How To Destroy A Tech Startup In Three Easy Steps (the intro)

This is the intro to my book:

Ninety percent of all new businesses die. Even when based on brilliant ideas, the hard work and creativity of the team often comes to naught. Why?

Emotions can hinder or uplift. We might hope that those in leadership positions possess strength and resilience, but vanity and fragile egos have sabotaged many of the businesses that I’ve worked with. Defeat is always a possibility, and not everyone finds healthy ways to deal with the stress.

Each person matters. Established firms will have a bureaucracy that can ensure some stability, even when an eccentric individual is in a leadership position, but when a company consists of just two or three people, and one of them reacts neurotically to challenges, the company is doomed.

From 2002 to 2008 I worked with an entrepreneur who had inherited a few million dollars when he was twenty-five. He admired musicians and considered the music industry glamorous, so he built a sound studio. It never made money. The bands that stopped by were broke. Those few who came up with a hit song mostly signed with a major label which, typically, had its own recording studio.

I met him in 2002 when his focus was shifting to the Web. I had developed some software that allowed people to create weblogs. Typepad, which fostered something similar to what I’d built, had just raised $23 million in funding. Surely we could do the same?

Our difficulties were self-imposed. We might go like maniacs on some project for four months, and when we were on the brink of unveiling it to the public, he would grow bored with it and move on to something else. The first time this happened, and I asked him his reasons, he improvised some arguments that sounded plausible; there were already too many startups doing the same thing. But this pattern, where he walked away from a project just when we were ready to introduce it to the public, repeated itself.

What led to this self-sabotage? As I met his whole family over the years I got to see the sad dynamics that ate at him. A modest business success would not be enough, in fact, it would leave him embarrassed. Only the creation of something as big as Google would suffice. But to grow that big, we would first need to be small, and that was the step he had no patience for.

As the years went by and he burned away all the money he’d inherited, the stress wrecked him. His self-image became increasingly grandiose. He told people that he was a visionary, someone who was able to tell what the future would look like. Late at night he would smoke weed and read articles on Slashdot and TechCrunch and then put together an amalgam of words that seemed full of the bright hopes of humanity, which he offered up as our marketing: “The Universe is fundamentally electromagnetic yet non-sentient, and we are sentient but only partly electromagnetic; the Internet is the ultimate harnessing of sentience to the fundamental forces of the Universe. Therefore our software will put you, our customer, in the driver’s seat of real-time conscious human evolution.” Later, when he wrote up our business plan, he put these two sentences in the executive summary. I’m not joking.

He had no capacity for internal dialogue. Only by talking to others could he hear his own thoughts. At our peak in 2007, we had eight people on our team. Sometimes I would look around the room when he was talking at everyone, and I would think, “If you add up what we pay all these people, we are spending $300 an hour so that he can have an audience.” When he was fearful about our chances of success, he would need to talk to everyone, and when he was euphoric about our chances of success, he would need to talk to everyone. Therapy would have been cheaper.

We had one modest success, in 2007. His girlfriend, a yoga instructor, suggested we build an online marketplace where yoga instructors could sell videos, as well as offer health advice. This site was an immediate success. Within the first month it was profitable. We were written up in all of the major yoga magazines. It seemed obvious to me that we should use the same technology to build a series of similar sites. We could do a site devoted to cooking videos, another devoted to tennis, another devoted to golf. Indeed, just a few years later, the team behind Revolutiongolf.com did exactly what we could have done.

My business partner, however, was enraged by the success of the yoga site. He had burned through several million dollars chasing ideas that he felt were “visionary” and then his girlfriend came up with a simple idea that turned into our one true hit. To this day, it remains a popular yoga site. We could have built an empire around that site, but instead his girlfriend’s success left him bitter.

I finally ended the partnership in 2008 after I had decided that I could never build anything successful while I worked with him. A decade later, he has not yet built the giant success that he fantasizes about, but he is still active in the local tech scene. If you run a Google search for “Charlottesville Ted Talk Archaeomediaology,” you can see that he is still trying to sell his vision.

I wish I could say that this situation was all together unique, but I’ve found that self-sabotage is remarkably common. When inexperienced entrepreneurs ask my advice about their idea for a tech startup, they often worry “What if Google decides to compete with us? They will crush us!” I respond that far more startups die of suicide than homicide. And I’m hardly the only one who has noticed this odd fact. The great business guru Peter Drucker made the point repeatedly. In his 1985 book Innovation and Entrepreneurship, Drucker includes a long chapter on the tendency of entrepreneurs to destroy the innovation they’d created.

I could tell that story, but recently I was an eye-witness to an even more extreme case. By 2015 I had moved to New York City. The chance to work on a uniquely innovative project filled me with excitement, and in fact I was so thrilled by the work that I was slow to recognize how deeply dysfunctional the leadership was. The story of this doomed Big Apple startup, written in day-by-day format, occupies the rest of this book. From the trenches, at close range, what does it look like when a brilliant idea begins to die? What are the warning signs that stress is beginning to undermine people’s rationality, that decisions are being warped by ego and insecurity? Humans can be messy, and other people’s messiness is often entertaining. Sometimes it is even educational.

Of the incubator where these events occur, my co-author, Natalie Sidner, produced a 4 minute for her family, back in June of 2015: