Ten Reasons Why Startups Fail

TechFlash reports: Startup companies can fail for any number of reasons. In fact, aQuantive co-founder Scott Lipsky—in preparing for a talk tonight at the University of Washington—said he came up with a list of 721 reasons. Luckily, for the students, faculty, and media who attended his talk as part of Entrepreneur Week, Lipsky shortened the list to just 10 critical mistakes.

Here's a look at each one, with analysis and commentary from Lipsky, who is now in the process of building a new startup company called PhotoRocket. Lipsky stressed that the 10 factors are ranked in order of importance. I am sure his comments will be closely read and discussed, so feel free to fill in the gaps on the 711 other errors that entrepreneurs can make.

1.) Wrong Team: "There's a lot of ways to screw up the team. The team composition, from day one, is the most important thing. The team composition is just not you and your partner. It is not just you and your engineers. It is not just you and your operations people. It is everyone; everyone who is involved in the organization. The team extends beyond your actual employees—it goes to advises and the board."

Later in his talk, Lipsky offered insights about the founding team at aQuantive, which he called "uniquely perfect." The team—complete strangers before investor Nick Hanauer made the introductions—included Lipsky (the tech guy), Mike Leo (the sales guy), and Mike Galgon (the operations guy). "We were absolutely, completely different," he said. "It was complete happenstance that the three of us got together."

2.) Not Focused: "Focus as a company and an individual is very, very important. If you try to do more than one thing at a time, you are going to fail. If you have a product concept or service concept, you have got to be very, very focused on that concept."

3.) Not Agile: "If you are focusing on one product type or one market, like I just described, (and) if it is not working, you've got to change right away. I am not saying that you do two. When I started aQuantive…we went through three iterations of our company, three different products before we landed on one that in fact succeeded. If you don't have that kind of flexibility and that agility—and you stay too long in one dimension—you will use up all of your money and resources."

4.) Product Management Issues: "Vision is great. Vision is important. And that spark is really critical. But if you are not paying attention to what the customer wants and what the customer needs, you are going to spend too much time selling what you are selling without really listening, adjusting, and creating a product that actually can generate revenue. Once you start succeeding, the customers will come. The money will come. The investors will come."

5.) Poor Market Timing: "Great idea and great vision is one thing. But if you are too early in the market with whatever you are selling, you've got a major problem because you not only have to show your customer why it is better or why it is important, but that takes a lot of time and a lot of money. And it is a real easy way for that money to disappear. So, you can be too early with a product or concept. It is a very easy thing to do because you get all excited about something and you know it is a great idea…but if there is no one there who understands how important or great it is, you could be months, years, decades early. And this happens in the world all day, every day. But at the same time, it is almost never too late. A very simple example and an extreme example is that Google was not the first search engine. Google was the 500th search engine. You don't have to be first to market. A first market or being too early in the market can be very difficult. It will be more expensive, and you are the one learning all of the mistakes for your future competitors."

6.) Wrong Channel Strategy: Lipsky gave an example of how aQuantive had to shift its channel strategy during the early days away from advertising agencies which were fearful and threatened by the company's business.

7.) Weak Execution Plan: "If you don't have a plan to execute, and if you don't have a way of measuring your own success…you will lose your business."

8.) Unsustainable Business Model: "As you start scaling and growing, you can run into a lot of issues. Some of these you can kind of forget, some you can not. Some of them are market conditions. Some of them are changes in the economy…revenue models and scaling and market changes and customer needs changing and competition. A lot of it is difficult to predict. But as these things start emerging, if you are not paying attention, it is very easy to start losing market share."

9.) Funding Problems: "Even when you do raise. And don't be greedy. Of all the funding problems, this might be the biggest. Entrepreneurs—some individuals, some people in the world—really worry about not owning 51 percent or 100 percent. There is something very difficult that a lot of people have about going below about 50 percent, and what I always say is that 51 percent of nothing is nothing. And 10 percent of something great is a lot. I have seen greed stop a lot of entrepreneurs from getting to the next level."

10.) Bad Idea: I took a little more video of Lipsky's last tip: