Advice to Startup Founders: Prepare to Fail

For as long as technology startups have been spectacularly on the rise, many more have been spectacularly in decline. Failure is a near certainty when starting a company. Even founders with the right credentials, cash, and customer interest regularly see their businesses crash and burn; the luckier ones manage to pivot their way out of sudden death. The startups that we consider successes are, in many cases, born out of defeat: Slack, for example, started as a gaming company, making a multiplayer game that few people wanted to play.

There are boobytraps everywhere for the would-be entrepreneur, from choosing the wrong cofounder to raising too much money to raising too little. People problems. Product problems. Plain bad timing. How should startup founders avoid these many threats? The venture capitalist Lak Ananth offers unconventional advice: Don’t avoid failure. Anticipate it.

Ananth is a managing partner of the venture capital firm Next47. He also is a veteran of the first dotcom boom. His new book, Anticipate Failure, suggests that startups fall short for seven common reasons: problems with the product, with the technology, with the team, timing, business model, customers, or execution. Ananth uses these frameworks to analyze some of the more salient startup flops in recent years, including Quibi, the Essential Phone, and Bird scooters. Bird, for example, captured the right market interest with simple technology. But its business model faced some fundamental problems: Its founders had failed to account for the cost of maintaining the scooters. Many stopped working within a month on the streets or had to have parts swapped almost immediately. What originally looked like a profit of $2 a day on each scooter, Ananth writes, turned out to be a loss of $6 a day on each. (Ananth says nothing of startups like Uber, which continue to bleed money.)

Andreessen Horowitz partner Andrew Chen argues that the line between success and failure often comes down to getting “all the right users and content on the same network at the same time.” Launch too early, or target the wrong people, and failure is likely. His new book, The Cold Start Problem, explores how these network effects could be the difference between your startup being the next Instagram or the next Hipstamatic.

Like Ananth, Chen is a venture capitalist. He also worked on the growth team at Uber, a startup he studies at length in the book. On its face, the concept of network effects is simple: The more users who join an app like Uber, the more money there is to lure drivers. The more drivers, the better for people looking for a ride. But in reality, most new networks fail. Quibi, for example, didn’t have the kind of content to keep users sticking around. Marketplaces without enough supply will cause churn too. Chen offers a few remedies for how startups can navigate around this “cold start problem”—chiefly, by focusing on building “the smallest possible network that is stable and can grow on its own.”