Just before 11 p.m. on a recent Sunday evening, we were alerted to the presence of a gruesome set of written confessions.
We quickly inspected them, but found no revelations of adultery, theft, or murder.
No--their subject matter was of a far more unusual type:
They were confessions of failure…
More precisely, they were “post-mortems" of 76 failed start-ups.
Told by the company’s founders (or even more perversely, by the investors that funded them), they described in gory detail the factors that led to a start-up’s death.
But despite the dark messages they conveyed, we found ourselves drawn to a curious light that surrounded them…
We wondered if maybe-–just maybe--these sordid tales might help us become better early-stage investors.
Today, we'll examine how this enlightenment might come to pass.
A Deadly Compilation
In January 2014, a well-respected research firm called CB Insights published 51 start-up post-mortems.
In June, they added 25 more, bringing the total to 76.
As the investment sleuths among you are aware, most start-ups don’t make it. In fact, as new research from Harvard Business School shows, 75% of all start-ups fail.
But reading CB Insights’ compilation of why they failed-–no-holds-barred confessions from those who were directly responsible, or those who had a front-row seat–-can offer you invaluable insights.
Learning from these post-mortems can teach you how to succeed…
And certainly, this is a less expensive way to learn than having your own failed investments.
Let’s look at a few examples.
“Next Time…”
Post-Mortem #1
Company: Vitoto, a collaborative video app for the iPhone.
Founder’s Confession: Nobody on the team had built a successful product in this industry before. We had no relevant experience.
Founder’s Quote: “Next time I will play in a space I have lived in before.”
Investor Lesson: Invest in teams with industry experience. Invest in people who’ve worked in the exact same sector that their new business is in.
It’s more likely that they’ll have a good lay of the land, as well as valuable connections that can help them accelerate their efforts.
They’ll spend less time figuring things out, and more time executing on their plan.
Post-Mortem #2
Company: On-Q-ity, a bio-tech company.
Founder’s Confession: The team’s vision was too far ahead of reality. We were 5 to 10 years too early.
Founder’s Quote: “Getting the technology right, but the market-timing wrong, is still wrong.”
Investor Lesson: As we preach in Crowdability's start-up investing reference guide, “The 10 Commandments of Crowdfund Investing”:
“Without a compelling reason why RIGHT NOW is the right time to launch a company, you run the risk of either being too early to the party–-or too late. To reduce risk, wait until the wind is at your back!”
Post-Mortem #3
Company: Overto, an online auction aggregator.
Founder’s Confession: The truth? No one on the team knew how to attract users. And without users, a company dies.
Founder Quote: “It was a time to do some marketing. Unfortunately no one of us was skilled in that area.”
Investor Lesson: Someone on the team better have marketing expertise!
Many entrepreneurs have great ideas for products, but no idea how to attract customers.
As we write in our 10 Commandments:
“Good entrepreneurs identify a problem and build a new solution for it. Great entrepreneurs know how to attract potential customers-–and can convince them to try a new solution.”
The Who, What, Where, When & Why
As these confessions reveal, much of a start-up’s ability to stay in business is dependent on the team:
Their detailed knowledge of the industry…
Their awareness of the market…
And their ability to attract users.
So when you’re investigating early-stage investments, spend the majority of your time digging into the “WHO” of the team…
But also make sure they’re paying attention to the “WHEN” of their timing.
It might save you from a gruesome and unprofitable post-mortem.
Happy Investment Sleuthing!
Best Regards,
Founder
Crowdability.com
