Why Startups Fail Quotes

“But what if you build it and no one comes? VC Marc Andreessen commented on this possibility: “The number one reason that we pass on entrepreneurs we’d otherwise like to back is focusing on product to the exclusion of everything else. We tend to cultivate and glorify this mentality in the Valley. But the dark side is that it gives entrepreneurs excuses not to do the hard stuff of sales and marketing. Many entrepreneurs who build great products simply don’t have a good distribution strategy. Even worse is when they insist that they don’t need one or call no distribution strategy a ‘viral marketing strategy.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“crucial to know how the needs of early adopters and mainstream customers differ before commencing product development.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“The path that Wallace followed was an accelerated version of a three-phase journey that awaits most founders as they try to bounce back from their venture’s failure. The first phase is recovery from the emotional battering that the shutdown inflicts. The founder must cope with the grief, depression, anger, and guilt that can accompany any major personal setback—often, as with Wallace, while confronting the stark reality of having no income or personal savings. During the second phase, reflection, the founder ideally moves beyond blaming the failure on others or on uncontrollable external events. Through introspection, she gains a deeper understanding of what went wrong, what role she played in her venture’s demise, and what she might have done differently. In the process, she also gains new insights about her motivations and her strengths and weaknesses as an entrepreneur, manager, and leader. In the final phase, reentry, the founder leverages these insights to decide whether to pursue another startup or choose a different career track.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“Hyde’s experience points to one of the challenges with using an acquisition as an escape path for struggling startups: It takes time to shop the venture, complete due diligence, and then consummate a merger.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“a startup may not have enough runway left to complete the pivot successfully. Recall Eric Ries’s definition of “runway”: the number of pivots that a startup can complete before cash balances are exhausted. That number may be zero if the startup has just enough cash to commence a pivot but—absent an infusion of fresh capital—cannot survive long enough to see whether the pivot is working.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“Successful pivots like these often have one thing in common, however: They happen early in the venture’s development.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“It turns out that these two responses are related: The time spent wrestling with the intense emotions engendered by a struggling startup—or avoiding these emotions—leads some entrepreneurs to delay shutting down longer than they should. They are Running on Empty—to the detriment of all concerned. The longer this goes on, the longer employees are wasting time on a lost cause, when they could be moving on to their next act. And the longer a founder hopes in vain that new investors or an attractive acquisition will save the day, the longer he is burning through capital that could be returned to investors.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“Failure is not the worst thing; the worst thing is working on something for years with no end in sight. —Andrew Lee, Esper co-founder”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“Market research professionals routinely assume that survey respondents will overstate their purchase intent relative to their true plans, and researchers have elaborate ways to adjust projections downward to compensate for this bias. But these methods are much less effective with radical new products, since respondents find it difficult to express preferences regarding products with which they’ve had no direct experience. A quote attributed to Henry Ford makes the risk clear: “If I had asked people what they want, they would have said faster horses.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“One big risk that entrepreneurs with a world-altering solution face is that the radical change they promise will turn out to be too vast—and scare customers away. The challenge is figuring out how much innovation is too much.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“Unlike ventures that are caught in a Speed Trap, with the Help Wanted pattern, a startup sustains product-market fit as it grows but cannot mobilize the resources needed to continue expanding.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“rush, but you fear that your startup is digging its own grave rather than a gold mine, what—if anything—can you do? Slow down. Really! And make sure you have some money in the bank. It could prove difficult to raise capital for a while, but reality should eventually catch up with rivals who are overinvesting in growth. At some point, they’ll hit the skids, and investors will abandon them. If you have enough capital in reserve to weather the shakeout, your startup will survive.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“A learning curve—measured as the percentage unit cost reduction realized with each doubling of cumulative production volume—is typically steepest when labor and machinery add significant value in the production process, as with aircraft assembly or semiconductor manufacturing. Value-added refers to the difference between a product’s final cost and the cost of raw material inputs; this difference consists mostly of labor and equipment costs. Learning-by-doing—for example, finding a way to cut setup times for a new production run—often yields labor and equipment cost savings.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“Unit costs decline when fixed overhead expenses are spread over more units. At low volumes, scale economies can reduce unit costs substantially. However, these reductions wane in importance as output expands. For example, with $30 million in annual fixed costs, a company’s fixed cost per unit declines by $15 (from $30 to $15) as annual volume doubles from one million to two million units. By comparison, the same company’s fixed cost per unit declines by only $1.50 (from $3 to $1.50) as its annual volume expands from ten million to twenty million units. If that startup’s total addressable market is only big enough to support one company selling twenty million units, then the first competitor to reach that level may achieve an unassailable cost advantage over rivals.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“Scale economies reduce a startup’s unit costs as its transaction volumes increase. Some startups benefit from scale economies to a much greater extent than others; in these businesses, entrepreneurs will feel impelled to grow fast. Potential scale economies will be large when a business has 1) high fixed overhead expenses in relation to its current sales volume, and 2) lots of “learning-by-doing” opportunities.