15 Unexpected Lessons I Learned From Launching a Company That Failed

I talk a lot on my blog about the fact that startups fail and that entrepreneurs have to be ready to pivot after a failure. But, I don’t always get into the nitty gritty details about the companies that I’ve launched that have failed.

I’m going to do that here.

I’ve launched multiple businesses that have failed, and I’ve learned a lot of lessons from those failures.

Failure isn’t uncommon in the startup world.

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I’ve included here 15 lessons that I learned from launched failed companies.

Within the lessons, you’ll get to learn the stories of just how my companies failed and the mistakes that I made.

Have the right business partner

Having the right business partner is a very important factor in building a successful startup business and entrepreneurial venture.

When I started my first couple of businesses, I was a stupid kid. I had a few rules for choosing a business partner:

  1. They had to be my friend
  2. They had to have attended an Ivy League school (because that made them smart, right?)
  3. They must be willing to fall in line (I didn’t want a business partner questioning my decisions.)

Maybe you’re already seeing the folly of my ways, but let me explain.

Those aren’t good qualities to look for in a business partner.

Instead, you want a business partner who:

  • Complements your strengths with theirs
  • Has knowledge and skills you don’t have
  • Has a personality that you can be around for extended periods of time
  • Is passionate about the company you’re starting together

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I learned this lesson the hard way when I founded my company, CrazyEgg.

I chose a friend who attended an Ivy League school to help my found the company. It didn’t turn out so well.

He sued me for mismanagement of funds and laundering money — just as we started to become profitable.

I knew that I wasn’t mismanaging funds, so I gave him all of the bank statements to look.

It cost me more than six figures, but eventually I bought his shares and he left the company. Between buying him out and the lawyer fees, this was a costly mistake.

But I learned, friends and Ivy League graduates, aren’t the best standards for choosing a business partner.

Move quickly

I learned from another one of my business that you have to move quickly. If you don’t move quickly enough, someone might think of, create, and launch a business that’s similar to yours, faster than you.

Then who succeeds?

It’s easy to get mired in the details of the startup world.

You need funding, business partners, business plan, marketing strategy, product, software, websites, and so much more.

Launch as soon as possible. Actually, launch before you think you’re ready. Get it out there before someone takes your idea.

Fundraising takes time

Fundraising, stressing about money, looking for money, and searching for investors can be a major time-suck for entrepreneurs.

Don’t let fundraising take over your life. There are so many other tasks you need to do as a startup founder.

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Unfortunately, for most startup founders, fundraising is a necessary evil. You can’t build what you want to build without funds.

But don’t let fundraising take all of your time. You’re a founder first.

While I’m on the topic, another lesson you should know, is that you should raise money when you can, not when you need it.

Raising money when you need it is much more stressful than raising it when you have the time.

Yes, you’ll likely have to make time, but the pressure is less before you’re desperate.

Don’t raise too much money

Getting funding right is tough. I’ve learned a lot of lessons about fundraising, and still I don’t always get it right.

There is such a thing as too much funding.

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If you raise money too early in your startup process and before you have a minimal viable product, you won’t know what to use the money for.

As well, it’s common for startup founders to believe that money raised equals public interest and success.

Don’t make this assumption.

Just because you’re able to raise money doesn’t mean that anyone will buy your product.

Just because you’re able to raise money doesn’t mean that your product will make money on the open market.

Recognize that funding needs to come at the right time and you need to be careful that you don’t assume it means you’ve been successful.

Budget conservatively

When you have money for a startup or raise capital from funding, it’s easy to assume that you’ll always have money. Don’t make that assumption.

Startups always cost more than you think they will. A myriad of problems can come together to cost you more money than you think they will.

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Always create a conservative budget and you’re less likely to want for money in your startup.’

Build for your customers

When I started my company Kissmetrics, I made a major mistake that many startup founders also make.

I created a product that I wanted. Doesn’t sound like a mistake? It is.

Build a product for your customers, not for yourself.

A lot of startups fail. You want to make sure before you get too far in that there’s a customer for your product.

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Who pays for your product and pays your salary? Your customers. Not you.

If you build a product that you want, it’s easy to fall into the trap of assuming that it’s a product that the market wants. That’s rarely the case.

