In this blog I look beyond the obvious and try to find out why people and companies do what they do - and what it means for the rest of us. 
I have 6 great books that I’ll most likely never write. I’m facing my own laziness.
One of my many business books is about why startups fail. Since I’ll probably never write that one either, I figured I’d start forcing myself to do it the lazy way – via this blog.
Here’s the poop: Over the last 10+ years in this business, I’ve tracked (some much more closely than others) about 1,000 companies. Most of those were startups. Most of those are gone. Prior to ESG, I spent the previous 12+ years in various companies as an employee and as a founder. Some of the places I’ve worked have hit spectacular heights (EMC) while others have blandly moved along and even more have died.
There are 1000 books on how companies succeed and how they fail. There are management books on every nook and cranny, but I haven’t found many that really help the entrepreneur. I think Blue Ocean Strategy and Crossing the Chasm are fantastic – mostly because they are focused on some practical realities that, once you read, they make you say “duh, that makes sense.” That’s useful.
I’m not that smart, but I am observant (in business, not in anything relevant to my wife – I’m blind and clueless in most things in that regard). I’m also fortunate enough to have piles of data. You don’t have to be an idiot savant to pattern match if you have the right data.
So, I’m going to start spitting out (in no specific order) things that, while obvious to some, cause stupendous problems for many. I would love your commentary, thoughts, and, by all means – your ideas on other things that make perfectly well intended startups go the way of the dodo.
Fail Factor #1 – Zealotry
A zealot is someone who believes so strongly in what it is they are doing that it is all consuming for them, and it becomes contagious. In a world dominated by followers, a zealot stands out. Anyone who believes anything so strongly will stand apart from the wishy washy masses – be they religious, political, technological, or any other kind of zealot.
When political or religious, society can easily dismiss the zealot as a radical or lunatic. When the zealot lives in technology, they get funded.
Often, it takes the perserverence and unfettered self-belief of a zealot to get a startup off the ground and funded. Sometimes, the zealot can use their uncompromising belief in themselves or their purpose to lift their organizations to huge heights, but more often than not, it is that very same zealotry that kills them.
I’m a huge fan of the entrepreneur, inventor, developer, etc. having absolute belief in what they are doing. It’s been rare in my experience where a true startup zealot goes unfunded. It happens, but usually because of extreme unforeseen environmental conditions (like when the global economy melts down and VC’s have lost 90% of ther portfolio value). So the positive lesson here is that zealots get funded. If you want money, best to rise above the unwashed masses, be noticed, and let your beliefs leak out of your pores in front of wishy-washy lemming VCs with piles of dough.
History is littered with companies with good ideas, perhaps even great ideas, and the ability to execute on those ideas – that don’t get funded. Zealotry is the X-factor when it comes to getting a startup funded. If you have it, your odds are much higher than if you don’t, simple as that. Zealotry works when raising money – but not when growing and sustaining a company.
Entrepreneurs often confuse raising money from VCs with absolute validation that they are right. That is a fatal mistake. VCs are gamblers – if they knew you were right, they would join the company. They don’t know if you are right, so they spread some dough around to cover the board. Getting VC money means you excited them. You excited them because you are a zealot. It has NOTHING to do with being right.
A VC wants the return that happens when a company succeeds – but they make bets on zealots. The zealot uses the funding success as proof that they are right – often closing whatever small crack existed for the zealot to accept external inputs and change. Bad recipe.
For those who do get funded, the zealot can help motivate and carry a company early on. They can inspire and motivate to impossible levels. People believe in others who believe in something so strongly that they can’t conceive of any way that their thinking can possibly be wrong.
That’s what kills them. By their very nature, the thing that for some period makes a zealot successful, ultimately leads to their demise.
Zealots don’t leave wiggle room. Their way is the only way. They firmly believe (and by default make everyone around them believe) that whatever thing they have in their brain is the only possible way to succeed. While they may be right, they are blind. They are blind to their surroundings – they are blind to change. The zealot succeeds by never changing their approach or their mind – which is also why they fail.
The zealot is so immersed in the belief that they are right that they can’t adapt to situational change. In a static world, the zealot would reign forever. In a dynamic world, the zealot will implode – it’s only a matter of time.
