Something I've noticed with both my own past startup failures and other startups I've known: by far the most common failure reason is "There was no reason for them to be a company in the first place."

By that I mean that either there was no customer demand for what they were building, or there were already lots of other companies that solved the problem just as well and they had no unique angle on the problem, or a key technical assumption they were relying on turned out to be false, or the market was better served by lots of little firms rather than one high-growth startup. In other words, they never found product/market fit, because there was either no market for the product or they couldn't build the product to serve the market.

The problem is that usually you can only determine this in hindsight. If everybody assumed that the only businesses that can work are those that already have a working product and customers, we'd never get any innovation. I've learned to think of "Finding a reason for the company to exist" as the primary job description for a founder, and failure means that you are doing your job but haven't completed it yet.

My hunch after starting a few side projects, and taking the leap in to a full on failed company is that while things must be tried, you should secure some level of real customer interest before diving fully in.

I'm not sure how much it takes, but there should be real evidence.

Most startups that outperform start in areas where the reason to exist isn't obvious. It only becomes obvious later. (Do we need yet another search engine?) This is why it's important to have a lot of low-capital companies searching these markets. Once they find the reason, then it's appropriate to flood them with capital.

> Do we need another search engine ?

A valid question even when Google came to the fore. We had Yahoo, HotBot, Altavista, and then Google came along. And while the others were search engines, Google was superior.

Will people switch to a better internet search engine ?

The answer is always yes.

It needs to be marginally better. Slighly is not good enough to gain momentum.

Some would say at least 10X better. Google won because pagerank crushed keyword searches, and gmail Gabe 20X the free inbox that hotmail gave.

yea perhaps. This is case where it's simple(r) to measure, but that's not always the case.

Sad fact, but true. Most companies simply have no need to have been started, and the failure stats bear this out. But as you also state, in aggregate, this process is necessary or time stands still.

What's interesting thinking about history, would Webvan and Pets.com fall under "no demand", "too soon", or just tried to do too much given the timing? Now we have services that are similar, for instance chewy.com is the modern version of of Pets.com.

"Too soon" is usually another way of saying "A critical piece of infrastructure that my business plan requires doesn't exist yet."

Instacart's founder is fond of saying that Instacart couldn't have existed before 2012. I suspect what he means is that there were a collection of technical & social changes that happened in the early 2010s that let him recast the problem Webvan was solving in an economical way. These were: 1) smartphones allow real-time coordination across thousands of workers, without hiring lots of managers 2) cloud-computing lets you run big-data algorithms to feed those instructions to thousands of workers, without building data centers 3) because of the Great Recession, thousands of workers were unemployed and desperate for some way to earn money 4) increasing urbanization has clustered people together in a city and made them disinclined to drive, which increases the demand for a grocery-shopping service and decreases the cost of servicing them and 5) everybody had Internet access and cellphones.

By contrast, WebVan spent a billion dollars building warehouses, at a time when the total number of Internet users was < 150 million. They bought their own fleet of delivery vans and hired their own drivers, at a time when employment was full and labor costs were high. They had to invest much more capital for a much smaller market, and then had much higher variable costs.

Being a "startup" doesn't repeal the laws of business - you still have to pay for labor, generate returns on capital, generate more value than you charge, and charge more than you spend. But because computers operate millions of times faster than humans and don't require wages, if you setup the business model right you can realize huge efficiencies of scale. "Setup the business model right" is the tricky part - WebVan thought that "Internet ordering" was a crucial part of the business model for online grocery delivery, but it turned out that "use existing supermarket infrastructure" and "coordinate lots of shoppers so they can work very efficiently" were the real keys, and the technology to do that hadn't been invented yet.

Interesting podcast with Instacart's founder where he talks about an investor who turned him down because the same investor lost money on webvan. https://www.npr.org/player/embed/523003162/523047374

Some great points. And yet, there's a coffin jpeg with instacart's name on it. Just give it a minute.

My vote is firmly in the "too soon" category.

As evidence: I can get a 35 pound bag of dog food delivered to my house in about an hour via Amazon Prime Now. That's basically both WebVan's and Pets.com business model but on the back of Amazon's logistics ecosystem.

What makes this work is both that it's not 2001: both in that there are significantly more Internet users, they have higher speed connections, and they're much more comfortable with online purchases.