At Kissmetrics, I spent a year building a product that would analyze analytics better than Google Analytics. It was a product that I wanted, so I built it.

Since it would be (and was) better than Google Analytics, I knew people would be willing to pay a small monthly fee to use it. I would! So of course they would.

I was wrong. Boy was I wrong.

The customers wouldn’t buy it. Google Analytics was good enough. And, duh, it was free. Why would they pay for something else?

I was a year making a product that no one would buy.

My third iteration of Kissmetrics took 30 days to create a minimal viable product. That’s a lean startup. And it worked.

Don’t waste time building a product that no one will buy just because you like your own idea.

Make sure the customer exists

Similar to not making a product for yourself, make sure when you’re making a product that the customer exists.

Don’t build something that no one will buy.

The market has to be able to support your product. This is one of the most common reasons that startups fail — no market need.

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This is a common problem for startup founders, because it’s easy to mistake customer interest for a successful product.

Customer interest doesn’t mean they’ll buy your product.

Customer interest doesn’t mean they’ll actually spend money and buy your product.

Don’t equate these metrics with a successful product:

  • Email signups
  • Signups for a free trial
  • Customer interest in segment surveys

Just because people say they’re interested doesn’t mean that they’ll spend their money on it.

You have to be very careful and ask specific questions when surveying and assessing customer interest in your product.

Make sure those that are interested would actually put their money where their mouth is, not just signup for a free trial.

Remove your emotions

Another lesson that I learned from starting many new businesses and working with many different founders over the years is to remove my emotions when making decisions.

Your emotions can crowd your judgement and greatly influence the decisions that you make.

Often, the decision you make when you’re emotional isn’t the rational decision. It isn’t the decision that you would make when you’re less emotional.

When you’re faced with a decision and you feel that you’re reacting emotionally, ask for time to think about the decision.

Take the time you need to think rationally about the problem, and then make a decision. This might be a few hours or even a few days. That’s ok.

I’ve actually found that this is a great tactic for negotiations. When I take time to think about my response, it makes the person that I’m negotiating with stressed and worried about my response. Sometimes they even counter with a better offer.

I’ve found that this tactic helps me to get my emotions under control, but also prevents me from making rash decisions.

When I take time to think about the decision, I not only see it more rationally but from more angles. This always helps me to make the right decision.

Removing your emotions will also help to prevent you from burning any bridges. Burning bridges doesn’t benefit anyone.

Balance product, business, finances

Founding a startup business is a balancing act.

You have to find a balance between building your product, raising capital, and creating a functional business that will eventually turn a profit.

Many founders make the mistake of spending too much time on one of these aspects and then miss out on the other two.

And it’s ok if you as the founder want to focus on one aspect of this balancing act, as long as you have partners and employees who can focus on the other aspects.

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For many founders, they have an idea for a product. In the tech world, most founders have a great idea for software, but they don’t have any business sense.

This has happened to me. I have started a company and spent a lot of time building the perfect product. But, then once I had the perfect product, I had no funding and no business or market interest to sell the product.

Make sure that you can balance all of the aspects of a startup business or that you hire partners who can focus on the aspects that you’re not as good at.

Creating a successful startup business is a balancing act.

Hire loyal employees

When you’re a new startup, money is usually tight. This means that many startups will sacrifice finding the right employee for finding one who can do it for the offered low price.

This is a mistake.

Startups need loyal employees. Startups need passionate employees.

The startup world is tough and you want to make sure that you’re hiring employee who are passionate and ready to commit to work with you for the long haul.

I helped out a startup called Fruitcast by offering funding. I was really excited to see this company succeed and I really thought they had a chance.

They offered advertising for podcasts that was pay per listen. This was at the time the podcasts were really hot and this technology would’ve interested a lot of people.

We had an offer to buy the company. The founder wouldn’t let me sell.

He didn’t want to do this full time.

He wasn’t passionate enough.

So why did I give him funding?

You need to have loyal, passionate employees.

I’m proud to say that during my class action lawsuit, none of my employees left.

I’ve learned to hire passionate, loyal employees who stick with me even during the tough times.

Sell when you can

This is another one of my lessons that I learned the hard way.

One of my first startups, CrazyEgg, had an offer for a buyout.

