Startup Success or Failure? Depends on Perspective

Every Startup Projects a Winner

I've been associated with several early stage startups in different sectors and situations, cutting edge and not so cutting edge technologies. Some failed, some succeeded. And in some cases it depends on your perspective and goals as to which is which. Certainly most would measure a payout via some sort of exit as a success. A merger or acquisition or IPO would normally qualify. But if you're not the main founder/entrepreneur you might have a different idea of whether each exit was truly successful.

Clear Failures

A company I founded never really got off the ground financially and as a result the product never got past prototype stage. It did attract some interest from investors but I had chosen an online retail play at a time when the retail market bubble was about to collapse. I spend a few years at it, drained my reserves and had to go back to work to generate income. While I learned a lot, met a lot of people and rebuilt my network, this was clearly a failure. In this case I had a huge stake but no exit.

Small Successes

Another company I was an early participant in also caught the end of a bubble. As a result of the dotcom bust, investment was hard to come by and proving ourselves worthy of a favorable deal was difficult. So we bootstrapped, got a handful of early adopters and sought acquisition targets. One company liked our story enough to invest in a white label version of the product to sell through their customer channels. It did so well they offered to acquire us. At first the terms sounded good but in the final deal the amount was significantly reduced and an earn-out requirement added. After three plus years of barely surviving we took the deal. I made back my deferred startup salary and expenses and a decent stock payout. Not life changing but better than folding. So a success but not a clear win. We definitely left money on the table. 

A company I consulted for had a similar ride but longer in duration. They had a trendy and techie offering that touched on some great technologies. It was part B2B and part B2C which may have caused focus issues. In the end they also were acquired and the founders and early investors did OK but nobody retired from it.

A company I was also involved with early took a long time to reach a conclusion. As time went by my founders' shares and a stake I invested became more and more diluted. That would be fine if the company grew at a continuous positive rate but it went through cycles of growth and decline, a roller coaster for the investors and employees. Still at one point the shares became liquid and the amount the founders took out was decent. It could have been better and it could have been worse. Call this a small stake in a bigger pie. I'm told this is very common for founding teams.

Never Know

A couple of other startups I consulted for haven't really taken off though it's still early. In one case the product, while in a hot growth sector, is a bit of a 'me too'. It'll struggle to find its niche but has hope and enough backing to catch on.

The other company burned through its early stage funding while trying to crack an existing market with a new technology. The production costs and time were higher than anticipated and the revenue slow to realize. This one will find it tough to recover because now it has dilution issues.

Lessons

So what can be learned from these experiences? One lesson is not to take other people's money too early. Angel investors are often people in your close circles, friends and family members. It's not worth losing them over an idea that doesn't take off. Getting to market is hard but not impossible without venture capital. The further along without it the better the terms and likelihood of a positive exit. Pulling the plug is a difficult decision but has to be made sometimes. Knowing when is not easy. Perseverance pays, delusion kills.