Why Companies Fail
Yesterday was Pink Slip Monday and we just laid off two thirds of our employees. I have known for a week this was coming and it has been a tough week. It’s hard to smile and make small talk with my friends who will soon lose their jobs. A few of us know, but most of my coworkers are blissfully unaware as they go about their busy day. The pre-layoff meetings were both exhausting and dehumanizing. I’m just so glad that is finally over. There is still a possibility a company will merge with us or an investor will buy us for our technology, but that’s a long shot in this economy.
Funding is Fickle
This is my second failed startup and the reasons these two businesses failed are eerily similar. Both were relatively well run companies with good people and good products. Both companies were living on funding and counting on the next round. They were constantly behind schedule on development and not spending money wisely. They were highly confident the next round would be funded, but it wasn’t. Recessions sneak up on companies, while they aren’t paying attention and funding dries up quickly.
When my first startup failed twenty years ago, I was new to the game. I had always worked for established companies that were bringing in revenue and we weren’t at the whims of the investors and VCs. It was a shock to me how fast everything went downhill. One day we were plotting to take over the network market and the next day the dotcom crash happened. We had a sales meeting with a huge network provider who was planning to adopt our product. The news hit that they were laying off 20,000 employees while they were in our conference room. They had to leave the meeting to see if they still had jobs. We were gone a couple months later. If we had been six months quicker in our development, we may have had some revenue to keep us going.
Execution is Everything
My last company was a textbook startup success story. We moved fast and ran lean. The CEO was a magician at getting funding and the CFO watched our burn rate like a hawk. When the Great Recession hit, funding was nearly impossible to find, but our investors had our backs. They knew we were on track and ahead of schedule. Every promise was kept and every milestone delivered. With only 17 employees, we completed an IDE clinical trial that billion dollar companies fail at regularly. We commercialized our product and went from zero to $100 million dollars in revenue in only three years. This company was acquired for almost a half billion dollars in 2019 and the employees and investors shared in the rewards. Executing reliably is very difficult and very valuable.
The Bottom Line
There are many reasons companies fail, but two common themes are poor execution and poor financial controls. Strong companies survive recessions and other external events, while poorly run companies run out of resources.
“The line between failure and success is so fine, that we are often on the line and do not know it.” – Elbert Hubbard