Someone offered to buy my company for $6 million.

I declined their offer because I wanted $10 million.

The company offering to buy CrazyEgg was worth $100 billion, so I wanted them to buy my company for $10 million. I knew they could afford it.

So I didn’t sell. I declined an offer for $6 million because I wanted more.

Sell when you can, because what goes up, must come down. $6 million was a good offer and I missed out.

Be careful who you give equity to

Funding and capital is tight at most startups and so the common fallback is equity.

But I’ve learned over time that it’s important to be careful who you give equity to, how much you give them, and when.

If you have a disagreement with someone that holds equity, you’ll either have to find agreement, let them continue to be a decisionmaker at the company, or buy them out.

Buying out bad partners can be costly, which I learned at CrazyEgg.

Make sure that you know who you’re giving equity to, how much you give them, and when you decide to give out equity.

The more successful your company becomes, the more expensive it will be to buy out your equity holders.

It’s hard to make money

While it’s hard to make money, it’s easy to save money.

Instead of always counting on the next paycheck or the next round of funding to help you out, begin saving money. There are many ways that can stop you from making money in the startup world.

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Watch how much you spend and what you spend it on and devote resources to saving money instead of spending money.

You’ll thank me.

I’ve learned this in a few areas of my life.

During my childhood, I remember asking my mom if we could go eat at Taco Bell. She often told us no, that we had to save a little bit more first.

We were fine, but my mom was a very conscious saver.

When I started making money, I wanted to spend money. I had money, so I should spend it, right?

So, I went to buy a Maserati. They turned me down because I didn’t have credit. I didn’t even know what credit was.

But it’s probably the best thing that happened to me. It taught me to be aware of what I was spending my money on and to save, even when I had a lot of money.

One of the companies that I worked on starting spent a lot of money on building software, and then the recession hit. We didn’t have enough money saved to make it through the recession.

Bad times are always around the corner.

Save your money during the good times and you’ll be able to weather the bad times more easily.

Embrace criticism

When I started my first few businesses, I was a stupid, young kid. I hated criticism.

Anytime someone disagreed with me, I wrote them off as wrong. I knew that I was right and I didn’t want anyone to tell me otherwise.

Criticism and disagreement made me defensive. I was too arrogant to hear their advice.

As I’ve gotten older, I’ve realized how useful feedback and constructive criticism can be.

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Now, I love feedback. I seek it out!

Honestly, I love asking people who I work with for feedback and constructive criticism on what I can do better.

It actually throws people off sometimes because they’re not used to being asked to give feedback.

I’ve found that I can grow a lot more and do better work when I ask for and listen to feedback.

It’s also taught me that everyone has something to teach me and that I will always be learning.

Actually, at New Years, my friends I get together and offer each other feedback on ourselves. There’s about five us that do it, so you get five pieces of feedback for things that you can work on for the next year.

It works really well.

I recommend to all startup founders to be open to feedback and always be willing to learn something new. You might be surprised just who out there can teach you something.

Are you really solving a problem?

Similarly to making sure that there really is a customer for your product, you need to make sure that you’re really solving a problem.

If you’re creating a product that’s supposed to make it easier for your customers to work out or shop or whatever it does, make sure it actually solves a problem and that there actually is a problem.

Even if your customers say that they’ll buy the product and that it would be good for them, it’s unlikely that they’ll buy it or use it to solve their problem.

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People tend to just avoid problems, not solve them, unless the problem is causing them physical pain.

And remember, people are always optimistic about their future behavior. They might say they’ll use it, but you can trust them.

Conclusion

With each business that I’ve started, I’ve learned something new. At least one thing.

With those businesses that have failed, I’ve learned even more than from those that have succeeded.

Launching a company that fails doesn’t mean that there’s nothing to learn. There’s always something to learn.

I think of all the tips that I shared with you today, that’s one of the most important, overarching lessons that I’ve learned.

There’s always something to learn, so listen to feedback.

This is hard to do when you’re in the founder mindset. Founders must be decisive, independent, quick thinking, and confident. None of those qualities make them into listeners or learners.

When you’re a founder, make sure that you remember to listen and learn.

You’ll be amazed just what you can learn from those around you and a failing startup.

What lessons have your learned from a failing or failed startup business?

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