You can start a business with zealotry, but you can’t sustain one. Passion yes, zealotry no. Passion leaves wiggle room to adapt – zealotry leaves none. Even arrogance leaves cracks. You can be an arrogant jerk, but that doesn’t mean you necessarily actually BELIEVE your own bullshit. The zealot believes. The zealot knows.
Have you noticed that many of the stupidly funded companies – the ones that raised $100M bucks or so – are the ones with truly excellent zealots? You can’t raise that kind of money without having one. Have you also noticed that they almost always are written off for IP table scraps? Same reason. Remember Cereva? Incipient? Scale-8? Nishan? Giant Loop?
Even in well oiled successful machines, the zealot will eventually crumble under the weight of their own beliefs. Moshe Yanai, one of the most brilliant minds ever in the IT business, fathered the Symmetrix at EMC. It was wildly successful for many years (still is). He was so consumed with the Symm, that anything that wasn’t a Symm was somehow bad. If Joe Tucci didn’t eliminate Moshe, EMC would never have sold any CLARiiON – now a huge piece of their business. The zealot wants to change the world to sustain their beliefs. The truly smart business person adapts their actions (and sometimes their beliefs) to sustain their world.
The moral? Believe in yourself 99%. Believe in your mission 99%. Always leave yourself 1% open to change. The zealot is rarely, if ever, successful forever. The passionate person able to adapt to new realities – even when they fly in the face of what they believe – is the sustainable mental model necessary for long-term success.
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I once invested in a startup alongside with several VC firms. The founder (zealot) told me that on paper he’d made a better return on his initial investment than I did on NetBeans. The company was gone in six months.
I’ve always thought the main reason for failure is that the tech startup’s value prop gets obliterated by the next big idea. The startup doesn’t have the stomach to eat their own children, especially if they’ve been reasonably successful for a even a short amount of time. And they aren’t nimble or big enough to move out of the way and jump into another big idea (Signiant is an exception). But the zealot definitely exacerbates the problem – so I agree with you. VC’s would be smart to give the zealot a term limit.
The other time when startups fail is when one of the big guys put your value-add into their products for free (a la Microsoft).
Your posting reminds me of an article I once read regarding Winston Churchill. There is some speculation that he suffered from bipolar disorder. The manic episodes fueled an absolute self assuredness and take no prisoner “anything is possible” view that was hopelessly contagious. At his heights, he inspired a nation to firmly believe that it would be victorious despite the odds. Another leader may have produced different, perhaps catastrophic results. The point being that different situations require different leaders.
I think that we’ve all witnessed the personality you describe. They are energizing to be around, to a point. Like the economic class addressing the law of diminishing marginal utility and beer consumption, you can only take so much. The problem for these people is that there isn’t room for a partner to balance things out because intrinsically, they don’t see or believe that there is any balancing required. Unfortunately, some of these people would rather kill the company and eat their young than pass it on.
Just as old Winston had people watching for him, the board, in my opinion, has to carefully monitor the zealot entrepreneur. I’m not talking VCs, but carefully selected board members with domain expertise who aren’t afraid to speak up and challenge what is being fed to them. At some point, the charisma has to surrender to sound repeatable business execution perhaps through the practice, knowingly or not, of Boyd’s OODA Loop principles used by top fighter pilots, and business leaders. (There is ample material on the Internet regarding these principles- look up Hammond’s: The Essential Boyd.)
You have written a book already. There is probably enough material that you have written over the years of your observations on business and IT that could fill a book. You just need someone to collect it all and edit it. Then you can review it, change some things, add a bit more content and then publish it.
Tony
I don’t trust zealots. In my opinion, nobody should. They lack objectivity. It surprises me that VCs seems so susceptible to them. If I were a VC I’d be more impressed with cool reason, a strong business model, and good sense. Perhaps that’s why our small startup is bootstrapping.
I agree that a zealot not open to reacting to changing business conditions is doomed for failure. In my case, I have been involved in four startups – the most recent one as a founder. In my case, I’ve let business conditions change the original idea into something that is more practical. However, getting too much off the original idea also means that the company treats the founder as someone who is just in for the ride. The ownership has transfered to many operational folks, and the founder is eventually forced out of the company. Also, if the founder’s original idea is diluted, everyone has a field day in pushing their own vision, which eventually causes chaos. The lack of the original idea also means that the new management flounders trying to come up with an idea that may not have legs also, so they try the next idea. Often, this leads to politics between the original folks and the new folks.