Choosing to leave behind the regular paycheck and benefits to build a
venture from the ground up is a huge risk.
It’s risky because it’s hard work, there are no guarantees, and 95% of startups fail, based on research by Shikhar Ghosh, a senior lecturer at Harvard Business School.
With the odds against you, entrepreneurs feel like they’re literally pushing against the tides every day so when companies fail, the price, which can include financial ruin, utter embarrassment, and even mental collapse, is a hefty one for the founders.
We spoke to four entrepreneurs to explore what they learned from this mourning and accepting period, how they picked themselves up and moved on to become the success stories they are today:
Steve Blank, serial entrepreneur, lecturer at U.C. Berkeley, Stanford University, Columbia University, Caltech, and UCSF
During Blank’s 21-year career in Silicon Valley, the startup guru was involved in eight startups and responsible for starting three or four of them, depending on your definition of "cofounder," he says. Along the way, none of the failures he encountered made the same impression as the ones he made with video game company Rocket Science Games where his title was CEO.
"A startup goes from failure to failure. All it does from day one is run a series of experiments and just like in a lab, most of them will fail," says Blank. "But when it’s complete failure … when you’re shutting the company down, that never feels okay. It feels shitty. If you’re the CEO, you failed your employees. You failed your investors. And after, you either grow or you don’t."
During this time, Blank tells Fast Company, he went through six stages of grief, but when he came out on the other end, he was "playing the game at a much different level."
Phase 1: shock and surprise. Rocket Science raised $35 million and was on Wired magazine’s cover as one of the hottest companies in Silicon Valley. It was on its way to greatness when 90 days later, Blank realized no one was buying the games and money was running out quickly.
Phase 2: Denial. For a time, Blank says that, in his mind, he really believed he had done everything he was supposed to do. During this phase, founders will often start playing the blame game to protect themselves from the failure itself.
"Allow yourself to feel it, but being stuck in denial and blaming others are the most destructive things you can do."
Phase 3: Anger. During this phase, Blank blamed his cofounder, the engineers, the sales people, the VCs, and everyone else who had a connection to the company except for himself.
Phase 4: Depression. When the inevitable arrived, Blank writes that he slept a lot: "There were days I’d get up late and go to bed again at 5 p.m. I lost interest in anything associated with my past industry." In fact, to this day, Blank still can’t play a video game.
Phase 5: Accept your role in the failure. This is the phase where you start redeeming yourself. After a few weeks, Blank started to talk about what happened to those around him, mostly to his wife. "At first you don’t want to talk about it," he says. "You don’t want to admit it because it’s embarrassing." But then you accept it, you talk about it, and you realize that failure in Silicon Valley isn’t an uncommon occurrence.
Phase 6: Changing your behavior. Once you’ve gained insight, it’s time to change your behavior. He writes about the last and hardest phase of his grief: "While I stopped blaming others, understanding what I could change in my behavior took long months. It would have been much easier to just move on, but I was looking for the lessons that would make my next startup successful. I looked at the patterns of behavior, not just at my last company but also across my entire career. I learned how to dial back the hubris, get other smart people to work with me—rather than just for me, listen better, and act and do what was right—regardless of what others thought I should do."
Christine Wallace, vice president of branding and marketing at the Startup Institute
When Wallace’s startup Quincy Apparel with former Harvard Business School classmate Alex Nelson shut down, Wallace slept, cried, and stayed in bed for three weeks, she tells Fast Company.
At the end of her grief, Wallace rejoined the world and decided to be as open about her failure as she had been about her successes. "The real story is much more volatile and human, and we do our community a disservice pretending otherwise," she says. "I don't celebrate failure for failure's sake, but I think there is something amazing about trying to do something at the edge of possibility and potentially failing at it."
Gary Swart, venture partner at Polaris Partners
It’s been more than a decade since Swart decided to leave his "cushy" job at IBM as a business unit executive to start Intellibank, which he describes as "sort of like Dropbox done wrong."
"All of a sudden, I’m at a startup eating peanut butter and jelly and working non-stop so when it didn’t work out, it was really brutal towards the end," he tells Fast Company.
After the dust settled, Swart realized he needed to know exactly why the company failed before moving on. Was it not a good idea? Did he miss the market? Did he not execute it well enough?
"You can’t fail and make the same mistake again at the next company," he says. "At Intellibank, we weren’t focused enough. We failed because we tried to go too broad. We were trying to be all things to all people." At one point, the company was going through such an identity crisis that in the middle of a meeting, a potential investor interrupted Swart and asked him, "Can you tell me what your product actually does." He writes about this in a post on LinkedIn: "We were pivoting so often for different types of customers that we completely lost the big picture."
As a VC advising entrepreneurs today, Swart says that a successful company needs three things:
- A need for their product or service.
- A big enough market because "even the best team with the best product will fail if its market does not exist."
- A way to get into that market in a cost-effective way. In other words, "make sure you have enough money to execute in that market."
Once Intellibank became a thing of the past, Swart was surprised to receive opportunities from people who knew how and why the company went under.
"What I realized was that I would have never had those opportunities if I hadn’t had that failure," he says. "A good friend of mine says, ‘experience is what you get when you don’t get what you want.’ "
Matt Cooper, serial entrepreneur and vice president of Enterprise Services, Elance-oDesk
The hardest part about the end of of Matt Cooper’s first startup Soggy Bottom Canoe and Kayak Rental was that it died a very slow death.
"It wasn’t a spectacular finish where we ran out of the money and died. It was this long, drawn-out saga because it was a family affair."
Shortly after quitting his investment banking job at JP Morgan in New York City to move to the backwoods of Mississippi to launch his first startup, Cooper had a gut feeling that he was moving too fast, but he didn’t listen to his gut. He hadn’t asked adequate advice the way he would today.
Cooper remembers cranking out a spreadsheet of what he thought the business would look like and thought that if he built it, they would come. Unfortunately, they never came.
At the end of his tenure as first-time entrepreneur, Cooper was aware that he had a tendency to move too quickly when it comes to business. Over time, he learned to create deadlines he would have to meet before moving on to the next big decision.
While it’s necessary for entrepreneurs to have faith in their company, it’s also critical to know when it’s time to cut the chord. According to Cooper, this happens when you can’t generate revenue, can’t cut back on expenses, and no longer have access to capital.
"That’s when you know you’re in big trouble," he says.
[Image: Flickr user Gido]