Totally this. I lived with my aunt in the bay area back when webvan.com was hot, and I remember a time when the two of us saw a commercial of theirs. I remember saying how great of an idea it was, that it could really take off, and I distinctly remember my aunt -- not a very prolific internet user but not a luddite by any means -- saying that it was weird buying groceries online. That really stuck with me, because my aunt is/was the kind of person to try something like that, but even she wasn't comfortable with it.

Plus also webvan.com blew a billion dollars building a delivery infrastructure that they couldn't support.

Yes. A big issue is confusing correlation with causality. For instance, "There was no business model, and the founding team was inexperienced and arrogant" applies to Facebook and Google as well as many failures. :-)

I feel like former employees sometimes know better why a company failed than founders. If the founder knew exactly what is/was "wrong" they probably had been able to turn it around.

Former employees are often biased by their job function. At the first startup I worked at, I had a role that straddled Eng & QA, and the lesson I took away from it was "engineering quality is critically important; we failed because there were too many bugs." In hindsight - having now seen v1 of many other startups - we failed because a lack of nerve, because many other startups charge thousands of dollars a month for product quality significantly worse than what we had. We should've shipped it, had money coming in, used that to negotiate another funding round, and then used the funding to fix the bugs. But without visibility into common sales & fundraising practices of startups, there was no way that 19-year-old-programmer-me could've known that.

Maybe, maybe not.

If you have an all new product you need to get into the market fast. Once you have the basic features working you need to see if customers really exist. Even if it means your customers have to try everything twice because you crash the first time, if they buy your product you fix the bugs they see so that it mostly works and move on.

However if you don't have a new product you cannot do that. If you want to release something where the market already exists you can just do one part better you need to be as good in everything else. Tesla didn't release their original roadster without a heater, in the 1950s heaters were optional.

You need to figure out which market you are in and release accordingly. Getting this wrong means the death of your company. If you are in the first investors are taking a risk that people will want your product - it would be stupid to invest in perfection when customers might decide your product doesn't fill a need, better to abandon your interesting but useless product early. However when you are in the second you need to meet your user's expectations - thus I don't need to check the feature list to tell you Tesla comes with a working heater standard. Expectations is also why the early reviews of Tesla showed a tow pulling it away with a dead battery - the equivalent stupidity in a gas car would be the tow truck charging $10/gallon for gas and you are on your way in a few minutes. (Tesla has been mostly successful in managing expectations in the years since - now everyone knows it isn't the best car for cross country trips but you can do it once in a while with a little planning - there is a lesson in this too when you are a little different in an existing market make sure the downsides of your different are understood)

"Former employees are often biased by their job function."

Aggregating their reviews would cancel this effect out though.

If you can. I thought the context of this thread was free-form postmortems, where people give a narrative explanation of why the startup failed. It's hard to aggregate that.

Also, there's the risk of aggregate counts simply reflecting the population of each job function, unless you weight them. Then it'll just say that every engineering-focused startup failed for engineering reasons and every sales-focused startup failed for sales reasons, which may be true but isn't terribly helpful for a founder trying to figure out what to do.

It's an interesting thought, almost like a "glassdoor.com" on startup failures. I'd be curious if Glassdoor actually implements some sort of a weighting scheme to counter the bias that unhappy people are more likely to post reviews, so a poorly run group would have an outsize impact.

It's because of that case I think free-form postmortems might be more insightful, despite their own obvious faults. Perhaps NLP and sentiment analysis could shed some light.

I agree--although they might not have the "full information" as jstandard points out, the employees are in the trenches all day and have to deal with the trouble spots directly. For probably all places I've worked that failed, the employees simultaneously knew the problems (and would gripe about them) but were not empowered to actually fix them. Anyone who's been in this kind of death march situation knows that feeling of helplessness--that the track up ahead is bent and if only we could just run up ahead of the train and fix it...

>If the founder knew exactly what is/was "wrong" they probably had been able to turn it around

Not always. Changing a single person's bad habits or tendencies is hard enough. 10 people? 100? Culture carries momentum even if the prime mover is found.

Sometimes you learn a really good lesson when you have like 30 days runway left. Maybe too late to pivot but still a good lesson.

I agree in part. The real trick of it here is that those former employees will also be wearing their own lenses of bias. There's a good chance they don't have full information on the company.

Then the challenge becomes a game of synthesizing contradicting perspectives. That's what makes this exercise of distilling causes into "bitesized pieces" so difficult.

