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Why do some entrepreneurs fail?
Piyush Shah, Member, Indian Angel Network

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January 16, 2008

There are entrepreneurs and there are ideas. While some see the light of the day, others fail to reach their logical conclusion.

Why do some entrepreneurs fail? What are the pitfalls they should avoid?

In the third part in this series -- which was launched by Ranjit Shastri and then Mohit Goyal -- on entrepreneurship and issues related to it, Piyush Shah of the Indian Angel Network discusses why some startup ventures fail to take off.

Piyush is entrepreneur, angel investor and manager of consumer online services. Most recently, he was a director in the Consumer Online Enterprise Strategy group at Microsoft; this group worked with the large online companies like Yahoo, Ebay, Google and MySpace.

Piyush is a computer science graduate from SUNY Stony Brook and has an MBA from the Wharton School. Over to him:

I was having lunch with an entrepreneur friend the other day. He had successfully raised money in first venture capital round and we were discussing his next steps. There was a period of uncertainty combined with conviction at the beginning of his exciting journey.

It is this tug-of-war between doubt and passion that drives entrepreneurs to go for the idea.

However, until you are convinced that an idea must be executed, it's hard to convince others. Starting out is really about proving to yourself that this idea is worth all of the sacrifice and struggle that will be required to see it through.

In this case, the entrepreneur was not only willing to quit a cushy corporate job but also to invest his life savings in the start-up. The need to prove it to himself was so important that convincing others became much easier.

Another company I am an advisor to began as a series of conversations between two long-time school chums. They didn't have the capital to sink into an expensive plan, but they knew they wanted to work together.

Tossing out idea after idea, they came up with something that seemed like it would work. But it wasn't easy to get customers to sign up, even when they saw value in the proposal. However, their conviction that customers would significantly benefit motivated them to keep investing their sweat equity.

Securing customers' interest and a technology partnership with no upfront capital were the keys to getting their first angel round funding. They were able to do it with very little capital outlay but, by the time they looked for funding, they knew it would work. The money was needed to scale the model, not to prove it.

I have also worked with other entrepreneurs who have spent years building 'it' -- that great big idea which, once built, would have customers knocking at the door, and is validated by market analysts' reports. However, when they actually showed 'it' to others, they didn't understand 'it'.

The entrepreneurs had not really proved it to themselves; they had tried to do what they thought the market wanted. A simple exercise of asking customers if they wanted the product had not been carried through and the product, while technically interesting, wasn't useful to anyone.

The characteristics of 'starting out' can be a combination of the burning passion to have your idea see the light of day and customers who agree and commit to the idea. If you end up in a situation where you and your partners are the only ones 'buying 'it', then you need to step back and rethink the idea.

Ultimately, starting-up is a journey into the unknown and a belief in the future. Proving it to yourself is the first due diligence any investor looks at because, ultimately, they are backing the entrepreneur and his/ her beliefs.

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