Previous Submission

I Spy a Failure: An Entrepenuer’s Tale

Next Submission

Story time.  Mr. Williams, along with three young friends, launched a small startup called Pyra in August 1999. In the dawn of the internet age, the Pyra team built a web application that combined a project manager, contact manager, and to-do list. The young, cash-strapped entreprenuers’ idea pivoted in several different directions, including internet consulting projects. Nothing stuck.

In late 1999, Mr. Williams suggested on a whim that they try launching an application for making and managing abbreviated writing for the web, almost like an online journal.  The Pyra team ran the new business, dubbed Blogger, on the side as an afterthought to the original idea (reminds me of Forknado).  The team started paying more attention when Blogger began to take off.   Smartly, Williams directed the team to focus on Blogger, eventually raising outside capital and hiring dozens of employees. In the dotcom crash of 2000-2001, Blogger’s lack of revenue model (the site had not been monetized) and dried up funding caused the business to miss payroll.  The situation was so bad that the management team asked its users to make donations to purchase a new server.   Blogger employees continued without pay for weeks, eventually leading to a mass walk-out by everyone (including the co-founder) except Williams. Unfazed, Williams continued to manage all company operations alone until he was ultimately able to secure an investment as the market began to turn around.  In a fortunate turn of events, Blogger was acquired by Google in 2003 for $50M.

Oh, and Williams… he went on to found Twitter and a few other successful tech ventures (here for more on Williams).

Consider for a moment if an HBS case had been written on Pyra/Blogger and Williams in 2001 and all of us were prognosticating on the likelihood of failure at the struggling little venture.   My bet is that we could point to all the obvious reasons that Blogger was set up to fail–no full-time team, limited product testing, no revenue model, poor cash management, founder breakups, etc.

So, “what are the factors that determine if a company is likely to exit successfully?”  Can you spy, earlier on, the variables that will accurately predict a successful exit or imminent failure?  Frankly, after several months in the Founders Dilemmas class, I still don’t think I can.  However, here are a couple of patterns that I have recognized as signals of higher probability of a successful exit:

  • Large addressable market
  • Lean experimentation (and willingness to pivot) to achieve product-market fit
  • Early organic customer traction
  • Sound execution
  • Profitable unit economics

A couple of items which, in my mind, are conspicuously but purposely absent:

  • Highly functioning founding team
  • Technical talent
  • Prestige venture capital
  • Original ideas

After reviewing and debating dozens of startup scenarios this year and last, I am convinced that luck explains a huge portion of the difference between success and failure.   Skyhook, which had all the ingredients for success, suffered a frustrating failure as a result of an unanticipated lawsuit.  Meanwhile, businesses like Blogger, FedEx, Pandora, and countless others find their way to near unexplainable success.

So how much of success or failure is due to luck? I think it varies with each situation, but my ‘finger in the wind’ assumption is something like 30%-40%.

 

 

4 thoughts on “I Spy a Failure: An Entrepenuer’s Tale

  1. I am not surprised to see lean experimentation as a success factor. I wrote my blog post on how the lack of lean experimentation leads to failure. Check it out here: http://fd2015.hbs.org/submission/5-signs-your-startup-is-doomed/

    While I had not thought specifically of early organic customer traction as a success factor, i think it makes sense. Early organic customer traction is the best and fastest way to prove demand for your product. The large addressable market indicates the potential growth of the venture, which can be realized if the execution is sound and the unit economics work.

    Thank you for posting Williams’ perspective! It is a good way to assess companies at a high level.

  2. Jeremiah – I feel the same way as you after going through dozens of these cases, and I think your points are all spot on. Once again, as we’ve heard mentioned in class, it’s easier to connect the dots in reverse for both failure and success by picking out anecdotes selectively.

    I guess Williams kept putting himself in a position where success was possible, even if the odds were minuscule in the toughest times. He never removed himself from a situation where things could turn around, and he did everything in his power to keep the ball moving forward at least a little bit. The vast majority of the people never show up to play the game or they give up early, so by default they can’t “win” the way Williams did.

    Still, it’s pretty risky and not necessarily the best path to follow as you all have pointed out.

  3. Great post and completely agree that we discount luck in explaining successes and failures. I’m wondering how you think about someone like Evan Williams who has replicated his success multiple times. Is it a function of his first big break that gives him access to the right investors, the best talent, learnings from his first venture, etc.? Does luck play an equally important role in his subsequent startups, but we start stringing his successes together into a narrative with no room for chance?

    I’d like to think it’s more of the former – that we learn from our experiences, capitalize on our successes, and make better decisions over time – but there are plenty of serial entrepreneurs who are not repeatedly successful. Perhaps it’s a combination of a string of good luck + the ability to see each situation for what it is (i.e., not letting past successes become a liability by using that mental blueprint to solve new problems).

  4. Thanks for the perspective here. Luck does certainly matter a lot, but companies also point to luck as to why they succeeded when others failed all too often. DINNR is certainly an extreme case where execution positioned the Company in a place where luck couldn’t help. However, there are many other examples where a business succeeds or fails because of decisions made by the founding team that positions it for success or failure. Homejoy is potentially the best modern-day example. It was heralded as the “uber” of home cleaning and yet it couldn’t acquire or maintain customers affordably. Handy has survived. Why? Not simply because of luck, but because the unit economics have the potential to work (still not there yet I don’t believe).

    The reality is that for luck to even matter, a Company’s house must be in order. Too many times internal forces lead to the inability of a business to thrive far before luck can be a factor.

Leave a comment