Why Start-ups Fail

That was unnerving. For the past 24 years, I’ve been a professor at Harvard Business School, where I’ve led the team teaching The Entrepreneurial Manager, a required course for all our MBAs. At HBS I’ve also drawn on my research, my experiences as an angel investor, and my work on start-up boards to help create 14 electives on every aspect of launching a new venture. But could I truly teach students how to build winning start-ups if I wasn’t sure why so many were failing?

I became determined to get to the bottom of the question. I interviewed or surveyed hundreds of founders and investors, read scores of first- and third-person published accounts of entrepreneurial setbacks, and wrote and taught more than 20 case studies about unsuccessful ventures. The result of my research is a book, Why Startups Fail, in which I identify recurring patterns that explain why a large number of start-ups come to nothing.

My findings go against the pat assumptions of many venture capital investors. If you ask them why start-ups fall short, you will most likely hear about “horses” (that is, the opportunities start-ups are targeting) and “jockeys” (the founders). Both are important, but if forced to choose, most VCs would favor an able founder over an attractive opportunity. Consequently, when asked to explain why a promising new venture eventually stumbled, most are inclined to cite the inadequacies of its founders—in particular, their lack of grit, industry acumen, or leadership ability.

Putting the blame on the founders oversimplifies a complex situation. It’s also an example of what psychologists call the fundamental attribution error—the tendency for observers, when explaining outcomes, to emphasize the main actors’ disposition and for the main actors to cite situational factors not under their control—for example, in the case of a failed start-up, a rival’s irrational moves.

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