The Anatomy of Failure

12.06.2019

Jussi Heinilä, our community ambassador, recently published an article discussing the anatomy of failure. He begins his article: “Similarly, to most people, failure is a difficult and sensitive subject for me. As a positive and optimistic person, facing mistakes and failures can be especially uncomfortable. However, the reward of analyzing the anatomy of failure is arguably greater than the displeasure of confronting and re-evaluating the mistakes. Consequently, I decided to take the bull by the horns.”

It is said that you learn from your mistakes. While succeeding does improve one’s confidence, accomplishments may be easily forgotten. Tragic failures, however, aren’t forgotten as easily, nor should they be. Oftentimes the importance of an analytical and objective mindset towards mistakes is overlooked, which results in repeating the same mistakes.

During his five-year stay in Silicon Valley, Jussi discovered that failures can be completely acceptable. In the US, failures, such as bankruptcies, are associated with courage, risk-taking, personal development and competition. As Wayne Gretzky once said, “You miss 100% of the shots you don’t take.” Even though this mentality is gaining popularity, and Finns have become more comfortable with discussing mistakes, there’s still plenty of room for improvement.

Don’t bite off more than you can chew

“My first failures concerning start-ups was at the turn of the millennium. This experience was particularly painful since all the key metrics implied that we’re headed to success,” reminisces Jussi. Despite the strong support of Business Finland and being accepted to a born again -program, the company failed to succeed. As an angel investor, Jussi had invested over a hundred days of work and hundreds of thousands in capital, only to see his business collapse in four years. Jussi was left with nothing but financial losses and a bicycle, that he still uses daily, to remind him of the failed company and the losses he suffered. In summary, this case included risks regarding the team, technology and finance.

“Our team lacked a clear leader, a decision-maker and an owner. Furthermore, the technology caused issues that were far too great for us,” Jussi concludes, “not to mention, the platforms and the infrastructure of the market wasn’t ready for our innovation. To top it all off, we had a continuous lack of funds.” In theory, the case had all the ingredients for success, yet in practice it underperformed. What did Jussi learn from the experience? Execution is everything. The value of an idea is close to zero. In order to succeed, the team has to be functional and the CEO has to lead. Jussi’s advice is don’t bite off more than you can chew.

As the business grew, the team’s appetite grew as well. The team became distracted and, simultaneously, the focus drifted. Jussi points out where things started to go south, “With the development of accelerometers, our focus began to shift towards smartphones. Consequently, invoicing and customers were pushed back, and it wasn’t long before our funds started to run low.” Inevitably, disagreements regarding the priorities and the future of the company resulted in a split-up, and the other half of the business was sold to a larger operator. Eventually, the team left working with the smartphones, became too small. The faith of the main investor, thus, began to diminish and yet another company had failed to succeed. Nonetheless, Jussi saw the silver lining of his failure and took valuable lessons from it, “Before entering the market and proceeding to the next stage of development; make sure your product is fully functional. Don’t split your company into two micro companies. Don’t outsource the core elements of your software development. Don’t trust in the patience of investors. Most importantly, has the team accomplished anything major before this project?”

 

Don’t let a powerful presentation and a charming team fool you

Contrary to what one might think, the losses did not become any easier. “How did I not see this coming?” Jussi wonders, “How could I be so naive?” The third time, however, the failure was caused by exterior factors. Suddenly, a venture capital firm and a hired CEO, both decided to abandon the project. Suing both of these was tempting to Jussi during the first six months but then he thought, “What would’ve it helped?”Additionally, the undertaken projects were remarkably underpriced, which, naturally, lead to compromising the “product”. As the recovery from the recession prolonged, the profitability continued to decline and the staff became divided. Ultimately, Jussi faced yet another bankruptcy. Moral of the story? “Don’t let a powerful presentation and a charming team fool you. Ask for written agreements; verbal agreements can’t be trusted. Don’t trust investors with zero experience in start-ups. And believe it or not, you can even be stood up by a Finn,” says Jussi.

There’s an old saying: “Fool me once, shame on you; fool me twice, shame on me.” How about fool me four times? Jussi reveals that he has had four cases in the technology industry, all of which, have resulted in bankruptcy. The common denominators in these four cases? Outstanding presentations, tremendous people, trendy services but a close-to-zero revenue. Plenty of excuses, very little action. Some of these cases involved well-known investors while others had very specific niches, such as “the best growth-hackers”. What is Jussi’s final conclusion? “The main entrepreneurs must be fully committed. You must have in-house programmers. The match between the product or service and the market must be in place. Trust your intuition; if it doesn’t feel right, don’t invest.” summarizes Jussi.

According to Jussi, regardless of the company, grand slams in the technology industry are few and far between. Approximately 1 out of 10 companies survive after the initial phase and half of the companies fail within five years. This is also true in Jussi’s case: 4-5 successful companies, few good exits and an abundance of learning moments.

 

Jussi Heinilä
Accelerando