“Why do companies fail?”
On the list of questions that provoke useless answers, this one ranks high. Even the best responders paint in broad strokes, with names, faces, and circumstances redacted to protect the pride--and reputation--of those who faced death and lost. When asked, its easy to grossly oversimplify the situational nuances that trigger startup failure. I know. I do it all the time.
My answer to “why companies fail” has evolved. The world has changed, and so have I. Where technological failure was once the biggest risk early stage companies faced, we learned through experience (and this incredible TED talk from Bill Gross) that timing may be more important to final outcomes. As our point of view changes (and sometimes as we acquire more data) our take on why a company died changes too.
So, why do (I think) companies fail?
1. Capacity Calamity
I was on panel in February when the “failure” question again came up. One speaker noted that “inability to build a team” causes startup death. It does. But, I think the more complete answer might be this: “Companies fail when they can’t build capacity to meet the demands being put on the company.”
Building capacity isn’t just about hiring. It’s about balancing needs with resources at a pace that is usually a bit uncomfortable. To hire, fire, outsource and cost efficiently build capacity, you must first build an honest self assessment of where your team is weak and where it is strong. Easier said than done. In tandem, a team must then create and manage a dynamic network of contributors, from founders and employees and interns and advisors to contractors and vendors and strategic partners. This. Is. Hard. Work. Especially if you’ve never done it before. Long story short, team building is just the...Read More