Don’t Stop Believin: A Look At The Founder Failures That Came Before Unicorn Status

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Most people will agree that the secret to success is being able to go from failure to failure without losing momentum.

While this is likely true — the reality is this:

Failure sucks.

It’s glorified because we know there’s value in it but let’s not pretend that failure is filled with sugar plums, unicorns and lollipops.

Vinod Khosla, the Sun Microsystems co-founder is someone who embraces failure and has talked about it on many occasions. In 2013 at SXSW he stated, “I probably have more experience screwing up than anybody in this room.” That’s quite the statement for the first CEO of Sun which was acquired by Oracle for $7.4 billion.

On the topic of failure glorification, Kholsa recently shared an insight that isn’t found in most conversations:

“Don’t take failure lightly. Don’t be afraid to fail. But that doesn’t mean be casual about it. A license to fail isn’t a license to not work hard.”

Rather than being casual about failure, we should be critical. Critical in how we analyze the efforts that led to failure and open to sharing our stories.

In this article, I’m going to be sharing the stories of a few successful entrepreneurs and the failures they had before achieving success. I’m writing this because as an early stage entrepreneur, I know first hand that this job comes with failure and struggle.

My hope is that this article offers a bit of inspiration to anyone who is in the struggle or has recently hung up the cleats for one of their ideas.

Let’s get to it…


Bill Gates & Paul Allen, Founders of Microsoft (Traf-O-Data)

Before Bill Gates became the richest person in the world, he was a young, failing entrepreneur. The first company that he and his future Microsoft co-founder started was Traf-O-Data, a startup that “read the raw data from roadway traffic counters to create reports for traffic engineers.”

The company’s first product was the Traf-O-Data 8008 which could read traffic tapes and process the data. Essentially a computer that would process the traffic counters (the black hoses that most of us have driven over at some point on the road). This is what the Traf-O-Data machine looked like:

After a year of working on the project and hiring their own classmates to build it, Gates and Allen were ready to pitch the Traf-O-Data to their local County. Unfortunately, this is where disaster struck.

According to Gates, the first demo failed because the machine ‘didn’t work’. Shortly after the botched pitch, the trainwreck continued when the State of Washington decided to offer traffic processing to all the cities for free. And like that, the need for Traf-O-Data was gone.

The lesson there can be found in Paul Allen’s description of the experience:

“Even though Traf-O-Data wasn’t a roaring success, it was seminal in preparing us to make Microsoft’s first product a couple years later.”

Max Levchin, Co-Founder of Paypal (SponsorNet, NetMomentum & NetMeridian)

When you hear the name Max Levchin, you might immediately think of PayPal, The PayPal Mafia, Ebay, Yelp, Slide or dollar signs. What might not come to mind are the companies he started that failed before his success.

Here are a few of them…

  • SponsorNet New Media (ad banner network, ‘94–95)
  • NetMomentum Software (white-label classifieds for newspaper sites ‘96)
  • NetMeridian Software, (he wanted to keep the same logo ‘97)

So, how much money did he make from these startups?

According to Max, he made zero from SponsorNet and a modest amount (sub $100,000) for some of the assets associated with NM. In comparison to the success he would later have with PayPal and even ListBot (acquired by LinkExchange) these projects were failures.

During a conference in the early 2000s called FailCon, Max discussed some of his early failures. He proclaimed that failure sucked and that he hated the times in which his credit cards were maxed out.

Here’s how he described his backstory:

The very 1st company I started failed with a great bang. The 2nd one failed a little bit less, but still failed. The 3rd one, you know, proper failed, but it was kind of okay. I recovered quickly. Number 4 almost didn’t fail. It still didn’t really feel great, but it did okay. Number 5 was PayPal.

When Max was asked about the glorification of failure, he put it simply:

I think glorifying failure is a little bit like saying that death gives reason to life. It probably does, but it still sucks to die and, you know, it’s no fun to fail as an entrepreneur, either…

The lesson from Max’s failures is in the value of persistence. Max could have given up after SponsorNet or even after NetMomentum but he kept going.

