When and why companies fail

imgres-1I remember early on working with a company that had just closed on their first round.  It was a super small seed round ($200K).  She was being very cautious in preserving the cash.  I pushed her to spend on marketing.  The only way to figure out that you have a market is by seeing if things stick.  She didn’t spend as much as we talked about but what was obvious from the spend is that there was a real opportunity out there for what she was building.

Entrepreneurs come up with ideas, build companies around those ideas, go out and raise cash from investors with the hope that someone else believes in the opportunity and market and then executes on the concept.  That is a simple metric of the start-up world.  If it was only that simple.

There are so many reasons companies fail.  The market wasn’t there.  It cost too much money to make a market as in becoming profitable is never in the cards.  The team couldn’t execute.  Many companies in one market, only one prevails and your pick wasn’t it.  A leader unable to move quickly enough to figure out the right path.  There are others but these rise to the top.

I have been investing for the past decade yet I have had a front seat to the investment world of start-ups for the past 30 years.  One thing that became clear early on is that if you don’t have the most cards at the table as the investor it is hard to get anyone to listen to you.  I will never have the most cards at the table but I have tried to negate that by being able to whisper in the founders ear.  It doesn’t mean my voice will be the loudest it just means that I get my 2 cents in.

What is frustrating to me is seeing companies die because they blew through capital and weren’t able to figure out the market and my voice didn’t get heard.  Maybe my voice wasn’t the end all by all either but sitting on the sidelines watching mistake after mistake being made and each conversation I had was purely process and nothing else is frustrating.

The start-up business has extreme highs and lows.  The more I do it, the more I learn.  There will always be frustrations.  Seeing a company close shop when I believed that there was a business there that nobody was able to figure it out with a deep pocket of cash is very hard for me to get past.


Comments (Archived):

  1. Jenna Abdou

    Really enjoyed this, Joanne. Thank you.

  2. Ella Dyer

    Yes, it is difficult to see brilliant ideas, teams and/or markets not come to fruition. One trait that is clearly necessary is for the founder to be coach-able!

    1. Gotham Gal


  3. pointsnfigures

    yup. nothing more frustrating. sort of like seeing a kid that has advantages and a lot of potential just throw it all away. different ways to interpret your post but one thing I took from it is this: As an investor, it is mission critical for me to build a trusting relationship with an entrepreneur so that we listen to each other and collaborate to make each other better. When stuff gets messy, both of us need to feel safe enough and trust each other enough to have that conversation.

  4. awaldstein

    If everyone listened to this advice, did everything as they should do, would the percent of companies that win grow larger?I don’t think so. Nor honestly do I think that doing things right is all that objective a criteria.If it was a formula all of startup land would look like the Hollywood studios of old. Many are trying that and giving good structure but the percent of successes even as the number of company rises stays the same.Food for thought.

    1. Gotham Gal

      You could be right

  5. LE

    I am curious to what extent you can predict that behavior (not listening to suggestions) in advance of and investment? Are their things that you watch out for or does it typically come as a surprise and unexpected? I am not an investor but it almost reminds me of when dealing with salesman (back in the day when there were actually salesmen that showed up to sell you things). Say anything to get the sale, then disappear after the sale was made. (Not everyone mind you but many of them radio silence after they got a signed order).

    1. Gotham Gal

      If you do it enough you learn.