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Startup Mistakes and Failures 101: The best free content (articles, blog posts, Quora Q&A, and more)

This is a curated collection of the best content on startup mistakes and failures. All links are freely available.

As with previous 101s such as Startup CEOs and Seed Fundraising, I’ll update and add to the collection over time and with your help.

Take risks and you’ll get the payoffs. Learn from your mistakes until you succeed. It’s that simple. – Bobby Flay

I don't do this for the money, but donations certainly help. Use Venmo or Paypal. Thanks and enjoy!

Kevin

P.S. Please tweet or email me links. My conditions: #1, they’re free, and #2, they’re educational

P.P.S. If you want a daily email featuring a great startup article – summarized for your convenience – subscribe to 1-Read-A-Day

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Startup Mistakes 101: Common questions

Total links: 31

Question 1: Why do so many startups fail?
Question 2: What are common startup mistakes?
Question 3: What are common legal mistakes that startups make?
Question 4: What are some stories of individual startup mistakes?
Question 5: What are some stories of startups that lost or failed?
Question 6: As a founder/CEO, how do I deal with burnout/failure/the trough of sorrow?
Question 7: When should I pivot and when should I shut down?

Question 1: Why do so many startups fail?

The default state of a startup is failure by Chris Dixon (a16z)

If you are starting a company and wondering why nothing good seems to happen unless you force it to happen, that’s because the world wants to stay the way it is. Customers, partners, and most of all incumbents don’t want to think hard, try new things, or change in any way. The world is lazy and just wants to keep doing what it’s doing.

The Transmutation Of Failure by Max Skibinsky (YC entrepreneur)

In truth, the popular perception of the Valley as a magical conveyor belt that churns out billion dollar companies from startups is just a trivial case of survivor bias. The Valley creates thousands of failed startups that go away without notice during same time it creates a couple of Netscapes, Googles, and Facebooks. [...] If one looks at the actual time spent by entrepreneurs, as a distinctively different class of people than salaried employees of successful startups, they spend the most of their time and effort creating, enduring, and recovering from failure rather then creating success.

Jump back to the ToC

Question 2: What are common startup mistakes?

7 Unlikely Recommendations for Startups & Entrepreneurs by Rand Fishkin (Moz founder)

My recommendation is to make your MVPs in-house, dogfood them with your teams and a few select customers, but don’t release them. Wait until those first users (internal & external) are saying “whoa, this thing is pretty amazing.” Then release. The extra time may feel frustrating, but if 30-90 days (or more if you can afford it) of extra effort produces a product that gets over the hump of extraordinary, it’s worth it.

9 Deadliest Start-up Sins by Steve Blank (4 Steps to the Epiphany)

First and deadliest of all is a founder’s unwavering belief that he or she understands who the customers will be, what they need, and how to sell it to them. Any dispassionate observer would recognize that on Day One, a start-up has no customers, and unless the founder is a true domain expert, he or she can only guess about the customer, problem, and business model. On Day One, a start-up is a faith-based initiative built on guesses.

Here’s the email summary from 1-Read-A-Day.

16 Common Mistakes Young Startups Make by Lauren Drell (Mashable editor)

“Founders of a young company will come up with hundreds of new ideas every day (I know my co-founders and I do). While most of these ideas are sure to be good ones, we’ve learned that we need to be thoughtful and selective about which to move forward with in order not to overwhelm ourselves and our employees. We all have limited time and resources, which is why we need to focus and prioritize.” — Matt Salzberg, Founder and CEO, Blue Apron

The 18 Mistakes That Kill Startups by Paul Graham (YC)

Starting a startup is too hard for one person. Even if you could do all the work yourself, you need colleagues to brainstorm with, to talk you out of stupid decisions, and to cheer you up when things go wrong.

I wrote a brief summary of these 18 mistakes.

