Tom Eisenmann - The Fail-Safe Startup: Your Roadmap for Entrepreneurial Success

Tom Eisenmann is the Howard H. Stevenson Professor of Business Administration at Harvard Business School and the faculty co-chair of the Arthur Rock Center for Entrepreneurship. Since joining the HBS faculty in 1997, he has launched eleven MBA courses on a range of topics related to entrepreneurship, including The Entrepreneurial Manager, an introductory course taught to all 900 first-year MBAs and Entrepreneurial Failure, an MBA elective. Eisenmann has written over one hundred Harvard Business School Case Studies and his writing appears regularly in the Wall Street Journal, The New Statesman and The New York Times.

For Jill, Caroline, and Jack

Why do the vast majority of startups fail? That question hit me with full force several years agowhen I realized that I couldnt answer it. In quick succession, I had witnessed the demise of two startups that I knew well, both founded by former students of mine. Youll meet these entrepreneurs and learn about their experiences later in the book. The first, Triangulate, had assembled a talented team to create and operate online dating sites. The second, Quincy, had come up with a terrific idea: to sell stylish, affordable, better-fitting work apparel for young professional women. Id encouraged my students to launch both of these ventures, and I was also an investor in Quincy. Yet, despite their strong promise, both of these startups failed. Why? In each instance, I could list many possible reasons, but I couldnt pinpoint the root cause.

This was unnerving: Here I was, an academic expert teaching some of the countrys brightest business minds how to give their future companies the best shot at success, yet I was a failure at explaining how they could avoid failure. And, since more than two-thirds of new ventures fail, that left a lot of explaining to do!

For the past twenty-four years, Ive been a professor at Harvard Business School, where Ive led The Entrepreneurial Manager, a required course for all of our MBAs. At HBS, Ive also drawn on my research, my experiences as an angel investor, and my work for startups as a board director to create fourteen electives on every aspect of launching new ventures. HBS is a startup factory: Our alumni have founded more than thirteen hundred venture capitalbacked startups since 2006. Weve seen our fair share of successes. Over the past ten years, nineteen HBS startups have achieved unicorn statusa valuation in excess of $1 billionincluding Stitch Fix, Cloudflare, Oscar Health, and Zynga. Many of the unicorns founders were my students; I provided guidance and feedback on their venture plansas Ive done with at least two thousand other HBS students and alumni.

At the same time, weve had plenty of failures. Most were promising ventures founded by bright, committed entrepreneurs. Many of these founders followed our playbook for startup success diligently and executed it flawlessly. They identified a gap in the market, devised a differentiated product to meet that need, and validated market demand using the best Lean Startup techniques. They chose a proven business model, sought out advisers, and hired employees with the experience their startup needed. By all accounts, these ventures should have succeeded. And yet

My inability to explain why these high-potential companies failed to live up to their promise cast doubt on whether the playbook I was teaching at HBS was as bulletproof as I thought. Was the advice Id given to countless founders unsound? And if I couldnt sufficiently explain the causes of startup failure, how could I be confident that I was teaching my students to achieve startup success?

Thats when I became determined to do everything in my power to really get to the bottom of this question of why startups fail. By isolating the behaviors and patterns that often lead to failure, I hope to help entrepreneurs avoid fatal missteps, and thus spare them, and their teams, a great deal of pain. Failure hurts! And if its due to avoidable errors, it doesnt just hurt, it also wastes time and capital that could be better spent elsewhereto the benefit of not only entrepreneurs, employees, and investors but also society at large. Society needs entrepreneurs to solve a spate of problems and cant afford to have talent and resources tied up in ill-considered, ill-fated ventures. But, at the end of the day, if an entrepreneurs startup does fail, despite her best efforts, I want to equip her with tools to learn more from the experience and bounce back stronger. With those goals in mind, I launched the multiyear research project that culminated in this book.

To get started, I delved into research on failure in other settings, such as medicine, sports, and military combat. Id already learned that it was difficult to diagnose the factors behind a startups demise. Now I wondered: Was this true in other fields, too? In those fields, what stood in the way of making sense of failure? Did startups share those handicaps? Had experts in other fields devised solutions for anticipating and avoiding failure? If so, could such solutions work for entrepreneurs, as well?

My inquiry yielded some good news: Across domains, from philosophy to firefighting, experts agree that we can learn a lot from failure.

If you cannot fail, you cannot learn. That statement by Lean Startup guru Eric Ries echoes a big idea from Karl Popper, one of the twentieth centurys greatest philosophers of science. If youre confident in your assumptions about how things work, and everything goes according to plan, then you dont learn anything new. But if plans go awry, it forces you to reexamine your assumptions; in effect, youve tested your assumptions and found them wanting. In other words, youve conducted an experiment thats failed to validate your original hypothesis. When that happens, youve gained a valuable new insight.

By studying failure in other realms, I discovered that we learn from setbacks in two distinct ways: from direct personal experience and vicariouslythat is, by observing others mistakes. Direct experience can be a powerful teacher when individuals reflect on what went wrong and what they might have done differently. This works best when feedback cycles are frequent and fast, when cause-and-effect relationships are stable and well understood, and when stakes are modest enough that strong emotions wont muddle thinking. Weather forecasting fits this profile. Startups do not.

By definition, first-time founders have no direct experience with startup failure; even serial entrepreneurs have at most a few personal data points from which to glean feedback. Also, since theyre offering something new, entrepreneurs inevitably face uncertainty about cause and effect: that is, whether their actions will lead to intended outcomes. Finally, a founders identity becomes so fused with that of her venture that failure sparks strong emotions like frustration, guilt, and sadnesson top of the financial loss incurred.

Fortunately, vicarious learning from others mistakes can substitute for direct personal experience. This was familiar ground for me, because Harvard Business School is built around a model of learning through company case studies. These cases, I found, are a powerful tool for helping entrepreneurs foresee and forestall failure.