Harvard Business School: Why Companies Fail and How Their Founders Can Bounce Back?
- 1. Why Companies Fail and How Their Founders Can Bounce Back? A HARVARD BUSINESS SCHOOL INSIGHT hbswk.hbs.edu
- 2. If failure means: liquidating all assets, with investors losing most or all the money they put into the company If failure refers to: failing to see the projected return on investment If failure is defined as: declaring a projection and then falling short of meeting it Many startups fail. Experienced entrepreneurs know that running a company that eventually fails can actually help a career, but only if the executives are willing to view failure as a potential for improvement. 30-40% 70-80% 90-95% Analyzing Startup Failures Failure as stepping stone to success
- 3. Reasons Why Start-ups Fail Forget to look before they leap, surging forward without realizing that the base assumption of the business plan is wrong Single-minded with their strategies—wanting the venture to be all about the technology or all about the sales, without taking time to form a balanced plan No wiggle room to pivot mid-stream if the initial idea doesn't jibe with customer demand Matter of timing : This can determine whether a company gets funding and whether it achieves the startup's elusive measure of success; an exit that involves going public or getting bought Sometimes this is due to naiveté — the notion that their idea simply cannot fail
- 4. Funding – Make or break for a startup To much funding provided room for trial and error in order to create a viable business plan (During the internet boom) Lack of funding did not provide room to achieve traction for companies with a great idea and a great team; consequently, lack of time to let a good model mature (Post boom) Funding has the potential to turn a little failure into an enormous one: : • It covers up all the problems that a company has • It enables the company and management to focus on things that aren't important to the company's success and ignore the things that are important
- 5. Enterprise Failure Can Be An Asset Individual failures within a company can be an asset, too, in that they can prevent the whole system from failing Boards of successful companies often seek out the founders and CEOs of failed companies because they value experience over a clean slate Running a company that eventually fails can actually help a career. Even failed businesses yield future networking opportunities with venture capitalists and relationships with other entrepreneurs whose companies are succeeding.
- 6. Revising Expectations Venture capitalists could help mitigate personal failures by allowing for the expectation of company’s growing pains. Management sees things in black and white, rather than looking at the whole picture. VCs are likely to recruit an executive with experience at a failed company, but they are less patient with individual failures. Differences between growing economies and economies that stagnate is the acceptance of failure. The ability to manage failure so that even if enterprises fail, people can still succeed; becomes one of the tricks of how you build a society that can reinvent itself as the world changes.