4 Key Lessons From a Startup's Spectacular Failure
When it comes to launching a startup, it sometimes turns out that the idea with the grandest buildup results in an equally spectacular collapse. Just take the now-defunct Israeli electric automobile manufacturer, Better Place.
Better Place’s founder, Shai Agassi, promised he would sell millions of electric vehicles, end oil dependence and completely change the world by 2020. His bold idea was heralded by many renowned investors, and everyone involved was optimistic.
Then, as one former employee put it, “Everything we needed to go right went wrong.”
The company was hit from every angle, with problems ranging from overspending to poor marketing and hiring decisions to dubious director oversight. Perhaps the most problematic issue was a company culture of hubris fueled by Agassi himself, saying things such as “If we go down, we’ll make a lot of noise.”
The company did go down, and today it’s known as the perfect storm that resulted in a massive failure every entrepreneur can learn from.
Better Place made several key mistakes that many startups fall prey to. By themselves, these mishaps might not have spelled disaster, but combined, it’s difficult to imagine how any business could have avoided calamity.
1. Better Place didn’t understand its customers.
It’s a well-known fact that consumers make buying decisions based on a human nature that readily embraces trends. Would you rather be the guy who still has to go to the gas station, or the person who hangs out at the local charging station, sipping a pumpkin spice latte and checking text messages while the car battery is swapped within minutes? Sounds like every PTA mom’s dream, right? But Better Place didn’t ask, “How many of these consumers live in metro Tel Aviv?”
2. Agassi overpromised, then under-delivered.
Confidence is critical for any entrepreneur, but Agassi went into Better Place making bold promises that he would bring millions of electric cars to cities around the globe. But as the cars failed to appear and public interest waned, Agassi’s declarations began to seem like a lot of talk with no follow-through.
3. Better Place had a great concept but poor planning.
Agassi ignored market analysis and made the poor decision to launch exclusively in Israel. Despite having the support of former Israeli President Shimon Peres, Better Place didn’t have the government backing it needed to push through early roadblocks.
4. The company became complacent.
Better Place viewed itself as the only innovator in the electric vehicle market and acted as if it had no competition. With no perceived threat, the company failed to identify its own weaknesses.
This final problem often arises when a struggling startup suddenly gets a ton of funding. The company allows itself to get lulled into a false sense of security, loses its drive, stops innovating and -- in effect -- moves out to the suburbs to raise the kids. What Better Place didn’t realize was that if it didn’t keep the ball rolling, its bank account would dwindle along with consumer interest.
There’s nothing wrong with getting excited when you come up with a groundbreaking idea. The tricky thing is to remember that the idea doesn’t exist inside a vacuum and there are more factors than enthusiasm contributing to its success or failure.
Overconfidence and a lack of preparation will doom your idea from the get-go, but if you do your research, consider your customers, continue to innovate and keep a firm grip on your company’s financials, you can avoid these catastrophic mistakes.