The Importance of Realism in Startups by Mark Suster (Upfront Ventures)

We put on our brave faces and turn up everyday hoping that in the end we won’t feel like frauds. In fact, I believe that one of the largest motivators for startups to avoid the ultimate failure is to avoid the humiliation of not having every positive press mention seem like you were a phony.

Most Common Early Start-up Mistakes by Mark Suster (Upfront Ventures)

You should implement restricted stock with vesting at the earliest stages in your company -even before the VC’s ask. The reason is that if you found a company with a partner (or 2) and somebody decides to leave the company do you really want them to be able to walk away with half of the value when they may have only worked with you for 9 months and all the hard work is ahead? Founder vesting is an insurance policy for all team members involved.

Peter Thiel’s Startup Class Notes by Peter Thiel (Paypal founder) and Blake Masters (Judicata founder)

If there is one categorical rule, it’s that you should never ever have a down round. With few exceptions, down rounds are disastrous. If there are tough anti-dilution provisions, down rounds will wipe out founders and employees. They also make the company less appealing to other investors. The practical problem is that down rounds make everybody really mad.

Here are 9 things I learned reading his class notes.

The Leading Cause of Startup Death – Part 1: The Product Development Diagram by Steve Blank (customer development)

Emerging early in the twentieth century, this product-centric model described a process that evolved in manufacturing industries. It was adopted by the consumer packaged goods industry in the 1950s and spread to the technology business in the last quarter of the twentieth century. It has become an integral part of startup culture.

Things You Should Never Do, Part I by Joel Spolsky (StackOverflow founder)

Yes, I know, it’s just a simple function to display a window, but it has grown little hairs and stuff on it and nobody knows why. Well, I’ll tell you why: those are bug fixes. One of them fixes that bug that Nancy had when she tried to install the thing on a computer that didn’t have Internet Explorer. Another one fixes that bug that occurs in low memory conditions.

Here’s the brief summary from 1-Read-A-Day!

What are the most common mistakes first-time entrepreneurs make? by Siqi Chen and Adam Rifkin and others on Quora

1. Undervaluing Management Competency
We underestimated the difficulty of managing a team and undervalued the skills of general management, process, and strategy. This failure stemmed from the very top down (that is, me) and affected every level of the company. Having never had any direct reports prior to Serious Business, I simply didn’t know what I didn’t know. – Siqi

What Goes Wrong by Jessica Livingston (YC)

Even Y Combinator got rejected when we first started back in Cambridge, MA in the summer of ’05. Now there are lots of organizations doing what we do, but trust me, when we first started, people thought we were crazy. Or just stupid. Even our own lawyers tried to talk us out of it.

Why Startups Fail by David Skok (Matrix Partners)

I realized that one of the most common causes of failure in the startup world is that entrepreneurs are too optimistic about how easy it will be to acquire customers. They assume that because they will build an interesting web site, product, or service, that customers will beat a path to their door.

Here’s the email summary from 1-Read-A-Day.

Jump back to the ToC

Question 3: What are common legal mistakes that startups make?

My $3.3M mistake by Derek Sivers (CDBaby)

It was my fault for not reading what I signed. My fault for letting a bank teller’s quick advice make that major decision for my business structure.

What made it even worse is that I couldn’t just buy it back for the original $20,000. The IRS won’t allow that. The only way was to pay full market value, as determined by an outside valuation company.

In the end, I had to pay $3.3 million dollars to buy back that 90%.

Top Ten Legal Mistakes Made by Entrepreneurs by HBS Working Knowledge Staff

# 9: Issuing founder shares without vesting.
Simply put, vesting protects the members of the founding team who take the venture forward. If people remain on the team and are productive, their shares will vest. If they leave earlier, that stock can be retrieved and given to whoever is brought in to replace them.