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“first-mover advantages can be especially strong in new markets where customers face high switching costs. The first mover in a new product category has a chance to acquire first-time buyers before any rivals enter the market. But this advantage disappears once the second entrant arrives; then, the race is on.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“Given these dynamics, high switching costs can spur a race in which first-time customers are the prize. First-time customers are new to a product category and they don’t yet have an affiliation with any provider. Consequently, compared to stealing a rival’s customers, first-time buyers will be much cheaper to acquire. They won’t incur any switching costs upon purchasing, so they don’t require a subsidy. Lower CAC means that first-time customers are more profitable to serve, and they also broaden the startup’s total addressable market. Specifically, with lower CAC, the startup can afford to acquire first-time buyers who have lower LTV, while still keeping their LTV/CAC ratio within an acceptable range.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“So, why do high switching costs motivate startups to grow fast? To poach another company’s customers, a startup must compensate those customers for the switching costs they will incur.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“As with strong network effects, when potential customers face high switching costs, entrepreneurs are motivated to race for growth. As discussed in previous chapters, customers incur these switching costs when they change from one otherwise similar supplier to another. These costs include expenditures of time or money, risks and inconveniences, and psychological discomfort.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“The target LTV/CAC ratio for a startup with strong network effects should be 1.0—at least for the first few years, as it mobilizes its network. Yet, in the “Ready?” section above, I recommended an LTV/CAC ratio greater than 1.0, to ensure that a startup can cover its fixed costs and earn a profit. When strong network effects impel a startup to Get Big Fast, however, fixed costs and profits can wait for a while. Eventually, the LTV/CAC threshold should be boosted above 1.0, but only after the network has achieved critical mass.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“What types of products enjoy strong network effects? Foremost among them would be marketplaces that connect parties with very specific requirements (the “demand side”) with partners who have highly differentiated offerings (the “supply side”).”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“Two-sided networks have two groups of users who each consistently play a distinct role in transactions. For example, credit card companies serve cardholders and merchants, recruiting websites match job seekers and corporate employers, and videogame consoles connect gamers with game developers. By contrast, one-sided networks have just one type of user. Although every Skype call has a sender and a receiver, these roles are transient: Most Skype users make and receive calls at different times.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“With network effects, users beget more users. And the stronger the preference for additional interaction partners, the stronger the network effect.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“Three structural attributes of certain business models—powerful network effects, high customer switching costs, and strong economies of scale—impel a startup, along with rivals who share these attributes, to accelerate growth.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“Our first customers weren’t representative of those who came next. We mistook early data as being representative of subsequent customers and as a result, we expanded too fast.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“Goldberg and Fab’s management team conducted cohort analysis and had a handle on deteriorating LTV/ CAC trends, but they did not act quickly enough on this data. In October 2013, three months after raising the VC round that made Fab a unicorn, Goldberg wrote in a memo to his team, “We spent $ 200 million and we haven’t proven out our business model… we haven’t proven that we know exactly what our customers want to buy.” He added a litany of his own mistakes as CEO, including: I guided us to go too fast. I didn’t insist on homing in on our target customer. I spent too much on marketing before we got the consumer value proposition right. I didn’t build enough discipline around costs and business metrics into our culture. I allowed us to over-invest in Europe. I didn’t see the need to course correct fast enough.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“Net Promoter Scores. An NPS survey asks, on a scale of 0 to 10, how likely a customer is to refer the product to a friend or colleague. The score is calculated as the percentage of all customers who are “promoters” (scoring 9 or 10), minus the percentage who are “detractors” (scoring 0–6). NPS scores over 50 are considered excellent. A declining NPS can serve as an early warning sign of problems and can allow managers to take corrective actions before severe damage is done.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“The discussion above of the Six S framework suggests that its elements frequently interact and influence each other. My analysis of scaling startups shows that these interactions frequently follow two predictable paths—each with its own catalyst. The first path starts with a drive for Speed—that is, accelerated growth for the startup’s core business. With the second path, the catalyst is a vision with ambitious Scope. As we’ll see in the chapters that follow, these two paths expose startups to unique risks—and unique modes of failure.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“Cultures in scaling startups can fracture in two ways. First, “old guard versus new guard” conflicts may arise if early team members resent the growing power of specialists or some new employees’ lack of initiative and commitment. Recent hires, in turn, may be jealous of early employees who’ve amassed enormous stock option gains (“That engineer in the next cubicle does the same thing I do, and she just made $5 million”). Second, as specialists are added to the staff and their units expand, functions can develop their own subcultures. Employees may feel a stronger sense of attachment to their functional unit—say, marketing or warehouse operations—than to the venture overall.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success

“Venture capitalist Ben Horowitz defines company culture as how employees make decisions when their boss isn’t there. In a company with a strong culture, employees “just know” what to do when confronted with a nonroutine issue.”
― Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success