Most Startups Fail. You Just Never Hear About Them.

shutterstock_137747492-1We know a lot of our readers’ work involves promoting startups and getting them noticed by media outlets as well as potential investors and buyers.

Here’s something we’ve noticed about the startup world: for the most part, you only hear the stories behind the successes that raised millions before eBay or Facebook or some other big digital name picked them up for a ridiculous ten-figure sum.

This week, however, brought two interesting stories about startups—one that failed and one that almost failed. We think they’re worth noting.

The first tale of valiant defeat comes via Chris Poole, founder of infamous imageboard site 4chan. You’d think that he, of all people, would be able to launch a successful startup. But the collapse of his DrawQuest venture is sobering:

“In the past year it’s been downloaded more than 1.4 million times, and is currently used by about 25,000 people a day, and 400,000 last month alone. Retention and engagement are great. And yet we still failed.”

And this happens most of the time.

Our key takeaway from Poole’s story: it’s really hard to monetize a mobile app.

“…our investors have…supported me throughout the ups and downs, and especially the downs.”

So DrawQuest failed after four years even though its investors were, well, fully invested. The lesson Poole wants to impart to other startup founders is to follow in the footsteps of the also-doomed Everpix and practice “radical transparency”, which in their case amounts to sharing all relevant metrics with the public as a sort of case study rather than hiding them in shame.

Our second story appeared on the New York Times “You’re the Boss” small biz blog courtesy of Rebekah Campbell, founder of localized “social search engine” Posse. Her venture still lives and breathes, but her story offers us some insights on the startup “death spiral”:

“Every day we read about budding entrepreneurs who raise millions of dollars to start something. Often, we never hear of them again.”

It’s true. Things started well for Campbell as she raised money from angel investors, but:

“I discovered that it’s much easier to raise money for a vision than for a product…Investors wanted to see growth when we needed to focus on engagement—getting people to return to use Posse again.”

It was also hard for her to motivate her in-house team when she spent most of her time either raising money or trying to please existing investors.

Campbell doesn’t mention whether she included PR in her budget, but her story still resonates, because Posse is a great idea that still came dangerously close to failure. Her suggestions for other startups:

  • Raise as much money as possible before you have a product to launch
  • Figure out your revenue equation ahead of time so you can break even early in the process
  • Don’t expect too much, because there will be bumps on the road to success (“99 percent” of her meetings with investors were fruitless)

Of course we know that the vast majority of startups fail no matter how many incubators big-name firms create or how much venture capital they raise. We just thought it would be informative to read about the Posses and DrawQuests as well as the Snapchats and the Nest Labs in order to get a fuller perspective on how the game works.