As two-thirds of US start-ups never show a positive return, Tom Eisenmann, Professor of Business Administration at Harvard Business School, was determined to find out why.
In his insightful book, Why Startups Fail, Eisenmann’s extensive research pinpoints six distinct scenarios that account for the vast majority of failures:
Bad Bedfellows. Traditionally, startup success is thought to rest on the founder’s talents and instincts. But Eisenmann’s research reveals that choosing the wrong team, investors, or partners can sink a venture very quickly.
False Starts. Founders are often advised to “fail fast” and “launch before you’re ready.” However, Eisenmann believes this often wastes capital on the wrong solutions. By failing fast, they risk failing permanently.
False Promises. The market can mislead you. Success with early adopters who are not indicative of the total consumer base sometimes give founders unwarranted confidence to expand.
Speed Traps. Despite the pressure to “get big fast,” hypergrowth can spell disaster for even the most promising ventures, creating over-facing business scenarios they are unable to manage.
Help Wanted. Rapidly scaling startups need lots of talent and investment capital, but pace of expansion means they can make mistakes that leave them in short supply of both.
Cascading Miracles. Big isn’t always beautiful. Silicon Valley exhorts entrepreneurs to dream big. But the bigger the vision, Eisenmann says, the more things can go wrong.