Topic: Announcement

Pear VC hosted an event with Professor Thomas Eisenmann, the Howard H. Stevenson Professor of Business Administration at Harvard Business School. He is the faculty co-chair of the HBS Rock Center for Entrepreneurship, the Harvard MS/MBA program, and the Harvard College Technology Innovation Fellows Program. He currently teaches Entrepreneurial Failure, Technology Venture Immersion, and Launch Lab at HBS. 

Earlier this year, he published Why Startups Fail: A New Roadmap for Entrepreneurial Success. The book looks at common failure partners for early and late stage startups, how to avoid these failure patterns, and how startups can fail better. 

We cover the key takeaways from Professor Eisenmann’s talk in this article. 

What does it mean to be an entrepreneur?
Why study failure?
Do founders make or break a business?
Why do partnerships fail?
Why do co-founder relationships fail?
Why do execution oriented founders fail?
How do startups with momentum fail?
How can aspiring startup operators leverage these lessons?
How can you rebound after failure?

What does it mean to be an entrepreneur? 

Entrepreneurs pursue novel, risk opportunities without resources. For example, while Dropbox and Google Docs built similar products, Drew Houston was launching the former with far fewer resources than Google had. 

In his research and book, Professor Eisenmann defines a failed startup as one that never makes investors money. Of course, he notes, this is not a perfect definition because it does not factor in societal impact or the startup outcome’s alignment with the founder’s ambitions. In the later stages, specifically in the Series D and beyond, only around 40% of startups are even still led by the founder: sometimes, a startup can succeed or fail regardless of the founder’s involvement. By Professor Eisenmann’s definition, up to 90% of startups fail.

Why study failure? 

Professor Eisenmann found that oftentimes a startup can be a victim of its own success. Things like hypergrowth can simultaneously boost the likelihood of success and failure of startups. By studying failure, Professor Eisenmann aims to help founders better understand how they can avoid these common mistakes. 

Do founders make or break a business? 

Many investors make the argument that investing decisions should largely be made based on the caliber of the founder. According to this philosophy, even if the initial idea is poor, a great founder can make it work or figure out a better idea to pursue. 

Professor Eisenmann notes that it’s not just the founder whose time and ideas contribute to the company’s success. In fact, there’s a whole constellation of players who have to be aligned from investors to other team members to external partners. 

He recalls a founder he advised at HBS who was building a company providing better fitting, stylish work apparel for women. They validated their MVP, raised $1 million, and launched their business, but they quickly found they could not deliver on their promise of providing better fitting clothing. Their rate of returns were on par with other eCommerce sites, which ran counter to their promise and mission. In hindsight, here were the mistakes he realized they made: 

• Holding inventory: Rent the Runway (another HBS founded company) was able to find success in a similar space in part because they were renting dresses, not holding their own inventory. When you hold inventory, you run into a world of logistics challenges many founders aren’t prepared to face. 
  • While both sets of founders didn’t have domain expertise in retail, such domain expertise was less necessary when the company was renting (in the case of Rent the Runway) than when they were holding inventory (in the case of this failed startup). If you’re a founder lacking domain expertise and building in a space that requires it, leverage people (friends, investors, advisors) to help you vet the domain expertise of talent when you are hiring to fill these gaps. 
• Working with outsourced manufacturers: outsourced manufacturers usually are working with hundreds of customers and don’t especially prioritize a smaller, newer startup with fewer, specialized orders. They likely didn’t pay special attention to the unique fitting needs and dimensions the startup requested. 
• Not having a jack of all trades culture: in the company, everyone just did their part, which is certainly sufficient at a large company but definitely not aligned with the startup culture of everyone pitching into everything, even tasks outside of their core roles. 

Why do partnerships fail? 

Startups frequently want to partner with big companies, but doing so often leads to an unbalanced dynamic. It’s hard to find a point person in large companies. With the natural turnover in large companies, even if you do find a champion, they may leave to join another team or company before you close the deal. Large companies may also be looking to steal your idea and build your concept in house. For them, partnering with you long term may just be less of a priority and less of a need. 

Marc Andreessen aptly uses the Moby Dick analogy to describe the nature of startup and large company partnerships: startups spend ages chasing after the promise of a partnership only to realize it wasn’t at all what they expected or wanted. 

Startups typically can’t afford lawsuits in cases where the partnership with a large company goes south. Other alternative courses of action include threatening to sue or, better, using your social media platform to drive attention to the situation and pressure the large company in question. 

