Why My Company Failed

In the venture funding literature there isn't much discussion of failure and there certainly isn't much explanation why. Most failures are attributed to bad management. Therefore, most vc's ask for grade-A management before they will fund a venture. Even then, as many as 60% of a fund's portfolio companies will end up bankrupt. Were those grade-A managers really B or C?

Or could it be that the real reason for failure is hard to determine from looking at the books? The bottom line is negative, has been negative and is getting more negative. It must be bad management. Or is it?

So what really happened at the startups you worked at?

The two ventures I worked at both disappointed and were sold off

200 employees, diluted engineering talent through growth, sold off
100 employees, unanticipated cost of sales, sold off

Latest one suffered from an overly optimistic business model, combined with the .com downturn right when they were going for second-round financing. Bad management? Perhaps, but others have made a go of less likely ideas.

Is it naive to look for a single cause. Is failure, like success, a confluence of many factors?

If you ascribe to the ideas of WilliamEdwardsDeming, it would be probably easier to look to the overall system for the causes of the failure rather than any one single cause. Possible systemic causes include

the pressure to grow fast
the need to reward the VultureCapitalists? through large profit margins or IPO values
growth in the company diluting the original culture and vision
the ScarcityOfGoodTalent? and the unwillingness of companies to grow their own talent
A real lack of understanding about the NatureOfSoftwareDevelopment? amongst business managers (and possibly techies as well)
the inability of the founders to move beyond their original success (coupled sometimes with a belief in their own infallibility)

The last point has contributed to several startups crashing and burning --PeteMcBreen

ClaytonChristensen has a theory of long-term failure:

: TheInnovatorsDilemma: When New Technologies Cause Great Firms to Fail, ISBN 0875845851

If my theory of mass-market software is correct

: http://www.csci.csusb.edu/dick/papers/rjb95b.one.size.html

then a rational short-term strategy can lead to long term disaster. When I presented the theory at ICSE'97 some one in the audience said that the theory accounted for the failure of his company. I'd like more data but not like this.

--DickBotting

"SecondSystemEffect" [SalesKit? Software, in Saint Louis]

The original technical lead(s) got too ambitious with the idea that we'll "do it right this time" -- with an extremely complex and fully data driven system. It may have a been a good idea, for easy customization across multiple customers, but it was a killer for getting systems reliable and successful with the first few customers.

Of course, there were other problems too: We had the interdepartmental politics of a Fortune 500 company -- in our little startup venture of about 60 people. 7 levels of management is a bit much; really! ;->

-- JeffGrigg

NetworkEffects - Couldn't get enough buyers and sellers together to get over the threshold.