, the startup will not be able to create the right systems, processes and scaling levers.

Cascading Miracles
The last later stage failure is due to what Eisenmann deems "Cascading Miracles": when too many things need to come together. It is what Josh Kopelman, a Midas List VC and Founder of First Round capital, wrote about in this blog post. Success is dependent on too many variables, and when any one of them doesn't play out the startup fails.

[Elliot Grossbard · Rating 5 out of 5]

Part of my job is acting as the CGO (Chief Gatekeeping Officer) or CVO (Chief Vetting Officer) for The Arora Project. As the premier Investor Acquisition Agency for founders raising capital via equity crowdfunding, not every founder looking to engage in our services is a good fit or ready yet. However, I am in the position to help each founder I speak or meet with.

Tom's book has increased my ability to do what I'm most passionate about in life, and my role at Arora; helping entrepreneurs and founders as they grow and scale their companies.

"What Startups Fail" has had the largest impact of any book I've read since the pandemic hit. As an avid reader of business titles and of a growth mindset, I have already used some of what Tom's taught me in my meetings with founders.

[CAC · Rating 4 out of 5]

A very worthwhile book for anyone launching or running a startup or interested in entrepreneurship.Tom Eisenmann is the bedrock of Harvard's strong MBA entrepreneurship program. When he was unable to answer with complete confidence, 'why do startups fail' to his students, he decided to take the time to do market-based research to answer the question. He found six fundamental reasons. I will leave it to others to discuss those six reasons - what I found most interesting were his wise observations about entrepreneurship, his advice to founders and several useful frameworks he offered to evaluate the health of a startup.

This is one of the better entrepreneurship books I've read and I will be recommending it to my students.

[Davor · Rating 5 out of 5]

An excellent book while also being a quite different book and take on the business world.
Instead of giving you stories about people became successful and rich, the author does business studies on a significant number of startups that actually failed, either went bankrupt or were sold.
And we are not talking about just small startups here, we are talking about startups that raised in hundreds of millions of dollars...

The book really gives you a quite difficult feeling to explain, you are truly perplexed reading it, because most of us are trained to expect a happy end, be it from movies or other books, yet here is a book which talks about startups where founders lost all their money, and friendships, or their health.

Definitely recommended, especially if you are interested in starting your own business, or want to be an entrepreneur.
Not everything is so nice and shiny!

[Atishay · Rating 5 out of 5]

One of the finer books that I have read. full with case studies and clear details about the situations under which startups fail. I learnt a lot. If you have been been part of the startup journey, you will derive lot of important information from the book. Strongly recommended.

[Chris Boutté · Rating 5 out of 5]

As an entrepreneur, I enjoy reading books like these. Although I'm not trying to start a company, I'm always coming up with ideas for content and branding. Tom Eisenmann did a great job with this book covering various reasons why startups fail. Each chapter focuses on specific issues he's seen with startups that may have lead to their downfall, which we can all learn from. Personally, I think the book would have been a lot stronger if there were fewer anecdotes and more data, but that's just my personal opinion. It would have been interesting to see data compared from a wide range of startups, but instead, these are mainly theories based on the author's research and experience. He's definitely a smart guy who has a ton of experience though, so I do think this book is a beneficial read for entrepreneurs as well as investors.

[Christian · Rating 4 out of 5]

A very interesting if at times overly technical read. My only complaint is the almost sole focus on the VC/tech space. While many of those lessons apply. Not all start-ups begin with the sole purpose of obtaining unicorn status.

[Andrej · Rating 5 out of 5]

A systematic deep dive into reasons why startups fail:
*Early-stage startups:
**Dysfunctional relationships between founders, investors, key employees, or strategic partners
**Investing in a wrong product direction because there wasn't sufficient market research before building stuff
**Excessive optimism based on the demand from early adopters and not enough understanding of mainstream customers
*Late-stage startups:
**Focus on aggressive growth despite increasing customer acquisition costs
**Sector-wide funding droughts
**Hiring wrong senior managers or hiring them too early/late
**Relying on an improbable "cascade of miracles" - assumptions that all need to be true for the company's business model to work in the long run

What was interesting, a lot of decisions described in the book were not "bad," just ill-timed. For example, although startups usually hire generalists at the beginning, they need to hire specialists with a deeper, but more narrow expertise as they grow. Do it too early or too late - and you increase the likelihood of failure.

While openly analyzing founders' mistakes, the author showed a lot of empathy to founders - many of them his former business school students. Some of the decisions that ultimately caused the company's failure were informed bets. But it's hard to survive a bad bet if your startup is at the end of its runway.

I appreciated that the book emphasized the role of talking to potential customers - and some advice on how to do it in a less biased way even if you lack real user research skills on the team. For example, there's a very concise introduction into cohort analysis.