Travis Kalanick, CEO of Uber (Scour.net & Red Swoosh)

Uber is definitely not a case study of failure. But my first 10 years before Uber are definitely a case study on failure. — Travis Kalanick

Uber co-founder and CEO Travis Kalanick wasn’t always Silicon Valley royalty. His first company, Scour.net which was a P2P File Sharing service that helped people find the files they wanted to download (think Napster days) struggled to get initial investment.

When he did get a term sheet, it had a no-shop clause, meaning he couldn’t talk to anyone else for more money. The potential investor strung out the transaction with the hope that Scour.net would run out of money and give the investors the opportunity to buy the majority stake.

When Travis approached the investor saying he was going to raise money as soon as the letter of intent expired, the investor sued him and the story was leaked to the Wall Street Journal. The story reaching the WSJ of course scared off possible investments and forced Travis to figure it out with the same investor and take terms that weren’t as founder friendly.

But this was just the beginning…

In 2000, Scour was sued by 33 of the largest media companies for copyright infringement. The legal fees led to them laying off staff and eventually filing for bankruptcy to protect the company from the lawsuit. Fast forward a few months and the company went up for auction in court and sold to a communications company in Oregon.

Is this where things turned around for the better?

Not exactly.

The next company Travis found was filled with even more drama. From firing his co-founder and IRS troubles to layoffs and resignations being sent via Twitter — the story behind Travis Kalanick is one of grit and persistence.

Hear the full story from Travis…

Nick Woodman, Founder of GoPro (EmpowerAll.com, FunBug)

If you’re not familiar with the name Nick Woodman, I’m confident that you’re familiar with his product; GoPro. It’s the light weight camera that redefined how we capture events, sports and adventure. In 2013, the company was valued at more than two billion dollars and Nick was named by Forbes as one of the youngest self-made billionaires.

But entrepreneurship didn’t start off so great for Nick. Before GoPro, Nick was the founder of EmpowerAll.com and FunBug.com. EmpowerAll was an ecommerce site that attempted to sell electronic devices to a younger demographic with margins of $2 or less. It didn’t work out.

Soon after the failure of EmpowerAll, Nick launched FunBug and was able to raise nearly $4M. The company was able to build a team but never actually launched even after raising the capital. In an industry magazinereport, FunBug was described as a new age points/game program.

Consumers collect funBugs by playing games at the site, shopping at client sites, referring friends, completing surveys, joining opt-in email lists or a number of other ways.

Each funBug acts as a sweepstakes entry for weekly “Web-spendable” cash drawings. The more funBugs collected, the better the chances of winning. The cash rewards are stored in a user’s account and can be spent at any site that accepts MasterCard.

In the same report a marketing analyst from Forrester Research suggested “If it’s this complicated, they’re going to have a problem.”

The analyst was right.

In the book, F’D Companies: Spectacular Dot-com Flameouts (the title says it all), FunBug is described as a company that spent over $3 million of investor money creating annoying Java-based online games. In 2001, the dot-com bubble exploded, FunBug didn’t make it online and at the age of 26, Nick decided to move to Australia to clear his head after the devastating blow.

When I got out of college, I gave myself till I was 30 to invent a product. If I couldn’t do it by then, I would just get a real job. And that fear — the fear of a real job — motivated me to be an entrepreneur.

While in Australia he wanted to create a surfing video. He created the video using a waterproof camera and velcro strap that was found in his luggage.

GoPro was born…

When describing the experience, Nick gives perspective as to why sometimes, failure is exactly what an entrepreneur needs:

I was so afraid that GoPro was going to go away like Funbug that I would work my ass off. That’s what the first boom and bust did for me. I was so scared that I would fail again that I was totally committed to succeed.

Conclusion

Early stage entrepreneurship is a grind.

You’ll struggle. You’ll be rejected. And you’ll have nights in which you question everything. While I’ve had some success in business, I’m still aware of the struggle and hope that these stories of founders who also failed can give you the inspiration you need to keep moving forward.

Like Ev said,

Reading about success doesn’t make you successful, but it does tend to make youwant to be successful. That’s important. We benefit from positive models that show us what’s possible and make us want to think bigger, work harder, and keep trying — especially when the going gets tough.

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