I was meeting with someone recently who asked if I have any advice about what causes startups to succeed or fail. At first blush, it’s a funny question to ask someone who’s starting up a company; I mean, I should really be the one seeking advice. On the other hand, I have been involved in quite a number of failed startups (something like 12 at this point) and only one that has gone on to achieve any objective measure of success (i.e. Netflix), and I do certainly recognize some patterns in what I have seen take place in each. So I thought about the question for a moment and said I think there are three factors that will contribute to the failure of a startup:
Lack of Leadership
If we can agree that leadership encompasses a lot of vision-casting and market due diligence, it’s probably easy to agree that true leadership is the most important attribute in determining the potential in a startup. But its absence sometimes takes longer to identify than other attributes, because the company’s founders may be so enthusiastic about their idea that their lack of ability to lead isn’t noticeable.
Over time, though, as the company gets distracted and strays from its core capabilities, as the leaders fail to notice market changes that trigger a need for strategy adjustments, as delivery dates are missed or quality slips or innovation ceases altogether, the cracks begin to show and the company slides.
Lack of Funding
This is somewhat related to lack of leadership, because it is certainly a management responsibility to make sure the path to cash flow positivity and to profitability is clear, but in any case, there are many examples of companies that might have been great had they had enough funding to survive the first few difficult periods.
Lack of Talent
Again, this traces back a bit to lack of leadership, because finding talent and retaining it is a critical skill in business.
The person who asked me the question asked if I didn’t think there should be a fourth category for lack of market or lack of demand. I said no, I thought that fell under lack of leadership.
What have I omitted? Some interesting alternate possibilities are: lack of network (although the story at that link isn’t about a failing business, but rather a city failing to retain a successful business), or lack of access to clients, perhaps.
What else? Tell me in the comments how your experience would lead you to answer the question.