When Startups fail

I was away for sometime…busy trying to do something I considered to be meaningful and more fulfilling. But usually things don’t happen as you plan them. In my case, this probably happened because of the lack of “planning” and trusting / over-estimating others’ professional capabilities.

I started an internet business one year back…the idea was good if not great; divided the whole project into various phases, so as to make it easier for implementation. First hired a programmer who took six months and the result was just crap. Spend lots of money on pre-launch marketing, server etc.

There was no question of giving up. So found someone else, who was ready to be my technology partner in exchange of equity stake in the company. But it was also not a very pleasant experience. Since the time we started – after every fifteen days he will give me a new completion date – this is going on since past six months. And in the meanwhile I kept incurring various costs apart from loosing my credibility.

So finally I decided to put this project on hold for a while or may permanently dump it. May be I’m giving up but we have to be realistic enough not to waste lifetime over something probably which we can not achieve.

During this time I came across some very interesting people, read lots of stuffs and finally learnt much.

If you google you will find reasons for startups failures – the numbers of reasons will probably exceed the numbers of failed startups.

You will find articles with varied titles like “Why Do So Many New Businesses Fail?”, “The 18 Mistakes That kill Startups”, “Why start-ups fail” and so on. But even going through all these reasons will not help. May be you will be able to avoid them – but still no one can guarantee success.

From my personal experience, I will try to list some of the mistakes I have done. They may be not different from others.

1. Never register a company: Yes, don’t register a company till your startup is ready to face the world. Registering a company will just incur costs and even you may have to fulfill certain regulatory requirements like filing tax return, audit etc. The first thing I did after sketching the business model was to register a private limited company. This was probably the worst thing to do. Because you don’t know if you will be able to execute the idea as planned. Execution is rather uncertain and even more uncertain when you have limited resources. The best time to register a company is just before the start of launch – after all the work already done – just launch is remaining. Try to go for proprietorship or LLP but avoid private limited company unless you have too many partners.

2. Never Trust a programmer: If you are not a programmer and you are forecasting the outcome of your efforts based on the commitments and professional capabilities of a freelancer – just forget it. No programmer will ever say he can’t do something. Even don’t trust the delivery deadlines you fix or he commit. This will never happen.

So, what should you do? You should try to find a programmer who falls in love with your idea. Every freelancer will say it is a very good idea and he is excited to do this project. But he is not. Find someone who buys your idea – and then agree on how to structure it. Best would be a mixture of equity stake and milestone based payment scheme. But if you decide to hire a programmer without a equity stake – best of luck. But must read “How to hire a programmer to make your ideas happen”.

3. Never Write a Business Plan: Business plan is just irrelevant if you are not planning to raise seed capital. Rather try to workout a business model, read more here “No One Wins In Business Plan Competitions”

4. Never Associate with People who are Professional Failures: While starting up you will find many people who are looking for a free ride. Never associate with them – they may be your best friends but they are not startup stuff.

5. Go Fulltime: You can’t pursue a passion part-time…as you can't get a little bit pregnant. So go full-time if you can.

6. And When It Fails: It is never a good time to call a quit. But if you decide to do so, try to recover some salvage value of your startup. Try selling it on ebay or on secondmarket.

But I will advice never call a quit. I always remember Sanjeev Bikhchandani, who is India's most successful internet entrepreneur. For close to a decade he struggled on the sidelines but never gave up on his Big Idea. In 2006, naukri.com (Info Edge) became the first dotcom to IPO on an Indian stock exchange. Read more about him here.