Why Startups Fail: A book review by Bob Morris

Why Startups Fail: A New Roadmap for Entrepreneurial Success
Tom Eisenmann
Currency (March 2021)

“If you cannot fail, you cannot learn.” Eric Ries

Curious, I did some preliminary research before reading this book. These data caught my eye:

o 51 percent of owners of small businesses are 50-88 years old, 33 percent are 35-49 and only 16 percent are 35 years old and under.
o 69 percent of U.S. entrepreneurs start their businesses at home.
o According to the National Association of Small Business’s 2015 Economic Report, the majority of small businesses surveyed are S-corporations (42 percent), followed by LLCs (23 percent).
o While around 9 percent of all American businesses close each year, only 8 percent are opened.
o 51 percent of people asked, “What’s the best way to learn more about entrepreneurship?” responded with “Start a company.”
o A bit more than 50 percent of small businesses fail in the first four years.

o In fact, of all small businesses started in 2011:

– 4 percent made it to the second year
– 3 percent made it to the third year
– 9 percent made it to the fourth year
– 3 percent made it to the fifth year

o Leading causes of small business failure:

– Incompetence: 46 percent;
– Unbalanced experience or lack of managerial experience: 30 percent;
– Catchall category (includes neglect, fraud, and disaster): 13 percent; and
– Lack of experiences in line of goods or services: 11 percent.

* * *

These data are comparable with the general research that Tom Eisenmann consulted but the insights he provides in Why Startups Fail are essentially based on what he learned from his own “firsthand” studies that included rigorous and intensive interviews of startup founders and investors, his MBA classroom at Harvard Business School (“my most productive source of insight”), and a survey of the founders of 470 new ventures who responded to “a broad range of questions about their products, customers, competition, teams, funding and so forth.”

One of Eisenmann’s most interesting examinations is of what he characterizes as Catch 22: “A founder cannot pursue a novel opportunity in any meaningful way without resources, and she can’t attract the resources until she’s actually pursued the opportunity — at least to the point where she can demonstrate to resource owners that the risks are reasonable.” He suggests using one or more of four tactics to “reduce resource requirements while respectively resolving, shifting, deferring, or downplaying opportunity related risks.”

His role as he sees it is to provide in a single volume the most important lessons he has learned about dos and dont’s of startup entrepreneurship from a wide and deep range of real-world experiences with both success and failure.

Be sure to check out Eisenmann’s superb Introduction (Pages 3-16) and Appendix (Pages 294-314) which provide an explanation of scope and nature of coverage, and, various research resources that enrich his lively as well as eloquent and informative narrative.

Who will derive the greatest benefit from the material that he provides? Four groups immediately come to mind: those now thinking about launching a startup; others who have recently done so; still others whose startup is in danger of failure to survive; and finally, those financial sources (individuals as well as institutions and agencies) that have invested in startups.


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