It’s been said that failure only becomes a negative when we fail to learn why we couldn’t make something work in the first place. On average, startups fail 20 months after their last financing round, with total financing just shy of $1.5 million (source).
Much of these failures appear in the tech space, with Internet-based companies unable to attract and sell to the likes of the big players like Google, Facebook, and Yahoo, thus dying an early death that may or may have not been preventable.
However, failures are by no means limited to the tech space. Companies fail all the time, and the only true way to learn from the mistakes that led to their downfall is to do a thorough postmortem evaluation to see where improvements could have been made.
Here’s 8 invaluable steps toward preparing an insightful startup postmortem evaluation:
1. Scan for dangerous patterns
In any failed startup, you’ll always find recurring patterns that curbed the company’s growth. These patterns can appear out of nowhere after a great launch period, but they can also be evident from day one when the founders are new to running their own business.
Identify where the patterns were and how they came to be. Nobody on the team should be exempt from this analysis; not the founders, nor employees. The perspective gained from knowing how to identify these pitfalls will allow you to avoid them when you create your next business.
2. The little things you wasted the most time/money on
A mentor can be invaluable when figuring out the initiatives you wasted time on that weren’t conducive to the company’s growth and sustainability. Take a good hard look at things you wasted time and/or money on that helped lead to the company’s ultimate downfall.
Examples of time/money wasters include, but are not limited to: failed marketing pushes, developing products the market did not want or wasn’t ready for, following the competition’s lead instead of your own instincts, and many others.
3. Figure out what guesses you made that were wrong
In other words, what did you assume and when/how did those assumptions come back to bite you where it hurt most. We all have to do some elaborate guesswork when building a company from the ground up. Sometimes those guesses lead to epic successes. Sometimes they lead the company into a tailspin that cannot be recovered from.
There are so many areas where we need to make assumptions in order to keep moving forward. All companies have to assume, to a certain degree, that the market will accept their product with open arms. And, all startups need to make a vast number of assumptions about everything to do with the company’s financial future.
Take the break-even analysis that needs to be included in any business plan: A startup’s break-even projections are largely made up of guesses about a company’s future will unfold – educated guesses, but guesses nonetheless about revenue versus expenses. How accurate was your break even analysis? Perhaps you ran out of money right when you were on the cusp of gaining some heavyweight clients and could have prevented closing the doors had you secured a short term loan to tide you over?
4. Determine if you were really solving a pain point or problem in the market
Or were you solving a problem that consumers just weren’t able to relate with? If you’re not fixing a problem, or the customer just can’t identify with what you’re trying to do for them, your business is sunk before it even begins.
You need to be brutally honest, not letting ego get in the way of this part of the startup postmortem:
- Did you rush something out to market based solely on your own beliefs, without doing honest market research?
- Were you trying to solve a definite problem, but still suffered from lack of sales?
- Why didn’t consumers see the value in your offering?
- Is it possible the market just wasn’t ready for the product yet, but may soon be in the future? – Time to shelf that idea and keep close watch for a time to relaunch.
5. Identify the biggest chances you took and why you took them at the time
You have to take some big chances to succeed as a modern startup. It’s really hard to fall into a good idea that’s primed to make millions overnight, considering all the competition that exists out there today. Rather than succumbing to the fear surrounding taking a big gamble in your future businesses, try to assess the following so you’re armed with the right knowledge and confidence when those big hail Mary chances come about again:
- What were the times when you hedged all your bets on a big thing that ended up not working out?
- Why did you think taking those chances were a good idea at the time?
- What, if any, social proof were you operating based off of?
- Were you just plain wrong about a given idea, or did you mess up on the execution side of those ideas?
6. Determine the key points where management may have failed
Proper management is the key to running any successful company. Often, it’s management that causes the downward spiral to begin, often without knowing they’re doing so. Sadly, regardless of what you find, blame always has to begin and end with the company’s founders.
Look for areas where poor communication led to problems in the company. Scan the company’s history for indicators of micromanagement leading your company into the fires of despair. Perhaps employees were taken for granted and never given credit for game-changing efforts and initiatives they were involved with?
Lack of motivation on your team’s part, is often the crux of most failures. This, regardless the over-arching reasons for the company needing to shut down, such as lack of sales, or poor management of funds. Your employees were/are everything and management must always be held to the highest standard of accountability.
7. Outline your original product research and where you went wrong
Aside from analyzing whether you were indeed solving a problem with your product or products, you need to carefully scrutinize how you performed product research leading into the launch of your business.
As many who’re successful in business will tell you: Be the solution to some sort of problem or need that a fairly large consortium of consumers have. It doesn’t need to be complicated, but you do need to be filling a need nonetheless.
Perhaps your next business should aim to identify a simple problem and find a way to solve it, rather than over-complicating things to the point where you and your team themselves are confused by what you’re attempting to bring to consumers?
8. Last but not least: Figure out what you did right
This is the final step in preparing an accurate startup postmortem. Figuring out this part of the equation is another area where an experienced mentor can be invaluable.
What did you do right? Determining your mistakes is really the most important, but knowing what you “didn’t do” to lead your business into failure will form the building blocks for your next (hopefully successful) business venture. Write down all the right moves you and your staff made, then give yourself a pat on the back and move on to finding the next great idea to make a move on in your continuing entrepreneurial journey.
Failure is just a word, unless you let it destroy you!
While you might wish you were successful in everything you do, success is never a sure thing. There are so many factors that are within your control, but just like in nature, the business world has a natural way of balancing itself out. Sometimes the best ideas, deployed with the utmost best intentions, just don’t work out.
Taking time to step back and analyze everything that happened in your failed startup is the only way to ensure that next time you start a business, you continue to build on everything you did right, and correct those things you did wrong – or simply could have done better.