Friday, May 25, 2012

Any Startup Can Fail

I read the sad news this morning that BetterWorks is shutting down. And while I'm sure that the usual haters will come out in the comments, the real lesson here is that any startup can fail.

(Disclosure: Paige and I have been friends and co-investors for a couple of years, and I like him, Zao, and George. I've visited their offices in LA several times, and everyone I met was a first-class individual. In other words, this post is biased.)

BetterWorks began its life with every advantage. In Paige, Zao, and George, it had a truly all-star founding team. I mean, Zao created Farmville, for goodness sake, and George designed Yammer.

It also had what I thought was a great business model: Employee perks for smaller companies. By aggregating demand and offering deals on core, regularly consumed perks like food, it struck me as both lucrative and consistent.

And of course, it had a great group of enormously successful investors, a number of whom are friends, and all of whom probably thought the same things I did.

I don't know what went wrong. I suspect that BetterWorks ran into the double challenge of selling to SMBs and selling locally; both are significant challenges in and of themselves. Together, they could prove insurmountable for any company.

But that, in the end, is the unavoidable truth: The market is smarter than all of us.

Success is never guaranteed, even when you have what I think is easily the best founding team I'd ever seen, as measured on intelligence and accomplishment prior to starting the company.

I know that Paige, Zao, and George will move on and do other great things. I'd still bet on them every time. But the BetterWorks example shows why investors have to assume a high failure rate in their investments.


acgourley said...

It's always a lot more interesting to read about the ones that don't work out, thanks.

Anonymous said...

Success is never guaranteed, and the reality is that most startups end up dying. I think that startups generally face 3 big problems - coming up with a quality minimum viable product, finding customers, and settling on the right business model. No product is ever really finished, so you have to have some judgement about when a product is viable in the market and learn to trust your own instincts. Finding customers is really hard, but between search ads, social media, the wealth of options available at BuyFacebookFansReviews for example, and all of the other dozens of means of promoting yourself through content marketing and blogs, there's ways to go around getting customers through hard work even if you don't have the money for a PR agency. The last step is also quite hard because many startups want to give away everything for free and rely on selling ads to make money. This is a risky move for most companies and an easy way to kill your company if you're not making any money. I think their is a place where listening to your customers can be exceedingly valuable, but you should listen to their concerns to solve their problems, not to just give them whatever they want and get bogged down in trying to solve a problem without a complete picture of where you're going with it.
with social media is that you get followers, you interact with them and they learn about you over time, and you build up trust. If you provide solid content, you get customers out of this in the long run.