Key lessons from start-up failures
Calyn Yap 
Addie (left) and Alden started VAV Apps after closing down Vacant Spot
Most successful entrepreneurs have experienced failures at some point. And as the saying goes, failure is the mother of success. Businesses failed for various reasons, and these can be powerful lessons for start-ups.

The word “failure” can send a chill down the spine of any start-up founder, causing him or her to shy away its negative aspects. But is failure all that bad?

Prior to co-founding Twitter, Evan Williams established podcasting platform Odeo, which went obsolete after Apple’s iTunes store introduced a similar offering.

Richard Branson, who owes his fortune to Virgin Airlines and Virgin Records, also had a few failures along the way, including in the beverage industry, namely Virgin Cola and Virgin Vodka, as well as several other ventures in cosmetics, games, clothing and cars.

Bill Gates started Traf-O-Data with partner Paul Allen to create reports for traffic engineers by reading raw data from roadway traffic counters. The duo went on to create Microsoft in 1975.

The fact is, few entrepreneurs make it on their first try, and not every venture is successful, even for seasoned business people.

World Islamic Economic Forum (WIEF) Young Leaders Network chairman Ebrahim Patel says: “The world is less forgiving of failures today. If you’ve had a bad experience with any tech product, no one wants to talk about it any longer.

“It comes down to the cultural aspect of how we accept success and failure. There is a need to shift away from such cultural ties and encourage start-ups to come back again.”

Lessons from Hyve, Vacant Spot

Wong says the first sign of trouble was the lack of open and constant communication between team members

Cheryll Wong, co-founder of Bluetooth tracking tag Hyve and Addie Leong, co-founder of Vacant Spot, share with FocusM their experiences and lessons learnt.

The idea behind Hyve, founded in 2014 by mechanical engineering student Tan Jia Shern, was a system that allowed users to keep track of their belongings at the push of a button on a single platform, via a Bluetooth 4.0-enabled keychain-sized tag.

“Hyve was supposed to use a crowdfunding platform to deliver its products to the business-to-consumer market and then sold purely online on its website and e-commerce sites,” says Wong.

Vacant Spot, which helped users find and reserve parking spots in shopping malls, was conceived by Addie, his twin brother Alden and a friend in late 2014.

“It was conceived when I was still in college and interning. I took about a week to look at what I could do to solve a Malaysian problem, came up with about 300 ideas and parking was the one that stood out,” says Addie.

Financial setback

A major issue Hyve faced was financial in nature, as it burned through most of its funds on prototypes and engaging a digital agency that proved too costly.

Wong recounts her experience of stretched resources, which forced her to dip into her savings, prompting her to do a reality check on the start-up’s continued viability.

“I didn’t want it to be another zombie start-up, which continues operating when it’s better off shutting down because it drains valuable resources and talent from the ecosystem.”

Vacant Spot also had troubles with budgeting and cash management, which Alden says was a mistake as the start-up spent without much concern on financials or keeping proper accounts.

Inexperience with no support from seasoned advisors was another key setback, which both Wong and Addie concur.

Inexperienced entrepreneurs lack certain skill sets such as negotiation, emotional intelligence and people management.

“Making business deals is tough. As young entrepreneurs, we don’t know how to properly negotiate.

“That’s a crucial skill to run a business as it’s what brings in money and we don’t learn how to negotiate a fair price desirable for both parties in schools,” says Wong, adding that some larger companies tend to use exposure as an excuse to not pay up.

After Tan left Hyve six months later, Wong decided to continue operating for another six months before she also threw in the towel.

Hyve’s plan was to partner with China manufacturers and designers to push out its first batch of products and at the same time, raise a round of funding through global crowdfunding platform Kickstarter.

“I felt beaten down after trying to get a Kickstarter campaign going while trying to manage our China partner to produce our final product.

“The company was operating with next to no funds and a box full of prototypes. It was difficult to progress further with a dampened spirit, no team and little groundwork,” she explains.

To make matter worse, the market saw the introduction of similar products, fostering doubt about whether the start-up was growing at a sufficiently fast or aggressive pace, she says.

Underscoring the importance of teamwork, Wong says a warning sign that Hyve was in trouble was the lack of open and consistent communication between team members.

“We did not know what everyone was doing because we were busy in our silos, such as business development through pitching, product development or marketing. There were no clear deliverables,” she says.

Vacant Spot faced a similar situation, with one of its co-founders leaving the team and the emergence of strong competitors. After founding the start-up, its chief technology officer (CTO) – who was also the lead programmer – left.

At the same time, ParkEasy was already gaining ground, which was why the brothers decided to move on to a new venture.

“We tried it for about three months and it was difficult to recruit a lead programmer. It was shaky ground and it would’ve taken six months to take off. We had no app, no working prototype and no team,” Addie notes.

Hiring the right talent, he says, is key and points out that start-ups require a different breed of talents than corporations.

Instead of hiring based on convenience and availability, he stresses start-ups need to hire the right people whom the team can work with and share the same values, to bring the company to life.

“Someone who’s in it only for the money may not be suitable, so the right fit is important, especially when things get rough.

“Say it’s 3am and you’ve done your job, but one of your partners or employees is still suffering and you’ve to stay back to help,” he says.

Building blocks

Towards the end of Wong’s tenure at Hyve, she had several generous offers to join other companies, and decided to accept one as it was a better fit.

She is now head of operations at GoCar, a car-sharing platform where users can sign up, rent cars – by the hour or day – at locations closest to them and unlock via their smartphones.

“I feel that I’ve much to learn from my current job and am excited to see how fast we can grow,” she quips.

