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The Grey Area between Success and Failure

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There’s no shortage of media coverage regarding startup failures and successes. Whether it be epic failures or the coveted unicorns , the media makes it seem like the expected startup outcomes make a distinct U shape. But this isn’t the reality. In reality, there is a very prevalent middle ground, and this is where the grey area happens – the area where it’s not entirely clear who wins and loses.

The Grey Area between Success and Failure

There’s no shortage of media coverage regarding startup failures and successes. Whether it be epic failures like pets.com and webvan.com, or the coveted unicorns like Uber and Airbnb, the media makes it seem like the expected startup outcomes make a distinct U shape. In this model, it’s very black and white regarding what constitutes a success and a failure. For the most part, people win in a unicorn, and lose in a failure.

But this isn’t the reality. In reality, there is a very prevalent middle ground, and this is where the grey area happens – the area where it’s not entirely clear who wins and loses.

So how do you determine the winners and losers in these situations?

This is mostly going to lie in the eye of the beholder.

Investors: Investors, especially VCs, are playing for the homeruns, not the base hits. I know that something is better than nothing, but a VC will be vying for the strategy that bets the house at the final hour, rather than salvaging something for the other parties involved. This raises the question: do the investors hold the power to risk the possible benefits to ALL other parties?

Employees: These are the true unsung heroes. They have made sacrifices in pay for the opportunity to work in the startup environment, and for the lucky equity-holders, a chance at riches. With the option of acquisition, employees may have the opportunity to transition to a great company under great circumstances, and continue the work they’ve been doing. Financially, they may also be able to hold on to their equity, or cash out in a sale. Either way, employees have much more to gain in the “base-hit” scenario than the investors.

Founders: Founders are in the grey area of the grey area – their interests are a combination of the investors and employees. So which way do they lean? They can sell or be acquired to give some consolation to their investors, and give their employees some great opportunities going forward. Or they can take some final chances in the hopes of still hitting it big and pleasing all parties involved.

This conflict of interests is terrible. Investors have given your company the lifeblood to exist, while your employees have been the heart. And you, the founder, have been the brain and body. As much as it pains me to feel this way, I think the investors need to come first. And while there are many assumptions in the entire assessment, I think it still holds. Startups are inherently risky. Investors, employees, and founders all know this. So while there are many instances where the option to exit will leave most people partially whole, I don’t think this is what startups are about.

 

1 thought on “The Grey Area between Success and Failure

  1. Thanks for broaching this discussion, Chris. There’s certainly more to startup stories than just epic success and epic failures, especially when you consider success isn’t just financial.

    I also struggle with how to prioritize different stakeholders, and like much else in the class think that “it depends”.

    Part of it is the deep philosophical question – do you owe more to yourself, or to people who’ve helped you along the way? The hedonistic school of thought says you should do whatever maximizes your own personal pleasure. Not particularly inspiring, but certainly a way of thinking that at least colors everything we do.

    Part of the decision also depends on your ability to judge the value that each option would hold for these different stakeholders. For example, you may believe that your investors care primarily about financial success, but they may also care about reputation, ethics, and even maintaining a healthy relationship with you, the entrepreneur! Likewise, employees may care more about staying together as a team or continuing to work on a product they’ve invest so much in, than an attractive exit. These are things that are hard to know, especially as your company grows larger and you aren’t in as frequent contact with any one stakeholder anymore.

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