Why do co-founder relationships fail? 

When founders talk about “resources,” they often think of time or capital, but in reality, people and relationships are the most important resource. Within this context, your relationship with your co-founder is crucial to the success of your business. 

Too often, entrepreneurs jump into founding a startup together too hastily. It’s hugely helpful to feel out working together prior to formalizing the founder relationship. Try working on a big project together first. 

Why do execution oriented founders fail? 

People always stress the importance of founders having a bias toward action. While this is certainly true, execution oriented founders can face the false start challenge. They become instantly convinced of their product market fit, and they want to move quickly to building, but they neglect to truly do customer research. Fight against your instinct to just build heads down. Instead, make sure you spend time with your prospects and talk to people in the ecosystem. 

You may have some enthusiastic early adopters, but many early adopters are not truly useful data points unless you can bridge the gap between them and your mainstream audience. Building based on early false positives leads you to overbuild to early adopters and build in the wrong direction. 

How do startups with momentum fail? 

Even startups that seem to have great momentum in early user growth and big rounds of funding at high valuations can fail. As you grow, it becomes increasingly harder to get customers. You usually transition from word of mouth and other organic avenues of growth to paid marketing and start selling to a less captive audience who you’re not in direct contact with. 

If you don’t meet your milestones, you can face a down round, so be careful what you raise at and don’t just go for the term sheet with the highest valuation. 

For more logistically intensive products, scale presents other challenges. For example, Professor Eisenmann recalls a couch delivery startup he worked with that faced challenges with their couches showing up at the customer’s doorstep too early. 

For companies creating a new market, many things need to go right, and if even one thing goes wrong (like consumer behavior shifting in the case of Segway), everything can quickly go wrong. 

How can aspiring startup operators leverage these lessons? 

Professor Eisenmann’s insights aren’t just useful for startup founders but are valuable for operators as well. If you’re thinking about taking a job at an early stage startup, consider the following: 

• What is your learning style? What do you want to learn? Knowing this, are you able to learn from the people on the existing team? 
• What is the risk of failure? What does that mean for you financially? 
• Do you see any of these failure patterns? For example, are the founders overbuilding to early adopters? Do they need domain experience? If so, do they have it? 

How can you rebound after failure? 

Failure isn’t the end of the word. Even if your startup does fail, there’s ways you can fail better and rebound effectively: 

• Balance distraction with reflection
• Be graceful: make sure your vendors are properly paid, give back capital to investors whenever possible, ensure your customers are taken care of, and support your employees in finding their next roles 
• Be intentional: think through what you learned, instead of blaming others. Focus on what you can tactically do better next time. 

We hope this article has been helpful for you in avoiding common startup mistakes and failing better. 

Before Anand founded Trusted, he was the co-founder of Threadflip, which lost out, in a sense, to Poshmark. 

Reflecting on his time there, after Poshmark’s IPO, Anand realized that he and his team had always been relying on product to move the needle.

“It was always based on some small signal and sometimes there’d be some marginal improvements. But we weren’t fundamentally understanding who our users were and listening to what they needed. For a marketplace that was heavily designed for a female demographic, we needed to really get into the weeds a lot more than just marginal product improvements. You can be the best product in the world, but I don’t think you can quite get the big hits unless you know how to realistically build a company. There’s a difference between building a product and building a company. And I think we weren’t a great company.”

It was a lesson Anand took to heart in building his next company, Trusted, and it is an ethos that fuels his obsession with customer acquisition. 

Day Zero: A date night app
0 to 0.5: Cracking the nut on customer acquisition 
0.5 to 1: Serving customers and expanding to corporate benefit customers
Anand’s Key Pillars For Founder Success

Day Zero: A date night app

Trusted actually started off as a date night app for married couples, called Bliss. It started because Anand started to realize that he wasn’t spending as much time with his wife as he would have liked since they had welcomed their daughter to the family. The app planned and set up dates for busy couples for a subscription fee. After six weeks, he and his cofounder, Vivian, a friend from his early days at Microsoft, found that 4 out of 10 couples were churning.

As experienced founders, they knew to immediately ask why.

“We learned that couples were thinking, ‘We know where to go. We know what we want to do. We just can’t get out of the house frequently enough, because childcare becomes a problem. There’s no trusted network for us to leave our children with.”

Aha! They had found the true underlying problem. 

0 to 0.5: Cracking the nut on customer acquisition 

At the time, Anand was the primary caregiver in his household. It was this role that granted him his unique insight into the caregiving space.

“I started to spend a lot of time with other caregivers, because I needed my daughter to socialize with other children. My learning from this was that tooling for caregivers was missing. They didn’t know how to clock hours or find clients.”

So, Anand and Vivian started building that tooling, creating a SaaS product that helped caregivers to manage their schedules and other logistical aspects of being a paid caregiver, such as qualifying for overtime, upskilling, where to get help, where to get background checks, and the like. 

To acquire their first set of caregivers, they got creative. 

“We did not want to spend on customer acquisition. That was our goal from out of the gate,” Anand says. “If you’re really deep in the space, sometimes you can find some distribution hacks that others who are out of the industry are unaware of.” 

That distribution hack for Trusted was partnering with nursing sororities in universities around the country.

“We noticed that a lot of nursing students had a lot of credentials. They loved caring for people. A lot of them used to watch children before they got into nursing school. So they became sort of a natural fit for us, and we didn’t really need to even interview them. They found great jobs and would bring all their friends in, so it became a really interesting viral loop.” 

It was that relentless focus and discipline around customer acquisition strategy that continued to drive Trusted’s success, as they went on to launch the parent side of the app and become a marketplace. 

“We literally had this chart, and even today, I could refer to this chart. It starts with ‘How are we going to get our first 10 users?’ And then we would go from 11 to 100, then from 101 to 500, 501 to a 1000, and so on. It was methodical and specific. Vivian and I really challenged each other on this, on both sides of the marketplace, asking, ‘What are our core assumptions here and how are we thinking this is gonna work?’ That gave us a holistic way to think about customer acquisition.”

0.5 to 1: Serving customers and expanding to corporate benefit customers

Of course, the founders were also constantly iterating on the product to make sure that it engaged and served their customers. One of the biggest early decisions the team made was to switch from a flat rate pricing model to a flexible rate, after they saw caregivers churning from the app to collect payment directly from their clients. 

“Caregivers were asking, ‘Why are you making 25 and I’m only getting 17.50?’ And it was hard to explain that we were a software platform or for-profit business and all this stuff,” recalls Anand.

Anand and Vivian designed a flexible pricing model where there would always be a floor price that a caregiver would be able to make based on skill set and number of hours on the platform, but that number could always go up based on demand. As the caregiver started to accrue more hours in the platform, they could naturally command a much higher rate. 

“That was a big moment for us, because we introduced a transparent pricing model and caregivers felt better. They were happily staying on the platform and continued to grow with us.”

To this day, some of the caregivers who Anand and Vivian had hired back in 2014 are still on the platform, working and bringing in good income — some have even stayed moving between markets, from San Francisco to LA to Austin.  

On the client side, Anand and Vivian began selling to companies as a corporate benefit, ultimately leading to their acquisition by care.com, a company rapidly growing in the space.  

***

Nowadays, as an investor, Anand is learning to flex his startup brain in different ways. 

“When you are building, you go a mile deep and it is sort of an inch wide. You’re very much siloed in your problem space. As an investor, you have to go a mile wide and inch deep. That’s the biggest difference that I’ve noticed,” he observes.

Still, Anand is full of advice from his 0 to 1 days, and he’s been inspired by his new work. 

“In spite of all the issues that humankind has faced, there’s some really ambitious founders, solving some really big problems and that’s very encouraging. We had a vaccine for a crazy virus that came out in a year, and that’s unheard of! I think that kind of progress is something that I’ve never seen.”

Anand’s Key Pillars For Founder Success

Keep it raw

One thing that I always struggled with was knowing how much to absorb and keep to myself, versus how much I should share with the team. Say, customer support would flag something, and I read every single customer thread that came in. I struggled with knowing how to parse that information and how to share it, whether it was a technical glitch or an operational issue, because I didn’t want to drop the burden of something so strong coming from a customer. My learning was that it is important to keep it raw—your team actually appreciates that. The vulnerability goes a long way and they end up being a part of the solution as opposed to thinking there’s a gatekeeper between the problem and themselves.

