Tom Eisenmann’s Why Startups Fail is a gem of a book.
As I’ve blogged before (here), the success rate in venture capital is only about 33%: a super-majority of investments made by people who supposedly know what they’re doing comprises of flops.
Some mainstream-media articles extol and chronicle successes that, truthfully, are few in number; only 7% of VC-backed companies generate a 5x or more return. So, doesn’t it make sense to analyze the fat part of the bell curve, the failures?
Tom does just that. A much-revered professor at the Harvard Business School, his new book takes a look at the academic literature, profiles a number of start-ups that didn’t do well, and taps into his experience as an advisor to multiple founding teams.
This isn’t easy stuff to read, as you learn more about what happened to companies and their founders. But, it is needed info. In particular, Tom finds six patterns that cause startups to fail, from team composition to the wrong investors to markets that don’t develop. He highlights the “tells” of each pattern and reinforces them with case studies that you won’t forget. The good news is that all the founders whom he profiled have recovered and are doing meaningful work.
Why Startups Fail is an excellent book, well-researched and well-written. You’ll value the time spent with it, and it will make you wiser. I think every entrepreneur and investor should read this book.