October 03, 2010

Not All Startups Go To Heaven. Read Why They Die.

The comment that "9 out of 10 startups fail" is Silicon Valley legend. Everybody says it, and as debate on Quora rages, nobody knows whether its true or where the idea originated. Truth is, with practically every business venture, there is risk, short term and long term. Startups carry higher amounts of risk, but also higher potential rewards. It's the antithesis of mutual funds and blue chip stocks. Some fail quietly. Some succeed loudly. Some fail extremely loudly, leaving a burning hole in the ground where somebody's money and dreams used to be. And often, the people behind the carnage dust themselves off and try again. It's tradition.

Expertly chronicling many of the reasons startups perish over the last year has been Steve Duplessie of the Enterprise Strategy Group (better known as ESG). While you may not be familiar with his work, ESG is easily the most respected analyst firm in enterprise infrastructure and software. I've benefitted from working alongside Steve and his team in various roles at companies I've worked for and consulted for, and appreciate the firm's insight. I have especially appreciated Steve's taking the time to illustrate many of the failures he has seen firsthand, to help people learn from those mistakes and try to increase their chances of success.

It's one thing to boost entrepreneurs and investors by highlighting successful companies' history, and another to try and help them avoid failure. Such is this path Steve has taken and I am sharing with you. If you don't have the time to read them all today, bookmark his blog and come back to make sure you do. There are lessons to be learned.
Since starting my career in Silicon Valley in 1998, as I was wrapping my degrees from UC Berkeley, I have only worked for startups, from 3-4 person companies to one that peaked over 200. I've consulted for large firms and small and advised others that count only the CEO/founder as the employee. But I've seen many of the experiences Steve discusses.

I've been at a company that dramatically reduced its staff because it couldn't raise another round of funding. I've been at a company that was shut down because of differences between its lead investor and management. I've been at a company that struggled because its products didn't match its amazing promise - fed by a zealous CEO with charisma. I've seen great management and poor alike struggle. I've seen companies with products chasing solutions that may only exist in a lab. And I know while I've done many things right, there are always changes I wish I could go back and do over again that could push these companies in a better direction.

I talk a lot about successful companies with great products that I enjoy and use every day. Many of these products and companies are going to go on and have success, be they household names or acquired by household names themselves. Many others will go away for any number of reasons - including the many choices Steve lays out in his intriguing series.

For months, I have had highlighting his series as a "to do" for me to bring to the fore for you. While ESG's focus may be enterprise and not consumer, and while the team is based in Massachusetts, not Silicon Valley, there are lessons to be learned. You might find yourself nodding along as you read his stories, recognizing your colleagues or partners, or even yourself.

Also, despite Steve's initial reticence to jump into this new fangled social media world, he's discoverable on Twitter at @stevedupe. Worth a follow.

Disclosures: During my time at BlueArc from 2001-2009, ESG was was a paid analyst firm to assist the company. ESG also has relationships with Emulex and Ocarina Networks, both of whom are current or past clients of Paladin Advisors Group. (See: LinkedIn or About Page)