The Fruits of FailCon: How to Avoid Startup Disaster

By Conor Rushby |

True to its name, FailCon did not start on time this morning. The event – which has previously been hosted in different locations around the world – was in Berlin on Thursday for its inaugral German running, to serve up a dish of disappointments with aim of helping others avoid them.

Speakers such as Dr. Alex von Frankenberg, MD at High-Tech Gründerfonds (HTGF), twago co-founder Gunnar Berning and Gabriel Yoran of Aka-Aki were on hand to offer up lessons learned. It was certainly interesting listening to other people’s regrets, but the point was to gain practical advice and in this respect they did not fall short.

Dr. von Frankenberg kicked off proceedings with a few pearls of wisdom from an investor’s perspective. You might not have known that HTGF has “made a -0.98 per cent rate on internal returns in the last 12 years,” and is currently working on 30 to 40 investments having so far closed 292, experienced 26 real exits and 20 emergency exits, and 36 insolvencies.

What Alex said is the number one cause of failure in his experience might be surprising: “Something people don’t talk about is value destruction, and the number one cause of this is fights between founders and investors. Many years ago when I was engaged to my wife we did a seven day hike. While we were walking over a pass, it started snowing. The light was fading, but we got down to our hut and this guy told us last year a couple [had] died in a similar situation. They found the bodies far apart. Apparently they died because they fought; if they hadn’t fought they wouldn’t have frozen to death because they would have had enough warmth.”

A stark example indeed of where fighting can get you, but Alex also mentioned another case where an undisclosed company had €50,000 in the bank. They also had investors who were ready to give them money, but the founders filed for insolvency because they fell out.

Not Recognizing Failure

Keeping things civil seems to be the moral of both these tales. He also was keen to stress that those who work hard, keep on top of their tasks, and know the trajectory they are on, have a greater chance of success. But Alex added: “The biggest failure is not to recognize failure.”

Gunnar Berning of twago also provided plenty of food for thought. He began by alluding to the problem with failure Germans seem to have – he quoted statistics that say 42 per cent of people in Germany fear failure in comparison to only 37.8 per cent in Greece.

For his own personal fails, Gunnar recalled the rapid growth twago enjoyed for the first three months, and the investment it secured. However it all turned sour when he read on holiday that his (undisclosed) investors had avoided €450 million in tax.

A huge scandal that threatened to engulf the fledging company – but Gunnar got cracking, coming home on the Friday and setting up a secret war room for himself and two colleagues to sort out the mess. On Monday they divided up the tasks needed to be done, and got a lawyer. The next day, they decided to file for insolvency, and on Wednesday they told the employees of the company’s predicament.

From then they had 65 days to get things in order for the administrators, and try and get financing – which they did. The key, he said, was keeping the team together. Not a single employee bolted in those tricky moments. Gunnar said: “You have to avoid getting into the downward circle of losing the team – one leaves, then another.”

A Problem of Inexperience

Gabriel Yoran of aka-aki, which uses a combination of Bluetooth, GPS and WiFi spots to find other users within your area and alerts users via their mobiles, had more general mistakes, and lessons, to report.

He founded his first company, a security software startup called Steganos, at the tender age of 17 with two school friends. The problem, he said, was his inexperience. By 2004, with 20 employees and with profits in the millions, he realised they had sold so many shares to their investors he was just managing the company, and could no longer take big decisions.

So he left to found aka-aki in 2006. It received a lot of hype, but at the same time couldn’t deliver the goods. Gabriel recalled: “The feeling was that we were there too early – no iPhone, no app store, no nothing. The lack of infrastructure was our enemy. There was no competition at that time, and when the iPhone appeared, it was possible to create apps.”

He added: “We were told it would be a niche product, but we didn’t care if it would be a mass market. When we finally got the app [out], in a month we went from 5,000 to 350,000 users.” Gabriel’s key advice is to question everything, because  “95 per cent of answers you get from people, from the articles you read, are rubbish.”

That was a common theme from all three speakers. Be critical, and be self aware. In Gunnar’s case, the impending fail would have been difficult to spot, but as he rightly said, you can minimise the chances of falling into a trap by being honest with yourself.