Why Startups Fail summary

In March 2012, Harvard Business School graduates Alexandra Nelson and Christina Wallace launched Quincy Apparel – a company which promised that its unique sizing system would provide women with business clothes that fit well. Nelson and Wallace were astute founders. They’d done market research, held trunk shows where women could try on samples, and raised $950,000 in seed capital.

Initially, sales were promising, and 39 percent of women who purchased items in the spring bought more in the fall. But problems were emerging behind the scenes. While the founders had recruited some fashion experts, they themselves didn’t have industry knowledge. This ultimately led to the collapse of the company – less than a year after its launch.

While studying at Harvard Business School, Sunil Nagaraj had an idea. He’d make software that matched potentially compatible singles based on behavioral data gleaned from their internet use – things like the TV shows they watched or the music they listened to. He’d license this software – which he called Triangulate – to dating companies, who’d offer it at a premium rate as an advanced form of matching.

To find out if behavioral data could indicate romantic compatibility, Nagaraj ran a test with 100 volunteers. Unfortunately, the software he used didn’t work on most of the volunteers’ computers, so the results were skewed. Undeterred, Nagaraj plowed ahead and started engineering his software. But without market insight, he was flying blind.

In 2014, Lindsay Hyde launched a pet-care company called Baroo. Located in the basement of a residential building in South Boston, it offered pet owners “high-touch” services like grooming, dog walking, play dates, and feeding. It was an instant hit: seventy percent of pet owners in the building used Baroo’s services.

Excited by this initial success and the 6 percent commission they’d stand to make, four more apartment buildings signed up. Baroo then quickly expanded into 25 buildings in Chicago. A year later, Hyde set up in Washington, DC, and metropolitan New York. But despite this rapid expansion, by mid-2017, Baroo’s financial health wasn’t just poor – it was terminally ill. In February 2018, Hyde was forced to pull the plug. Her mistake? Failing to identify whether those early adopters in South Boston represented the broader market.

Fab.com – a flash-sale site that sold quirky furniture and household items – had everything going for it. It was in the hands of experienced entrepreneur Jason Goldberg, who’d successfully founded another startup and raised over $170 million in venture capital for Fab. In its first 12 days, it sold $600,000 worth of product.

Three years after launching, the company had expanded into Europe. But it was burning through $14 million a month to stay afloat. To reduce costs, it laid off 80 percent of its US workforce and focused on the European market instead. By year four, Goldberg had to shut down US operations completely. In growing too quickly, the company had pushed itself off a cliff.

Dot & Bo was an e-commerce company that sold home decor as curated packages, which were designed to look like sets from imaginary TV shows – think “Einstein’s Office.” Founded by seasoned entrepreneur Anthony Soohoo in early 2013, its ever-expanding customer base generated $15 million in revenue in 2014 alone.

This huge demand placed extraordinary pressure on the warehouse and shipping teams, so Soohoo hired a Vice President of Operations. His chosen candidate had an impressive CV but no experience in e-commerce operations. This lack of experience undermined the whole company, even though it continued to have solid customer growth. When Soohoo realized this, he hired a new VP of Operations. But by then, it was too late. In September 2016, Dot & Bo went into liquidation.

Entrepreneurs play an important role in society – their ability to dream big and pursue ambitious projects drive life-changing innovations. That’s what Shai Agassi aspired to do back in 2007, when he dreamed of making electric cars mainstream and reducing the environmental impact of household vehicles. But despite this honorable mission and $900 million worth of investment, his company, Better Place, sold fewer than 1,500 cars. 

Venturing into uncharted waters always encompasses an element of risk. Agassi’s problem? His vision was just a little too ambitious. 

The unfortunate truth is that most startups fail. But failure doesn’t mean that all is lost. After the collapse of Quincy Apparel – the women’s clothing startup – Christina Wallace hit rock bottom. Her experience as a founder had left her with a failed startup, a broken dream, and crippling debt.

Wallace had no choice but to get a job. And while she couldn’t imagine ever leading a startup again, she was happy to work for one. A role at an immersive training program in New York City called the Startup Institute was her first step to recovery. And she went on to found another startup, an EdTech company supporting women in science, before ending up teaching at Harvard Business School. The failure of her startup didn’t hamper her long-term success at all.