What Are The Biggest Legal Mistakes That Startups Make? by Scott Edward Walker (startup lawyer)

7. Employment Issues. Some startups make the mistake of not addressing employment-related issues with respect to new hires. For example, if an employee is hired by a startup, he or she generally should be required to execute two documents: (i) an offer letter and (ii) a confidentiality and IP/invention assignment agreement.

Jump back to the ToC

Question 4: What are some stories of individual startup mistakes?

7 Biggest Mistakes I’ve Personally Made as a Lifestyle Entrepreneur by Sean Ogle (entrepreneur)

Right now my routine is wake up lateish (7:30-8), drink 2 cups of coffee, work for a few hours, pretend to work for a few mores, and then go out and drink/eat un-healthy food at night. It’s a good social routine, but terrible overall wellness routine.
I know what I have to do in order to not only perform at my best, but be happy as well. It’s stupid simple: Wake up early, eat healthy, exercise.

Why I got Fired from Facebook (a $100 Million dollar lesson) by Noah Kagan (early Facebook employee)

I was a show-er at Facebook. I dealt with chaos of a 30 person company extremely well. (Did I mention my boss got fired on my first day and my next boss got fired 2 months after me?) [...] Most decisions were me walking over to Mark’s desk for approval, but at 150 people it was a group meeting of 30 people or me having to schedule time via Mark’s secretary.

Jump back to the ToC

Question 5: What are some stories of startups that lost or failed?

6 reasons why my VC funded startup did fail by Stephan Schmidt (entrepreneur)

Start selling before you found the company. Start selling now! You do not need to have a company to sell new ideas to customers. Start selling now! When people really want to buy your product, start the company.

ArsDigita: From Start-Up to Bust-Up by Philip Greenspun (entrepreneur)

In parallel to all of this VC stuff we’d been trying to recruit an “outside CEO”. Based on my conversations with successful business people around the world, I now believe this is a fundamentally bad idea. Even the most able person will need a few years to learn about a company’s market, challenge, mission, culture, and people. A fresh-from-the-outside CEO might be successful at a 50-year-old company with a huge bureaucracy that manages itself (cf. George W. Bush taking over the Federal Government). But young enterprises don’t have that kind of inherent stability.

Fantastic and brutally honest memo by Stephen Elop, CEO of Nokia by Fabrice Grinda (angel investor and entrepreneur)

Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem. This means we’re going to have to decide how we either build, catalyse or join an ecosystem. This is one of the decisions we need to make. In the meantime, we’ve lost market share, we’ve lost mind share and we’ve lost time.

Postmortem of a Venture-backed Startup by Brett Martin (entrepreneur)

“I would use your product if only you had X feature” is a dangerous signal to follow. Users do their best to anticipate what they want before they’ve seen it but, like entrepreneurs, they are often wrong.

Here’s my brief summary of Brett’s article.

Startup lessons learned from my failed startup by Sergio Schuler (entrepreneur)

Oh, silly you, you have no idea how hard it is to get 1.000 clients paying anything monthly for 24 months. Here is my advice: get your first client. Then get your first 10. Then get more and more. Until you have your first 10 clients, you have proved nothing, only that you can multiply numbers.

Great discussion thread on Hacker News.

Why I Invested #2: [Redacted] Restaurant Group by Tucker Max (author, entrepreneur)

The restaurant ended up completely failing. Closed within a year. Not because of the concept, or the location, or the business plan or the execution or anything like that. It could have worked. In fact, for almost the whole time it was open, it WAS working. It did great business. The problem was Frank.

Why we shut NewsTilt down by Paul Biggar (YC entrepreneur)

One part of the service we offered was that we would get the journalists traffic. Whooops! Getting traffic is really really difficult. We completely underestimated how difficult it would be, largely because I’d never had a problem with it in the past. When I’ve needed to promote some pieces I’ve written, I simply submitted them to Hacker News and Proggit. However, that doesn’t generalise in any way.

Here’s a brief summary from 1-Read-A-Day.