There is a lot that goes into running companies that ordinary employees take for granted. I don't think there's any reason the perspective of the average employee will be more accurate than the perspective of the average founder. Both will have strong biases coloring the perception of events in their own favor, and in some cases, problem employees and problem founders may blame each other instead of admitting their own faults.

In most cases, there is, of course, no simple way to pinpoint a particular place where everything ran amok. That's to be expected. The analyst needs to listen to everyone with credible knowledge of the company and use their own judgment to come to an opinion on the biggest issue. This is a subjective analysis, and not something that can be authoritatively established.

This is absolutely true, and I'll take it even a step further: great people can still form dysfunctional teams even if they all do good individual work.

Often times in an early stage startup the problem is the team doesn't gel enough to adequately explore the problem space. In those cases, the founder might conclude that the opportunity wasn't there, but maybe it's because people weren't aligned enough to push far enough in the right direction. It's impossible to know whether there was really a viable business there, or whether it was a failure of the team. But subjectively after going through several startups and other early stage projects, I know the feeling of a team that is gelling, and it can make an unquantifiably huge difference to early results.

> "Both will have strong biases coloring the perception of events in their own favor, and in some cases, problem employees and problem founders may blame each other instead of admitting their own faults."

This really resonated with me. It's truly a skill to build the self-awareness to realize when you're the problem. It's much easier to externalize or abstract the problems away, particularly in stressful times where everyone feels overworked. I've caught myself doing this.

I have to set aside part of every week to step back, breathe in, and candidly examine how I might be contributing to problems that are happening. Otherwise it's too easy to get wrapped up in the hunt for demons outside the burning house.

That's true, but ordinary employees will have a perspective that founders usually just can't see, usually due to their biases. As such, it'd be better to take in the perspectives of both, to paint a more complete picture.

My assumption has long been that ~50% of startups fail because they never actually create a useful product. But, looking at those failures does not tell you much about startups just the basic pitfalls of product development.

Similarly, many companies that fail made perfectly rational bets, but things outside their control killed them. Likewise many successful companies may simply have gotten lucky due to things outside their control, even if their initial odds where poor.

Which is why I feel like success and failure on their own tell you very little.

Sounds like you're suggesting something along the lines of Indie Hackers but for those who were not successful.

It is interesting that the Homejoy entry is gone. Typical analysis is that they lost business to their own pros and the class action lawsuit regarding the contractors or employees argument. My own experience in the industry suggests that bad treatment and pay for their contractors resulted in ongoing defections and that when a competitor offered just four dollars an hour more all the best cleaners left at once.

$4 an hour is I guess in the region of a 10% to 20% raise. Not sure about you but I wouldn't turn that down when the difference is working for one faceless online platform versus another.

The funny thing about salaries that many companies don't understand is that those extra few dollars can make a huge difference to workers.

There's this kind of narrative going around recently that beyond some magic figure (pick a silly number like $70k or whatever) extra money doesn't make you happier etc.

What this totally misses out on is that to have a financial future you have to make money over expenses.

If it costs you $20/hr to live and you make $24 then $28 actually doubles what you have left at the end of the month.

This applies whether you make $15/hour or $150.

The flipside is many expenses are discretionary. Your $120 a month iPhone bill? Cable TV? You can choose to say no to either.

But consumerism encourages people to max bulls to the ceiling.

This is a valid point but it is worth pointing out that in this specific case most Homejoy cleaners were making $11-13/hour working usually 4-6 billable hours a day in big cities and as such could not afford $100+ a month for wireless or cable.

In addition to the points above, Timing is an another consideration. What didn't work in 1999 works today because there are users online sophisticated enough to expect a solution.

Sometimes solutions have to stick around and survive through a few waves of the solution becoming relevant - either the market catching up to demand the solution, or the solution developing to meet the market.

It's a fine reason for building solutions in a lean way that can have a longer runway to let things align

> The trouble here is that analysis like this tends to document the symptoms of failure as if they were the causes.

This also holds true for successful businesses!

For example, you will forever read books on successful companies and they will say things like "we were successful because we were agile". In reality that is probably not the case, more likely success was because of a million undefinable small things all mashed together.

Exactly. "They were not growing at a rate that returned a decent profit" is true of every defunct business.

I do like the idea though - an open commons of "lessons learned" that lets you pass the baton to whomever else wants to tackle the same problem next.

At the same time... I see a lot of the same errors at lots of startups. It can be hard to generalize best practices, and harder still to recognize when you are failing to follow them.