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Business & Management | When Founders Fail - Lessons from the Entrepreneurial School of Hard Knocks

When Founders Fail

Lessons from the Entrepreneurial School of Hard Knocks

Santos, Pedro Gairifo

2015, 300 p.

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    • Although there are hundreds of books on the market that detail how to turn a startup into a successful venture, When Founders Fail will be the first book that details why some of the world's most visible startup failures went bust.
    • Contains never-before-published interviews with the former founders of Friendster, Pets.com, Segway, Ning, AltaVista, and many others. While one or two of these founders have blogged about the reasons why their ventures failed, the majority of the founders featured in When Founders Fail has been reticent to speak out about their former companies until now.
    • Author Pedro Gairifo Santos is a skilled interviewer and is uniquely adept at coaxing his subjects to open up about the topic of conversation. He also is a startup founder himself, and his connections in the startup world have given him unprecedented access to the founders featured in this book.
    • The purpose of When Founders Fail is not to serve as a vanity publication that gives the founders interviewed in the book the chance to defend themselves and their business practices. Rather, the interviews will be focused on the specific lessons each founder learned as his/her company began to decline so that readers can understand common mistakes they should avoid, read the warning signs that suggest that their venture is in trouble, and correct course before it's too late.
In the past ten years, countless promising new startups have raised hordes of venture capital, leading business publications around the world to declare these companies' founders to be the entrepreneurial world's next Mark Zuckerberg or Steve Jobs. But then, time and time again ... reality hits. All of a sudden, or so it seems, the very same ventures that once seemed so poised to make their marks begin missing their stated milestones. Their clients and users fly the coop. Brand new competitors begin eating up their market share. And more often than not, they quietly declare bankruptcy or submit to a sale that results in their eventual closure.

If you're an entrepreneur, an investor, or even just a casual observer of startups, you no doubt know that startup failures are not the exceptions; they are the rules. You might even have a few opinions as to what alternate plans of action would have saved certain startups from their eventual demise. What you most likely do not know, however, is what, exactly, the founders of failed startups were thinking when their previously successful ventures turned into sinking ships. That's why, in When Founders Fail, Pedro Gairifo Santos sits down with 15 former founders of some of the world's most visible startup failures to learn from their perspective why their exhausted attempts at startup success just didn't work.

What led Gowalla to be surpassed by Foursquare? Why did Iridium spend millions of development dollars to build a mobile phone that was four times larger and many times more expensive than the mobile phones that are available through every major cellular carrier? Why did Friendster fall into oblivion while Facebook became the social networking sites of choice? And why was Mint able to succeed in the personal financial management space while Wesabe was forced to close? Santos asks all of these questions and more in When Founders Fail. In doing so, he reveals insider insights on the lessons that some of the world's most auspicious entrepreneurial wunderkinds learned as they watched their previously successful companies disintegrate before their very eyes.

Fascinating, compelling, and filled with never-before-told stories from the trenches of the entrepreneurial world, When Founders Fail is required reading for anyone who sees the value in avoiding and learning from the same traps that have ensnared countless entrepreneurs before them.

Content Level » Popular/general

Related subjects » Business & Management

Table of contents 

**Please note: The companies and founders listed in this Table of Contents are tentative. The author has made inroads with at least half of the founders listed below, but in some instances, we may need to swap out one founder/company for another that is at least as recognizable as the one it is replacing. Additionally, please also note that the final chapter titles will include the name of the founder that is being interviewed along with a brief subtitle that specifies the particular failure that was responsible for the company's downfall. Example: Chapter 11: Iridium's Barry Bertinger: The Perils of Solving a Problem that Doesn't Exist.**

Introduction

Chapter 1: FriendsterFriendster was founded by computer programmer Jonathan Abrams and his business partner Rob Pazornik in 2002 before the creation, launch, and adoption of MySpace (2003), Facebook (2004), and others. One of the first social networking sites to attain over 1 million members, Friendster was once the hottest startup in America, but it eventually became the butt of countless entrepreneurs' business jokes. By the rules of Silicon Valley, Friendster, a bold idea backed by experienced investors and the best managers money could buy, was destined for greatness. Instead, it failed spectacularly. What was it that brought this promising young startup to its knees? Friendster founder Jonathan Abrams is here to tell all.

