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Lessons from a Real-Life Startup and Angel Investor Failure

By Elizabeth Kraus on June 3, 2013

Colorado Governor, John Hickenlooper, recently announced that COIN has launched a “Glorious Failure Innovation Challenge” that will award $100,000 of cash and in-kind services to high growth ventures that have learned from failure. I think this is a glorious idea and it has inspired me to think more deeply about what I’ve learned from my own failures. I will be sharing these lessons in more detail in Boulder, Colorado on June 6th, but here are just a few of the most important things I’ve learned from my entrepreneurial failure:

When I was 23 years old, I had the serendipitous opportunity to run a startup called myUsearch.com, the Honest College Matchmaker. We were like e-harmony, but instead of helping people find love, we helped students find the right college and colleges find the right students. I poured my blood, sweat and tears, a total of $300,000 of my and my husband’s money, and five years of my life into the company. While I managed to recoup some of my costs and keep it afloat, it was certainly not the big software success I was shooting for. After five years, I essentially chalked the experience up to a great education and moved on. So what did this expensive learning experience teach me?

1) When investors won’t invest, maybe you shouldn’t either. The only angel investor we were able to convince was my mother, who came in at 50k. We thought we were unable to raise other outside capital because it was just hard to raise capital, but that really wasn’t the case. As the experienced investors who listened to our pitch could see, our business concept was unlikely to succeed. I can vividly remember pitching to Jason Mendelson and he told us that we were going into a crowded space of competitors with pockets deep enough to crush us. He was right.

2) It doesn’t matter if you have a better product if your customers don’t care. Our business made money by selling internet leads to colleges trying to recruit students. Our leads were more qualified, we enabled colleges to better protect their brand and our customer experience was far superior. Unfortunately, our customers didn’t really care. They weren’t uncomfortable enough with their current solution to go through the hassle of making a change.

3) Adult supervision is definitely a must. I am resourceful, determined and a quick learner, but I was a first-time entrepreneur. Launching, scaling and ultimately selling a startup is much harder than I ever anticipated and having someone on the team who has successfully scaled a similar business and has the industry contacts to be successful, is an absolute must.

4) It takes a village. As Brad Feld writes about in Startup Communities, it really does take a village to build a startup. I failed to access the startup community I had right in my back yard in Boulder, Colorado – in part because the community was still in it’s infancy, but mostly for two reasons: 1) I thought I was “too busy” to waste time networking and 2) I was afraid to admit my lack of experience in certain areas. Now that I am really a part of that community, I understand its value and the importance of asking for help.

5) Trust your instincts. When I first read the business plan of the company I decided to run, I thought: “Hmmm…it seems like there are a lot of companies trying to do similar things and this solution doesn’t seem that much different.” I was dead right. But…. when I saw the huge market opportunity, it clouded my judgment and I turned off that little voice in my head. This leads me to my next point.

6) A HUGE market doesn’t necessarily mean it’s a good market to go into. As I said, my instinct told me that it was a crowded market, but I thought, “It’s such a HUGE market! If I can just get 1% of market share, I’ll be golden. How hard can that be?” Well, it’s hard!! Generally speaking, if it is a huge market opportunity, that market opportunity will attract not only big competitors with deep pockets, but also a flood of smaller companies rushing to take a piece of the pie.

As Arlene Weintraub wrote in a recent Entrepreneur article, “the best entrepreneurs know that one of the keys to success is taking responsibility for bad business ideas, learning from failure and applying those lessons to your next venture”. I try to remember that in everything I do and apply the lessons I learned as an entrepreneur in both my own ventures and when I analyze businesses as an angel investor. However, it is certainly a perpetual work in progress.

Elizabeth Kraus is a Boulder, Colorado entrepreneur and angel investor, and co-founder of the Impact Angel Group, an investment group equally dedicated to making a difference and realizing a return. Prior to founding the Impact Angel Group, Kraus ran her own startups, myUsearch.com and Take it OUT! Fitness, and now spends most of her time convincing smart people that investing for social and environmental impact isn’t just “feel good” investing, but is “real” investing. She is a startup mentor and advisor, and has been very active in the Colorado effort to improve the entrepreneurial ecosystem and mobilize angel investors.

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