There is one weakness related to the methodology. Since the book is mostly based on case studies of failures, it selects on the dependent variable. As a result, it's difficult to say whether the identified causes of failure are sufficient or even truly causal. For example, it does look like a lot of startups are killed by fundamental conflicts between co-founders. Does it mean successful startups somehow managed to avoid these conflicts? Or did they do something that resolved them in a timely manner? Imagine how much more powerful this book could be if it also suggested what the failed startups could have done to avoid their fate.

Last, but not least: there's a chapter about under what conditions it makes sense to shut down a venture, and how to do it gracefully. No one wants to talk about this topic and that's why this book is even more unique (and valuable).

[Scott Wozniak · Rating 4 out of 5]

What's the big idea and/or unique approach of this book?
The author teaches at Harvard Business School, specifically on how startups can succeed. But after several of his students’ startups failed he realized he didn’t have a clear understanding of what caused their failures. He couldn’t explain why they failed.

So he walks through their stories—and other famous failures—and identifies key principles that cause startup failure.

• 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.
• 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.
• False Promises. Success with early adopters can be misleading and give founders unwarranted confidence to expand.
• Speed Traps. Despite the pressure to “get big fast,” hypergrowth can spell disaster for even the most promising ventures.
• 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.
• Cascading Miracles. Silicon Valley exhorts entrepreneurs to dream big. But the bigger the vision, the more things that can go wrong.

How am I smarter, better, or wiser because of it?
As an optimist, I naturally focus on how things can go right. So it’s really valuable for me to have a practical framework for anticipating how things can go wrong.

Since I’m an investor and my consulting company works with startups (as well as large companies) this is useful in my regular work.

Was I entertained/did it keep my attention?
Sadly, the style is rather academic: very little emotional language, formal word choice, etc.

Would I recommend it to others?
The content is so good I would still recommend it for anyone who works with small companies.

[Peter · Rating 3 out of 5]

With these types of books, I am always skeptical of an author who is not a founder themselves. On one hand, it's a benefit to be able to write from a position of relative impartiality - unencumbered by PTSD from the experience of starting and running a business - but on the other hand, it's impossible for the content to not come across as pedantic or even a bit sanctimonious. We're not exactly getting the benefit of hindsight here. That aside, for this book, while I found some of writing quite repetitive and themes a bit prescriptive and simplistic, the case studies were thorough and offered some valuable insights. It seemed like the author had a trusting relationship with a number of the founder subjects, and that clearly came across in the writing. In those real-world examples, the author avoided any hint of shaming the founder for not knowing better. In a few cases, though, he lost some ground by lauding companies that likely committed some fraud. In his defense, this probably came out after writing the book, and that's the risk in publishing anything on this topic from the sidelines. Finally, his statistical survey at the end didn't really yield the statistically significance to justify the matter-of-fact writing style. Many of the correlations were relatively weak and the analysis seemed a bit surface-level, but I do respect the seemingly complete inclusion of the results nonetheless. In all, there's definitely some value to the ideas presented in this book, but it absolutely should not be treated as gospel. The advice is often boiled down into difficult-to-remember acronyms that smack of the author's management consulting background. IMO, the book could have been about half as long, avoiding some of these attempts a codifying the findings, and instead focusing more on his relationships with and observations of the various founders he profiled for this book, which were indeed engaging.

[Jack Reid · Rating 3 out of 5]

An excellent book on startups and why they often fail. The author is credentialed and connected to the startup world through his professorship at Harvard Business School. He's taught an intro entrepreneurship course and a course on failure that helped him craft this book. It's well written, weaving personal anecdotes with analytical insights. I'm working at an early-stage startup and appreciated the book's initial focus. For early-stage, it's all about hitting product-market fit.

Then, Eisenmann introduces a model for thinking about success (and failure) at later-stage ventures. Again, it's insightful with a mix of stories and broader takeaways.

I liked the book but didn't love it. Perhaps I felt this way because it covers such a broad topic - success and failure at startups, ranging from $0 to $10B in valuation - that it was hard to remember what I read shortly after finishing a chapter. It's specific yet vague in the way that hard-to-apply insights often feel. I'm hoping to revisit the book when (if) my startup graduates to the definition of later-stage. Maybe the insights will feel more tangible and rememberable then.

[Alden Warr · Rating 4 out of 5]

Very thoughtful and well researched, albeit a little academic. It's is a good read for any current or aspiring entrepreneur. It just has to be taken with the caveat that while all the pitfalls mentioned were large reasons that the startups in this book weren't successful, many very successful startups go through the exact same things but some combination of timing, market condition, skill, and luck create a scenario where it's not the downfall of the company. I guess the point being that you wouldn't want to build a company that's so well insulated from any of these shortcomings that you build a battleship that's so well protected it can't float.

