Lessons from a Failed Start-Up

Diego and I like to say that "failure sucks but instructs," but all to often, people don't acknowledge or try to learn from their own mistakes and setbacks, let alone share them with others.  As such, I was most impressed to see (thanks to Chris and Scott) Mark Goldenson's post-mortem about why his start-up, PlayCafe, didn't make it. Chris and Scott wrote me about it because Mark talks about the knowing-doing gap as one of the ten causes.  But the rest of the list is even more interesting. I especially liked this one:

4. Set a dollar value on your time. I agree with Paul Graham that good entrepreneurs are relentlessly resourceful, but I have a bad habit of bargain-hunting for sport. I spent three hours negotiating our wireless bill down $100, which was a poor use of time given our funding. The mantra to pinch pennies ignores the value of time.

Time is arguably more valuable than money because you can’t raise more time. Dev suggested pricing our hours. You can divide your available work hours by salary, remaining funding, or total company costs. Ours was around $50/hour. If I was going to spend 5 hours negotiating, I’d have to save at least $250. This value should increase as you gain funding and traction. For anything greater than $500 at any stage, I’d still strive for NPR: Never Pay Retail

I think that Mark's post should be required reading for every entrepreneur, and I applaud him for his courage and honesty.  I also wish him luck on his new start-up; the post indicates that he starting a health care venture.

Comments

[Bob Sutton]

No asshole? Dude, you're just begging for colostomy. And you stole my name.

Bob Sutton

[Doug Park]

Michael and Bob,
Small and mid-size law firms have been using alternatives to the billable hours for years. That's one way they have been able to compete against BigLaw. But I agree that the legal profession should revise its belief that time equals value added.

[Michael F. Martin]

Here is some movement on the edges in the legal services market:

http://www.forbes.com/2009/04/29/billable-hour-retainer-entrepreneurs-law-taxation-wharton.html?partner=popstories

The way I think about this is that focus -- flow -- correlates with a loss of consciousness of time. I'm not sure yet which was the causal arrow runs. But I am sure that a ticking clock can vault one out of flow. The effect is not unlike how performing in front of a group can prevent one from achieving focus. Both consciousness of time and self-consciousness can have a similar effect. We can train ourselves out of this to some extent, but do we want to?

[Bob Sutton]

Michael,
Good counterpoint, and in fact,you remind me that my colleague Jeff Pfeffer has done a bunch of research showing showing that the time is money mentality is bad in lots of ways... here is a post I did on it. Wasting time of course is a problem, but becoming to obsessed with doing things fast and extracting as much money out other people as possible can lead people to forget the value of social relationships and learning too (as you imply with the negotiation point). I still applaud Mark for his courage. The URL for my post on Jeff's research is:

http://bobsutton.typepad.com/my_weblog/2007/01/jeff_pfeffer_co_1.html

http://bobsutton.typepad.com/my_weblog/2007/01/the_billable_ho.html

[Michael F. Martin]

Strangely, this is the one I did not like, and would have thought you would have leaned that way too. Working in professional services, I see people rushing through things all the time because of the opportunity cost of their time. I've learned that the better approach is to set priorities and then concentrate on what has to get done to accomplish those. It usually takes less time like that in the end because worrying about the clock itself is distracting!

I would have thought that obsessively negotiating a phone bill could be fun for certain entrepreneurs, and maybe good practice for more important negotiations later on. But certainly the daily to do list has to evolve as a company grows...