Wong has no immediate plans to set up another start-up although opportunities “seem to come knocking quite often”, but she feels there are possibilities in the technology, agriculture, energy and pharmaceutical industries.

The experience has also been invaluable to Addie and Alden, who went on to establish VAV Apps in 2015.

VAV Apps seeks to introduce a new way for organisations to engage with their audiences or consumers.

For example, it enables a broadcast provider to embed inaudible sound waves called VAV Tone into its programmes, which will transmit digital content to consumers’ smartphones while the programme airs.

This way, the broadcaster can invite viewers to vote in a music contest, notify them of promotional deals from advertisers, or other customised messages.

“It’s really hands-on experience; you can’t learn it in schools. It taught us the importance of having a CTO.

“A start-up must have at least three key talents – a CTO to build a product, someone to sell it and a designer,” Alden says.

Importance of technology

Addie agrees the tech aspect is key to success for a start-up, besides a strong team. Learning programming as part of the school syllabus can be a good way to ensure the entire founding team is conversant with technology, he says.

“To run a successful start-up, there must be strong technology and a good team with drive, passion and a never-give-up attitude.”

Founders must also have a thick face and be willing to go out and approach decision-makers instead of shying away due to fear of rejection, he adds.

“If you push through and do more of what you fear, you won’t fear it anymore.”

Talking perception

Hyve co-founder Cheryll Wong says after the start-up failed, experienced peers showed empathy with sound advice on how to move forward, either to continue or let it go.

A few less experienced entrepreneurs, however, were patronising. “I thought the (experience) was quite unnerving although it was funny,” she says.

The most difficult thing to overcome was self-doubt, as she had spent half a year working in isolation with no funds, high stress and little sleep.

“So naturally, it’s easy to let fear paralyse you while you watch others succeed. At your lowest point, it’s easy to compare your behind-the-scene struggles with the highlights of others, and that makes you feel insecure,” she adds.

On her take on failure, Wong says she embraces it but does not take it lightly. While there are many who believe failure builds people and those who have failed are more likely to succeed, she believes the statement needs elaboration.

Failures, she says, do not build people unless they learn from them.

“To me, failure is complacency and an unwillingness to change what is not working. It is a combination of inaction and denial. You don’t do what you need to do to push it to the next step, which ultimately breeds complacency.” 

The missing link

Failure is an unavoidable part of doing business. Start-ups and entrepreneurs must learn from their mistakes and use them as building blocks for future ventures.

World Islamic Economic Forum Young Leaders Network chairman Ebrahim Patel says: “We talk only about the 1% who succeeded – the unicorns – but never talk about those who failed and why.

“If they’d had equal access to funding, regulations and framework, there’s a need to analyse and drill down to find out the reasons.”

Start-up failures may not necessarily be tied to bad ideas or products, but execution, business model or founder mindset. Many businesses failed despite having brilliant ideas and products, and that is why Patel says it is crucial to understand their problems.

Mentoring is another key success factor, as start-ups require not just funding but also constant mentoring to ensure business sustainability.

Start-ups may have brilliant ideas, but they may lack experience in accounting, design elements/thinking or strategic marketing, among others. Moreover, although mentoring is common in the start-up space, it tends to peter out after several sessions as both mentor and mentee lose interest.

“The problem with incubators and accelerators is they’re typically run by those without entrepreneur experience.

“Some have academics, technocrats or bureaucrats involved, who tend to focus on the academic aspect of business models rather than the experiential aspect,” Patel opines.

Experiential learning is the missing link as business fundamentals remain the same across sectors. The best solution is to bring entrepreneurs who have run businesses and experienced failures into incubators and accelerators, as they would be able to give pointers on pain points.

“There’s a need to bring ‘failures’ back into the ecosystem both as mentors and entrepreneurs,” he adds.

What makes a successful entrepreneur is resilience, a tough exterior and the ability to ride out the negative parts of running a business, he stresses.

“It’s the ability to go through the lows and still be at your fittest all the time. A lot of this experience is lost in incubators and accelerators.”

When choosing mentors, most start-up founders prefer those who share the same passion, but shy away from those whom they perceive are not the right fit.

Patel says mentors and professionals who are brought on board need not share the same passion, as they are there to perform a function, which is to grow the business.

Ultimately, the business must be a separate entity to the entrepreneur’s persona. Entrepreneurs must shift their start-ups away from emotional contention, he says.

Aspects such as moral and culture can form the DNA of the business, but decisions must be formed based on business fundamentals, not emotions, he stresses.

Moreover, start-ups must keep abreast with technology and have a strategic horizon.

With the Internet of Things and availability of data analytics, start-ups can streamline or mine information that can be channelled back to the product. This, he notes, is often not addressed by many start-ups.

“The concept of the business plan is now thrown out, but they must have a strategic horizon. Those who are successful are looking at what will disrupt their disruption in five years.

“They must see the strategic value of having a longer-term vision instead of a short-term exit strategy,” Patel adds.

He cites Uber as an example, with Airbnb facing a similar situation. Uber disrupted the taxi industry when it was introduced, he says, but is facing problems from not only competitors but also regulators, which it did not anticipate at the beginning.

“Many start-ups look at other competitors as a threat to their businesses, but they don’t look far above the horizon to see both challenges and opportunities, where governments are creating frameworks that will impact these disruptive technologies,” he says.

Support networks are crucial to entrepreneurs as a net for them to fall back on. A network of peers, mentors and venture capitalists help an entrepreneur re-energise and return to business. 

This article first appeared in Focus Malaysia Issue 245.