Accepting Failure

After several months of negotiation with a large enterprise software company, the face-saving acquisition of my third startup, a cloud computing company called Elastra, broke down and the company officially shut down last week.  Coming off a successful exit (when I was in my 20s) and a very successful one (when I was in my 30s), it’s hard to admit failure in my 40s.  But a failure it was.

Why blog about this?  I know I will have to explain this to friends, colleagues and companies I am now asked to help.  And it is better to explain it once and put it in a place where all can see.  I am not going to hide behind the clichés:  “Idea ahead of its time” or “Great idea, poor execution” or “There was a financial crisis, remember?”  I think those statements are simplifications that make it all too easy to put the responsibility for failure onto someone else.

Greycroft’s founder Alan Patricof recently used a tried and true proverb:  “Success has many fathers, failure is an orphan” referring to one of the deals we were considering.  It made me think about my past.  Well, this failure had many fathers, and I, as head of the family responsible for it.  Elastra was no orphan.

I started off with a seemingly proven formula:  look for a big market and start pushing for a product that aimed far ahead of the others.  This approach worked in my prior startups:  one in relational OLAP, and the other, Plumtree, in corporate portals.  Here, the market was even bigger – cloud computing.  And I started thinking about it as soon as I fired up my first EC2 instance in 2006.  I thought about the magic that cloud computing enabled.

The idea was compelling – and I still knew how to sell ideas despite a five-year hiatus following my second company’s IPO.  I had plenty of friends on Sand Hill Road and money was not that hard to get.  So, right market, right idea, capital to implement the idea… what could go wrong?

And that’s when I made what I would say is the fatal mistake that ultimately killed the company.  I believed, that given enough dollars, I could hire the right team, inspire them with the vision, and have them build and sell the product while I worked the puppet strings.  I couldn’t have been more wrong.

Seemingly, I forgot that in my first and second companies I shared quite a bit in the fundamental activities of a software startup:  building and selling.  I helped write my first company’s OLAP server and did quite a bit of coding on the first version of Plumtree.  I was also the first sales rep in both cases.  I knew the customer’s names, knew what it took to close the deal, and knew the financial intricacies of the selling process.  I was involved as an engineer and as a salesman.  At Elastra, I was just a CEO… and I was alone on the job, listening to reports second-hand instead of getting personally involved.  I was lazy.  I didn’t seem to care as much.

I spent money engineering the organization instead of engineering the product or the sales process.  Also, I was living in San Francisco, away from my beloved New York City, and counting the days until I could hand a working “machine” to someone who didn’t mind life in the Bay Area letting me return to my life in Manhattan.  I kept an apartment on the Upper East Side and went “home” every month.  I was never home at Elastra.  Not a good attitude to have.

There are many negative outcomes of the last four years.  Investors lost money, people who uprooted their lives had to stomach a serious blow to their faith in human character.  And even though I tried to remove myself from the situation a year ago a selfish move to avoid watching a loved one die, there remained a glimmer of hope until, literally, last week.  I certainly lost some money, took a hit to my reputation, and, most importantly, was taught many uncomfortable lessons.

Here are some conclusions that, I hope, will help me in the future.  There is a future, life goes on.  Thoughts below come directly from comparing things that worked twice in the past and failed the last time around.

  • I will discourage starting a company alone.  You cannot just hire a “co-founder.”  Entrepreneur:  you need to have people surrounding you from the very start that you can trust, people that are not afraid to call your bluffs and point out your mistakes.
  • I will oppose starting a company or investing in a company where the founding CEO is divorced from technology (at least in the world of software which is the only area I plan to work in).  Entrepreneur: you cannot be just a “process guy,” you need to love technology.  Love it.
  • I will be on the lookout for and oppose management that seeks to divest themselves from responsibility by adding underlying layers of human infrastructure; and blaming it for the overall company’s lack of performance.  Entrepreneur:  you cannot manage your way out of a disaster.
  • I will not ask for the founding teams to place their personal lives in peril.  If you live somewhere and are happy, I think asking you to move or subsist on minimum wages will, invariably, add personal risk to an already risky situation.  Entrepreneur: you should not be made to suffer for your own good and I will never ask you to sacrifice your personal life for my gain.
  • I will personally help my companies with recruiting and hiring. I think that during the first few months of a company’s life it is imperative for the investor to help screen everyone who walks through the door – yes, even staff engineers.  I know this takes time and effort, but I don’t plan on spreading myself so thin that I don’t have time to help recruit.  Entrepreneur:  you need a second pair of eyes and ears.

For now, my job is finding companies worthy of investment and helping them succeed. I love nothing more than listening to bright people talk about bright ideas.  And I will experience nothing more satisfying than seeing those people make it big. I always found it strange that venture capitalists that never started a business, never succeeded, and, importantly, never failed (or admitted to having done so) are so eager to give advice to people who put much faith in their words. Failure always needs to lurk in the shadows.  And failure can not be a business school case:  it needs to be personal.

I want to speak as a person who certainly knows the formula for success, but as one who now also deeply understands the recipe for failure.  I know a lot, and I learned a lot more during the last four years.  And I still have a lot to learn.

Entrepreneurs, investors… keep your head up and keep dreaming.