WHY STARTUPS FAIL

AND HOW YOURS CAN SUCCEED

David Feinleib

Why Startups Fail: And How Yours Can Succeed

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To the entrepreneurs,

investors,

and friends

who made this book possible

Contents

About the Author ................................................................................................................ vi

Introduction ........................................................................................................................ vii

Part I—Market, Product, and Entrepreneur ................................................ 1

Chapter 1: Poor Product-Market Fit ............................................................................. 3

Chapter 2: Bad Products ................................................................................................ 15

Chapter 3: The Missing Entrepreneur ......................................................................... 29

Part II—Sales and Marketing ........................................................................ 43

Chapter 4: Investing in Sales and Marketing Too Early ............................................ 45

Chapter 5: Losing Money on Every Sale ..................................................................... 57

Chapter 6: Invisible Startups .......................................................................................... 71

Part III—Execution ........................................................................................ 85

Chapter 7: Failing to Communicate ............................................................................ 87

Chapter 8: Not Getting Started .................................................................................... 99

Chapter 9: Failing to Execute ..................................................................................... 111

Part IV—Capital and Liquidity ................................................................... 133

Chapter 10: Pitches That Fail ...................................................................................... 135

Chapter 11: Managing Liquidity .................................................................................. 153

Chapter 12: From Failure, Success ............................................................................ 165

Index .................................................................................................................................. 177

About the Author

David Feinleib is an investor, adviser, and serial entrepreneur. As an en-

trepreneur and venture investor, he has been responsible for investments

totaling more than $100 million. His passion for entrepreneurship goes back

to his childhood when he started writing and selling software programs at

age 12. Feinleib later joined Microsoft, where he became the company’s

youngest technical evangelist. He started four companies between 2000 and

2005. One was acquired by Hewlett-Packard, another by Keynote Systems.

After joining venture-capital firm Mohr Davidow in 2006, he became a gen-

eral partner in 2009, where he led investments in consumer Internet and

software companies. In 2011, Feinleib’s love for entrepreneurship took him

back to starting his own companies, while continuing to advise and invest in

others. Feinleib holds a master’s in business administration from the Stan-

ford Graduate School of Business and a bachelor’s degree from Cornell

University, where he was a Kodak Scholar. He is also an avid triathlete and

violinist.

vii

Introduction

Some eight of ten new businesses fail within their first three years. Nine of ten

venture-backed startups fail

to generate meaningful returns. Venture capitalists

turn down 99% of the pitches they see. The odds appear to be stacked against

you!

But entrepreneurs often make the same avoidable mistakes over and over.

Why Startups Fail can help you beat the odds and avoid the pitfalls and traps

that lead to early startup death.

Numerous books have been written about winners like Apple, Google, and

Facebook. Few, however, capture the mistakes: the key decisions that led to

running out of cash and early startup failure. Some startups spend millions

building products the market doesn’t want, others spend too much too early

on marketing and sales, and still others hang on too long without pivoting out

of bad markets. Knowing how to avoid these mistakes doesn’t guarantee start-

up success. But it certainly increases your chances.

Whether you are a soon-to-be entrepreneur thinking about taking the leap, a

bootstrapped entrepreneur trying to energize a business three or four years

in, or a venture-backed entrepreneur trying to scale, Why Startups Fail shows

you the key mistakes that cause new ventures to fail—and how to avoid them.

As a serial entrepreneur and venture capitalist, I’ve been part of or witnessed a

fair number of startup successes and failures, some of which you read about in

this book. In some cases, I disguise the companies and players involved or use

composites, but the essence of each story contains a powerful kernel of wis-

dom—or point of caution.

Introduction

viii

Most recently, I was a general partner at Mohr Davidow, a Sand Hill Road (Sili-

con Valley) venture capital firm with $2B under management, where I worked

from 2006–2011. Before Mohr Davidow, I started four companies, two of

which were acquired. I’ve bootstrapped and raised venture capital. I’ve expe-

rienced both sides of the fundraising process: raising money and investing it.

I’ve bought and sold companies, and I worked at a big software company—

Microsoft—in the 1990s.

Expanding on my popular VCDave.com blog post Why Startups Fail, I use short,

powerful chapters to reveal the keys to successful entrepreneurship: excellent

product-market fit, focus, superb execution, the ability to pivot, stellar teams,

and wise spending. In Why Startups Fail, you learn from the mistakes I’ve seen

made over and over and find out how to position your startup for success.

P A R T

Market,

Product, and

Entrepreneur

Investors are fond of debating which they care about more: the market or the

entrepreneur. Some argue that given a great market, they can replace the team

in order to execute on and capture that market. Others invest in great teams.

The reality is, great entrepreneurs find great markets. They build world-class

products for those markets. They create efficient organizations that can deliver

those products to market—execution machines that outrun the competition.

What’s more, many successful entrepreneurs are not necessarily first to

market with their products. Rather, they build products that better meet the

needs of their users.

In Chapter 1, I’ll discuss how to avoid bad markets. We’ll take a look at how

some very successful companies pivoted from bad markets into good ones and

how you can do the same.

PART I: Market, Product, and Entrepreneur

No one sets out to build a bad product, yet it happens all the time. In Chapter

2 we’ll talk about the reasons bad products happen to good entrepreneurs. I’ll

explain how you can avoid building products people don’t want, reduce adop-

tion friction, and gain rapid adoption.

Believe it or not, a lot of companies are missing an Entrepreneur with a

Capital “E”—a market visionary and product picker. I’ll talk about what to do if

you’ve lost your edge as an Entrepreneur and how to get it back. We’ll

explore how to fail fast—since it’s not failure itself that will kill your company

but failing slowly that will do you in.

In Part 1, then, we explore three of the key ingredients for a successful start-

up: a great market, a great product, and a world-class Entrepreneur. You’ll

come away with the knowledge to identify if any of these ingredients are

missing—and how to remedy the situation.