Why Startups Fail: A Top 10 List From Geoff Entress, Seattle’s Prolific Angel Investor

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4. They react too slowly to changes in the market. This includes things like not changing their overall cost structure quickly enough, not cutting staff deeply enough, and not adjusting the business model.

5. They don’t hire the right team as the business grows. Startup founders often don’t “scale” to large public company CEOs.

6. They don’t listen to their customers. Customers can be “sold,” but they usually know better than you what they want.

7. They don’t change their business model when it becomes obvious that it is flawed. Be decisive, be flexible, learn what works and do more of it. (Entress gave one good example—Shelfari trying out numerous features and letting users say whether they like them or not—and one bad example, his own startup UrbanEarth.com, which folded in 2000.)

8. They don’t raise enough money. Focus on milestones required for the next financing, and structure the financing appropriately (in terms of preferred stock, convertible debt, common stock, or LLC interests).

9. They raise money from the wrong investors. All money is green, but it is not all the same. Different types of investors (venture, angel, other financial, strategic) have different return and timing expectations.

10. They don’t leverage their board and investors. Communicating via monthly updates (at a minimum) is key. Your board and investors will have contacts and insights that you won’t. Your investors need to agree on key strategic decisions like raising money or selling the company. Existing investors are your backup source of financing.

As a corollary (Entress labeled it 10+ on his list): They don’t sell when the opportunity is right. That means in a period of high growth, high demand in the market, or when they are a strategic “absolutely must have.”

These certainly all sound like good rules for startups to live by. But there is one final reason for failure, as Entress pointed out, and it is a wildcard…

11. They have bad luck. No matter how good your product is, sometimes bad things will happen, you will run out of money, and you will fail.

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3 responses to “Why Startups Fail: A Top 10 List From Geoff Entress, Seattle’s Prolific Angel Investor”

  1. Soc Seamon says:

    Good list, but I wonder what the definition of failure is. I prefer not to take any investment for my startups unless they become very big. The cost of running a startup is almost 0 except for your time so there’s no reason to ever fail or give up. Just constantly reinvent it until it works.

  2. Roopinder says:

    Awesome list (esp 11!). Just wondering – wouldn’t this list apply to almost any company out there ? Whether you’re a Director in a company with 500 FTEs, or just one of two guys in a startup ?