Chapter 2: Pets.comPets.com's talking sock puppet mascot was intriguing enough to be featured in parades and Super Bowl commercials, but it didn't give anyone an incentive to buy the company's pet food on the Internet. Part of the problem was waiting for your order to be shipped. As one online news source observed, "after they ordered kitty litter, a customer had to wait a few days to actually get it. And let's face it, when you need kitty litter, you need kitty litter." Pets.com dug themselves into an even deeper hole by offering huge shipping discounts to entice people to order. This negated the value of the few orders people did place, as even those were not ultimately profitable. In spite of these obvious red flags, Pets.com managed to raise $82.5 million in a February 2000 IPO. Not surprisingly, though, the company collapsed a mere nine months later. What alternate business strategy might have kept Pets.com on top? Founder Greg McLemore explains where the now-defunct site went wrong.

Chapter 3: WesabeIn November 2006, Wesabe was launched as a site to help people manage their personal finances. The company wasn't the first to try to tackle the issue of personal financial management through a web application, but it was the first of a new wave of companies that were launched in the months that followed, characterized by what some have called a Web 2.0 approach to the problem. Then, in September 2007, the now ubiquitous web app Mint was launched at, and won, the first TechCrunch 40 conference, and its overwhelming success was to the detriment of Wesabe, which shut down a little over a year later. What could Wesabe have done differently in its early years? Wesabe co-founder Marc Hedlund has some ideas.

Chapter 4: JoostJoost, an online video startup launched by Skype founders Niklas Zennstrom and Janus Friis, was much vaunted when it was first made available to users in 2007. The company, however, suffered several key personnel losses and was restructured several times until, in mid-2009, it shifted its strategy yet again and began offering a white-label video hosting platform. Joost quietly languished until, in April 2012, its website announced, without further explanation, "We are re-evaluating the Joost.com purpose and services. For the near-term we have decided to suspend the site to allow for a full re-evaluation." What were the results of that deeper company analysis? Founder Niklas Zennstrom reveals the details.

Chapter 5: AltaVistaAlthough AltaVista still technically exists, it is but a shell of its former self and what it promised to become. The once-mighty search engine has fallen from anything resembling market leadership in that field, and its failed foray into free dial-up Internet access is the source of a common Internet joke. Despite blaming its failure on Britain's telecom industry, analysts generally agree that AltaVista's inability to capitalize on opportunities (like buying Google's search technology when it had the chance) is what sunk them. How could AltaVista's problems have been avoided? Paul Flaherty, who came up with the original idea for AltaVista, sheds some light.

Chapter 6: CuilSearch engine Cuil was launched in 2008 by several tech heavyweights whose resumes included the likes of Google and IBM. Given the company's claims that not only did Cuil have a larger index than any other search engine but that it also employed a ranking approach that was superior to Google's PageRank, many in the tech industry speculated that Cuil could make for a formidable Google rival. But then, reality set in when users began utilizing the site and found its search results to be buggy, outdated, and inaccurate. The search engine continued to struggle for two years until it was officially shuttered in September 2010. What could Cuil have done different to have secured its success? Co-founder Tom Costello shares his thoughts.

Chapter 7: Pay By TouchStarting in 2003, Gordon Getty, among the world's richest men, pumped as much as $50 million into John P. Rogers' Pay By Touch, which sought to use biometric authentication technology to transform how America pays its bills. Billionare supermarket magnate Ron Burkle, who is former President Bill Clinton's confidant and financial benefactor, put in millions more. Retired appeals court Justice William Newsom invested $50,000. Former California lawmaker John Burton also invested, as did other prominent local lawyers and business executives, top hedge funds, Las Vegas casino interests, and even five former NFL quarterbacks. But today, Pay By Touch is bankrupt, and the millions of dollars investors poured into the venture are gone. What brought about Pay By Touch's demise, and what did its investors learn from the company's harrowing fall from grace? John Frank, who is the co-founder of Solidus Networks Inc., the company behind Pay By Touch, offers his perspective.

Chapter 8: NingNing, a brainchild of Netscape billionaire Marc Andreessen that was designed to let anyone make a social network about anything for free, announced in mid-2010 that no longer would its users get something for nothing. In an extreme shift of policy, Ning began forcing existing free networks to either upgrade to premium accounts or migrate their networks elsewhere. The company remains in operation today, but it significantly failed to achieve its initial vision to provide free social networking to whosoever wanted it. What caused the company's change of heart, and does it regret changing its business model? Co-founder Marc Andreessen discusses the company's decision.