The author addresses this concern some in the last chapter as well, and that lays out the balance. This book should not be taken as a replacement to the conventional wisdom of company building but another framework or lens through which a founder can look every now and then to see early warning signs of possible failure points within their company.

[Shiva · Rating 2 out of 5]

DNF at 37%. This would've been better as a series of blog posts, but it felt very verbose as if it was trying to justify why it needed to be a book in the first place. This was very HBS-esque, with a heavy reliance on frameworks that can be identified via geometric shapes or names that are unintuitive -- no matter how many times I've heard "good ideas, bad bedfellows," I always have to lookup what it means. The author said "we'll explore this in a future chapter" so many times it felt like I was forever stuck in the intro. Most of the book felt like common sense, albeit it was nice to see it all put into one spot with a rigorous understanding of what specifically caused a startup to fail beyond the knee-jerk reaction. Still, it was painful reading the book -- I was forcing myself to keep going hoping it would get better, just to cut my losses a third of the way through. Ultimately, I felt like this book was more of a doomsday book, with a million warnings about why your startup will fail but not a strong roadmap of how to confidently navigate forward.

[Jim Dougherty · Rating 5 out of 5]

This an excellent book for new founders or experienced founders like me. It covers off very well and in detailed fashion the many ways start ups fail. This won't guarantee success, but it will help founders avoid the most common mistakes. But, I found the book almost a start up text book with lots of useful information on raising money, hiring, scaling, strategy development, founder dynamics, supply chain building and more. It was a very helpful reinforcer of things I was aware of but helped remind me of the many critical issues of starting and building a company. Founders of all ages and experience will benefit from reading this!

[Tim · Rating 4 out of 5]

Why Startups Fail provides a nice checklist for evaluating your startup's health: have industry knowledge, understand your customers before building any product, analyze early growth to ensure it's repeatable, don't scale too quickly (use the RAWI test), and have the right senior management for the company's needs. The author also adds that overly ambitious ventures are more likely to fail. It ends on a positive note by saying that recovery from failure is possible - the key is to learn from your mistakes. Overall, I found this book contained solid advice. Several of the points made are ones I've encountered in my own time with startups.

[Chris · Rating 5 out of 5]

"Why Startups Fail" stands out as one of the few volumes to systematically analyze startup failure through a scholarly business management lens. In so doing, Eisenmann lifts the fog over why failure happens, revealing specific types of miscalculations and misbehaviors to which startups and their founders are prone. The result is a genuinely insightful and detailed set of lessons about how future startup founders can avoid past pitfalls.

[Josh Battaglia · Rating 4 out of 5]

This was an incredibly thorough and comprehensive book that covers exactly what the title says. Note that this book focuses largely on ventures that reached “Unicorn” status or went through multiple VC rounds. Small business owners may not find much value in the later half of the book, especially if they do not have massive amounts of funding and stakeholders. I thought every given reason for why startups failed made sense and were explained succinctly.

[Aaron Sabin · Rating 5 out of 5]

This book was a fantastic guide, especially for a first-time entrepreneur. It is approachable and easy to read, yet insightful and detailed. Professor Eisenmann is in a better position than almost anyone to teach these lessons given the contact he's had with all sides of entrepreneurship over decades. I recommend this book quite highly to anyone who wants to start a company (or invest in one).

[MiguelPatricio]

This book is a well-crafted collection of case examples of how startups fail. Eisenmann offers a means for both entrepreneurs and their investors to see around corners with useful frameworks to examine every stage of a startup's growth trajectory. It truly is a must-read for anyone in the startup ecosystem.

[Tanner · Rating 3 out of 5]

Audible. 3 stars. I was quite sad I didn't take Tom's class in business school, as it got strong reviews. This book was a nice walk-through of failure modes with a descriptive framework. It's missing what I suspect made the class great--the visceral emotion of the entrepreneurs (they visited the classes).

[Man Ha · Rating 5 out of 5]

While listening to this audiobook, I watched the series of startup mistakes from the Vietnamese Shark Tank tv show. I could listen and pay attention to every proposal from the startup companies and every feedback from the Sharks.

I could see where the author came from in this book. This was very enjoyable because it was so real. The TV show validated the points of the author.

[Tai Odunsi · Rating 5 out of 5]

identify problem
identify solution
identify competition
identify possible market
ask market questions
make prototype
test demand w interviews
ensure solution works
test solution on others
launch Version one
cross fingers

[Salma · Rating 5 out of 5]

A very good read on why startups fail. We usually hear about the success stories, but not about the failures. Although it is easier to have 20/20 hind vision, it is still a good reminder for startup founders on what to look out for on their journey and how to manage these pitfalls.

[Zack Rearick · Rating 3 out of 5]

Interesting read, but focused almost exclusively on VC-backed tech startups. I expected this a bit going into the book, based on prior reviews, but it was still more pronounced (and detrimental to overall usefulness) than expected.