In this chapter we close the book by looking beyond the beginning: how ventures grow, why many of them stumble, and what we learn from stories of success and failure. The aim is not to memorize the stories, but to draw out patterns that help you make better decisions in your venture and your work.
After studying this chapter, you should be able to:
A large share of new ventures stumble in their first years. This fact should not frighten you, but make you ask: What are the recurring causes, and how can I avoid them? Many reports and studies have analyzed why ventures stumble, among them the work Tom Eisenmann, professor of entrepreneurship at Harvard, gathered in Why Startups Fail, and similar causes recur in them. We explain them here:
One of the most frequent causes in these studies. The team built a technically good product, but not enough people need it, or do not need it enough to pay. This usually happens because the team fell in love with its idea and did not test it with customers before building.
The venture spent its money before reaching sufficient revenue. The cause may be underestimated costs, premature expansion, or a cash flow problem despite profits on paper.
Missing core skills (a team of technical people with no one who sells, or the reverse), disputes between partners, or weak commitment.
Ignoring or underestimating competitors, or the arrival of a stronger competitor with greater resources against which the venture had no protective advantage.
The contribution margin is too small, or the break-even point is too far from realistic sales, so the venture cannot survive however hard it tries. A common form is a venture that delights the customer but exhausts whoever delivers it: it consumes their time or money beyond what the customer pays, so workers leave or the entrepreneur burns out and exits the market. This is what we explained in "A Deal Where Every Party Wins" in Chapter 6.
A product that does not deliver on its promise, or a poor experience, combined with a refusal to listen to feedback and adjust.
Entering too early, before the market or technology is ready, or too late, after the market has settled on strong competitors.
Once a venture proves that its model works, a new stage begins: growth. Specialists distinguish between two concepts that may look similar:
The question that reveals your venture's scalability: Does each new customer require a large new cost? Services based on human time (consulting, one-to-one training) are hard to scale, because the hours in a day are limited. Ventures based on a product that can be replicated (software, digital content, platforms) scale more easily. This does not mean non-scalable ventures are bad; it means they grow in a different way.
Igor Ansoff identified four basic growth strategies, known as the "Ansoff Matrix":
| Existing products | New products | |
|---|---|---|
| Existing markets | Market penetration: selling more to current customers and attracting similar ones (lowest risk) | Product development: new products for your current customers |
| New markets | Market development: the same product in a new city or segment | Diversification: a new product for a new market (highest risk) |
Other routes to growth include franchising, granting others the right to operate your model and brand elsewhere in exchange for fees and a percentage, so your venture grows with others' money and effort while you maintain the standards; and partnerships with organizations that reach customers you cannot reach.
Expanding before the model has proven itself in the first market, or with money out of proportion to revenue, is one of the greatest dangers facing successful ventures. A second branch opened before the first is profitable can bring both down. The rule: master it, then expand.
Here are documented, well-known stories, not to memorize them, but to draw out recurring patterns:
Kodak owned digital photography technology early: one of its engineers built a prototype digital camera in 1975. But the film business was very profitable, so the company hesitated to push a technology that could compete with its main product. As digital photography and then smartphones spread, its business declined until it filed for bankruptcy in 2012. The lesson: do not let your current success stop you from seeing change; if you do not disrupt your own product, someone else will.
Nokia led the world mobile phone market for many years. With the arrival of smartphones with touchscreens, new operating systems and app stores, it was slow to change, its share fell very quickly, and it sold its phone division in 2014. The lesson: size and reputation are not enough; the ability to adapt quickly is what protects a venture.
It began as a feature-packed app for checking in at places. Its founders noticed that people used only the photo feature, so they removed everything else and focused on it. The lesson: customers' real behavior is more truthful than your plans, and simplifying can be the greatest innovation.
Amazon began in 1994 as an online store for books only, because books are easy to ship, and so varied that no single shop can stock them all. After mastering this market, it gradually expanded into other categories. The lesson: focusing on a narrow market at the start gives you the chance to master it before expanding.
It started in Saudi Arabia in 2012 to solve a problem everyone knew: to order food you collected paper menus from restaurants and phoned them, only to find the line busy or the order misunderstood. It brought the restaurants together on one platform, with ordering at the press of a button and courier tracking. The global company Delivery Hero acquired a majority stake in 2016, and the remaining shares in 2023. The lesson: it invented neither the food nor the restaurants; it changed the way people order, by building a model in which the customer, the restaurant, the courier and the platform all gain, as we saw in the faces map in Chapter 6.
Founded in 2020 to offer "buy now, pay later" in interest-free installments, in a form that respects Islamic principles. It solved the customer's cash-flow problem at the moment of purchase and increased the merchant's sales. At the end of 2023 it raised a funding round of about $340 million that took its valuation past $1 billion. The lesson: a well-known global model can succeed locally when it is adapted to people's culture and values, which is what we called "compatibility" in Chapter 4.
It offered shared workspaces to companies and individuals, grew very fast and attracted huge investment, expanding into many cities around the world on long leases. But its costs were far higher than its revenue, its public offering faltered in 2019, and it filed for bankruptcy protection in 2023. The lesson: this is the "reckless growth" we warned about: expanding before the model has proven its profitability magnifies the loss rather than fixing it.
There is also a local pattern that anyone who has taught this course knows: student projects that start with great enthusiasm in a competition or course, then stop after a few weeks. The recurring causes: no strong need, relying on enthusiasm without a plan, lack of time, and the team scattering after the course ends. The lesson: continuing takes more than a nice idea; it takes evidence of need, commitment and a realistic plan.
Failure is a natural part of entrepreneurship. The question is not whether you will fail, but how you will deal with failure when it happens:
Whether or not you start a venture after this course, you have gained a way of thinking that serves you in any work: start from the problem, not the solution; listen to people before deciding for them; test small before committing big; calculate honestly; and learn from every result.
If you want to take your idea further, start with nearby steps: your university's entrepreneurship center, idea competitions and hackathons, Monsha'at programs and business incubators, and mentors with experience in your field. Most important of all, take one small step this week.
The answers are on the Answers to Self-Assessment Questions page. On the interactive course page you can answer and check these questions directly, with practical tools linked to the chapter.
Choose a local venture you know that closed down. Which of the seven causes is most likely? How could it have been spotted early?