Why Wesabe Lost to Mint by Marc Hedlund (Wesabe cofounder)

You’ll hear a lot about why company A won and company B lost in any market, and in my experience, a lot of the theories thrown about – even or especially by the participants – are utter crap. A domain name doesn’t win you a market; launching second or fifth or tenth doesn’t lose you a market. You can’t blame your competitors or your board or the lack of or excess of investment. Focus on what really matters: making users happy with your product as quickly as you can, and helping them as much as you can after that. If you do those better than anyone else out there you’ll win.

Here’s my email summary of how Mint beat Wesabe (from Noah Kagan, an early Mint employee). It’s featured in 1-Read-A-Day.

Jump back to the ToC

Question 6: As a founder/CEO, how do I deal with burnout/failure/the trough of sorrow?

Demotivated Founder With Lost Passion Seeking Advice by Mark Bao via Ask HN

Agreed 100%: Launch, launch, launch. It’s easy to get demotivated if you’re working on a piece of stale software on your laptops.
Get some ants in your ant farm, watch what they do — it may be what your co-founder needs to start believing in the product as well. If you quit now, you will _always_ wonder if something could have come from these TWO YEARS of your life.
Seriously, launch. Don’t debate, don’t discuss, don’t send resumes; launch. What’s the worst that can happen? If you prove that you can’t get traction, at least you will have seen it through.

Embrace Your Losses – They Will Make You Stronger by Mark Suster (Upfront Ventures)

Discuss with your team – do your post game analysis. Don’t ignore your losses. Don’t blame the people involved with the loss. Don’t accept your internal team’s answer of why you lost – hear it for yourself. Make sure that you hear all of your team’s perspective. Draw your own independent conclusions – even if they are different from other people’s point of view.

Experiences with founder burnout? by h34t via Ask YC

I’ve found that every time I’ve felt burned out – whether in writing, coding, startup, life – it’s because I was working on something that ultimately was going nowhere. I needed to revisit my assumptions, yet my conscious mind didn’t know that. Burnout was a way for my subconscious to say “This isn’t going to work, you’re not working on the important stuff, take a step back and look at the big picture.” When writer’s blocked, I delete the last 3 paragraphs I’ve written and take the story in another direction. This has almost always cured my writer’s block; when it doesn’t I delete the last page and take the story in another direction.

Startups Are Hard by Chad Etzel (YC entrepreneur)

Am I jealous of other companies’ success? I would be lying if I said no. I am slightly jealous when I wake up and read another story about some company raising a million dollars for some idea that makes absolutely no sense to me, or seeing an acquisition of a company for a product I did not feel was particularly well executed. I am happy for them because they were able to pull off something that I know first hand is very hard. At the same time I am jealous that they were able to figure something out that I honestly haven’t been able to yet.

The Struggle by Ben Horowitz (a16z)

The Struggle is when you want the pain to stop. The Struggle is unhappiness.

The Struggle is when you go on vacation to feel better and you feel worse.

The Struggle is when you are surrounded by people and you are all alone. The Struggle has no mercy.

Jump back to the ToC

Question 7: When should I pivot and when should I shut down?

In 30 days, my startup will be be dead by Tumblr guy (can’t find the name)

They say accelerators speed up success and failure, in our case, all it sped up was our ability to play the startup game

Shutting Down Instead of Pivoting by Jason Shah (Yammer PM, entrepreneur)

But how do you know when it actually is time to pivot away from an idea? How do you know with confidence that you’re not onto something and your 52nd title is not around the corner? Indeed, the very same believing that keeps you going is very similar to the same believing that led you to take the initial leap in the first place. How do you ignore sunk costs?

What Do You Do With a Failed Product? by Sacha Greif (designer and coder)

I suspect this is what happens to most projects anyway. The traditional “failed startup” tale usually implies the startup succeeded at some point: they raised money and then squandered it away, or attracted users but then lost them. I never even got that far.

Jump back to the ToC

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