Chapter 9: WebvanFounded in the heyday of the dot-com bubble, Webvan was an online "credit and delivery" grocery business whose goal was to create a world in which consumers never had to stand in a grocery line ever again. But just two short years after it launched, after spending all of the hundreds of millions of dollars in startup financing that it received, Webvan closed all operations and filed for Chapter 11 bankruptcy protection. In the company's official announcement regarding its closure, which came just a year and a half after Webvan's remarkably successful IPO, the company indicated that it had no plans to re-open. Since Webvan's demise, other online grocers, including Peapod and Fresh Direct, have managed to survive and, yes, even thrive. So why wasn't Webvan able to do the same? Founder Louis Borders, who also co-founded the Borders bookstore in 1971, provides some explanation.

Chapter 10: GowallaLaunched at SXSW alongside direct competitor Foursquare, location-based check-in service Gowalla seemed poised for success. But even as Foursquare was rapidly finding its core user base and pushing ahead with operations, Gowalla lagged behind, unable to achieve adoption rates that would enable it to compete with its increasingly category-dominating competitor. The company tried various strategies to differentiate itself from the growing multitudes of players in the now-crowded location services space to no avail, which was why, when Gowalla announced in December 2011 that it would be unwinding its operations and joining the Facebook team, few were surprised. What could Gowalla have done to ensure the longevity of its service? Do the founders wish they had tried a different strategy to one-up their competition at Foursquare? Co-founder Josh Williams answers these questions and others.

Chapter 11: IridiumIridium, the global satellite phone company backed by Motorola, spent $5 billion to build and launch its infrastructure of satellites to provide worldwide wireless phone service. Despite the enormous amount of money poured into the service, however, Iridium only managed to sign up 10,000 subscribers before it went bust and filed for bankruptcy in 1999. Plagued with technical difficulties with its first handsets and launched right around the time when the cellular phone business had started to take hold among consumers, Iridium managed to get a lot of things wrong in its short time in business. But what could the company have done differently? Barry Bertinger, the Motorola executive who took on Iridium as a pet project, has a few ideas.

Chapter 12: PalmStarting in 2008, Palm began its first attempts at reinventing itself from a company principally focused on developing handheld personal organizers to one boasting its own smartphone operating system and a lineup of new phones. However, lacking a big marketing budget, particularly when compared to its rivals in an already crowded marketplace, Palm steadily began losing money and market share. Then, while it was still working on developing its mobile operating system, dubbed webOS, Palm simply ran out of steam and was acquired by HP for the tidy sum of $1.2 billion. The sale proved to be the end of the line for Palm, its operating system, and the many mobile products it had begun releasing to the market--and it was a colossal disaster for HP, who launched a tablet featuring WebOS only to pull it from the market seven weeks later. Could Palm have avoided the fate that it eventually suffered? Jon Rubinstein, the man who was spearheading the company at the time of its decline, weighs in.

Chapter 13: SegwayIn January of 2001, word began to leak that inventor Dean Kamen was working on something amazing that would change the world. There was even a book deal about the product, and consumers were told that it would change the way cities were laid out and would absolutely revolutionize transportation. That product was eventually revealed to be the Segway, and while it certainly was innovative, it hardly came close to living up to its original billing. It was too expensive, too bulky, and really not all that useful for most people. What could the company have done differently to ensure that its so-called revolutionary product met expectations? Dean Kamen offers his thoughts.

Chapter 14: KaZaAAt the height of its success, KaZaA was the world's leading file sharing service, boasting 50 million active, online file traders at any given time. But as the site slowly became overrun with recording industry watchdogs and bots planting fake songs in efforts to plant evidence for piracy lawsuits, the userbase became much less welcoming. Sharman Networks, the company who acquired KaZaA from Niklas Zennstrom and Janus Friss, has also found itself targeted in numerous lawsuits by the entertainment industry, and those suits have only recently stopped pouring in. Though still alive in many different forms, KaZaA is no longer the dominant force for copyright infringement nor the harbinger of change in the industry that people had once hoped. What was the most important lesson the KaZaA team learned when its legal problems started presenting themselves? Founder Niklas Zennstrom fills us in.

Chapter 15: DiggIn 2008, the social news aggregator Digg.com was in talks with Google to sell for $200 million. Two years before that, with money from some of Silicon Valley's most powerful venture capitalists in his pockets and a $60 million valuation, founder Kevin Rose flashed the double thumbs-up on the cover of BusinessWeek. But in 2012, Digg completed selling itself off to three different companies for a reported $16 million. Why did Digg's valuation skyrocket and then collapse, forcing its founder to sell his company for much less than it originally was deemed to be worth? Founder Kevin Rose gives us his opinion.

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