In a recent article for Harvard Business Review, professor and author Tom Eisenmann shares insights from his new book, Why Startups Fail including findings from his research that “go against the past assumptions of many venture capital investors.”
Eisenmann’s research involved interviewing and surveying hundreds of founders and investors, reading “scores of first- and third-person published accounts of entrepreneurial setbacks,” as well as writing and teaching more than 20 case studies about failed ventures.
“Putting the blame on the founders oversimplifies a complex situation,” Eisenmann writes, adding, “It’s also an example of what psychologists call the fundamental attribution error—the tendency for observers, when explaining outcomes, to emphasize the main actors’ disposition and for the main actors to cite situational factors not under their control.” He offers the example of a startup team citing a “rival’s irrational moves” as a reason for failure.
In the article, Eisenmann shares two of the six common, “avoidable” patterns his research identified in his book as reasons for start-up failure:
Good Idea, Bad Bedfellows
Even when start-up founders exhibit resilience, passion, and experience, Eisenmann argues that stakeholders, employees, strategic partners, and investors “all can play a role in a venture’s downfall.” He cites the example of Quincy Apparel, a venture launched by two of his students at Harvard and a project in which he participated as an angel investor. His in-depth description of the case concludes that it ultimately failed due to several factors in addition to the founder’s shortcomings–including team members, manufacturing partners and investors.
Eisenmann writes, “I have long been an apostle of the lean start-up approach. But as I dug deeper into case studies of failure, I concluded that its practices were falling short of their promise. Many entrepreneurs who claim to embrace the lean start-up canon actually adopt only part of it.” Specifically, he argues that many new ventures eagerly launch a minimum viable product (MVP) before properly assessing their target customers’ needs. Eisenmann characterizes the behavior as a misguided, “ready, fire, aim” approach, citing the example of Triangulate, an online dating start-up launched in 2010 that failed due to “giving short shrift to customer discovery and MVPs.”
Eisenmann suggests that false starts can be avoided by following a three-step product design process that incorporates these steps:
- Problem definition—Before commencing any production, entrepreneurs should “conduct rigorous interviews with potential customers—during which they resist the temptation to pitch their solutions.” They should also conduct a competitive analysis, including “user testing of existing solutions, to understand the strengths and shortcomings of rival products.”
- Solution development—Once founders have identified customer needs, “the next step should be brainstorming a range of solutions” by prototyping several concepts and getting feedback on those concepts through one-on-one sessions with potential customers.
- Solution validation—This should be accomplished through a series of MVP tests that puts a product “in the hands of real customers in a real-world setting to see how they respond.”
Eisenmann concludes: “Of course, there is no way for founders to know which deadly trap they may face as they launch,” noting that familiarizing themselves with the above-reference patterns can help. By recognizing that many are avoidable, he writes, “we can reduce their number and frequency. The payoff will be a more productive, more diverse, and less bruising entrepreneurial economy.”