Set your boundaries 

I was having a chat with a fellow founder at 11 PM Eastern his time when he was texting me. And I was like, “Why are you texting me? You have three kids, you should really be going to bed now— take care of yourself!” I think that’s something that we all struggle with. But as you age, at some point you start to do the math on how much time you will have with your children before they go off to college, and you can put that in a finite number of weekends, for example. Then it becomes really scary. You think, ‘Oh my God, I only have 520 weekends left when they’re eight years old.’ That’s not a lot if you think about it. Setting boundaries is number one. I literally have times that I block off on my calendar very deliberately as a reminder for: “I need to do this now. This is important.” And then simple things like activities where you’re forced to not have your phone with you. With my daughter, when we’d go to the Farmer’s Market, we’d go biking, and you have to be single-tasking there. That will force you to really check out. The last thing I’ll say: don’t forget your partner. They’re the ones who are supporting you and your pillars through the journey.  It’s important to spend time with them, cherish them and make sure you celebrate all the little milestones with them along the way.

You can’t always buy your way out of customer acquisition 

Customer acquisition is something that you just cannot take for granted. You can have an amazing concept and a great product in theory. But when you start to build the company, you really need to think about how the company will  scale. There are a lot of very strong product minded entrepreneurs out there or founders who can build great product. But building a great company comes with sorting out  customer acquisition and scaling. There is a gap in how some people think about customer acquisition, and it is not always trivial to buy your way out of it. You will hit a point where your CAC (cost of customer acquisition) is just too high and the LTV (lifetime value) is relatively low.

Pay attention to the details

The little things matter. You want everything to be bulletproof when it comes to the pitch. Be heavily invested in putting your imprint out there, because it is going to get looked at by a lot of people, and there are a lot of people who are going to pick up on the little things. It’s not about the graphics or rounded corners versus squared corners, but it’s about the attention to detail. Your narrative becomes even stronger, and the way that comes across is that you’re someone who’s really thought about the problem space really well and knows their stuff. Relatedly, generally speaking, knowing how to create something that delights your users is an art form and it’s something that you should never take for granted because that’s the power of technology. I wouldn’t say it always helps with acquisition of a new customer, but it always helps with retention, because the user will be delighted by the product and experience.

Sometimes the best ideas aren’t planned at all. They grow organically. That was how Pear Accelerator and Demo Day began.

In 2014, Mar and Pejman invited some talented Stanford engineers to hack in the Pear offices. They also offered their mentorship with no strings attached. That community of hackers became the first ever Pear Garage cohort, which continued into the summer by popular demand from the community.

During the summer, Mar and Pejman thought it might be helpful for the founders to practice presenting their ideas formally, so they decided to host an event and invite their network. 

“It wasn’t like a ‘Demo Day’ or anything else. We just thought it would be great to invite some of our friends to come and provide feedback,” says Pejman. 

So, 40-50 great investors from the likes of Sequoia and Accel crammed into the Pear offices to listen to seven founders pitch. 

“We had handwritten name tags and it was definitely not a sophisticated production with all the bells and whistles, but the teams were great and did their thing,” recalls Lily Johnson from the Pear Ops team. 

Those teams got the attention of TechCrunch however, which ended up publishing an article deeming the event “Silicon Valley’s Favorite New Demo Day.”

That was that. Pear now had a ‘Demo Day’. From then on the team decided to put one on every year, leading to the development of a formal Accelerator program. Demo Day moved into the more spacious Cooley offices. 

Still, Demo Day kept growing. And the Pear team’s visions alongside it.  

“The next year we needed a bigger space, so we were looking at different venues and we really wanted something to still have that Pear touch—not as sterile, or conference feeling. Pejman suddenly said, ‘What about Filoli?’” Lily remembers.

It was a dreamy idea. The historic Filoli Gardens are pristine and meticulously manicured, with 700 volunteers who landscape the entire 600 acres of gorgeous property. 

“I went to many Demo Days—you go and it’s very transactional. I thought, ‘What if we change the scenery, so you can have the same conversations in a nicer environment?’” says Pejman. 

But it was also a bit unorthodox for something like a tech Demo Day. The team wondered if it would confuse investors, or if they would even be able to find the venue, since it was a little farther out from the usual Demo Day locations in Mountain View. 

Ultimately, they decided to go for it. 

“Pear is a special type of VC firm, so I think it resonated with the brand, and it just worked with us and who our team was,” says Lily. 

With that, the big event planning and production process began—always an intensive project.

“It’s like a wedding times two or three, because there are just so many logistics that go into an event of this scale,” says Lily. “It’s such a whirlwind. I remember literally running from location to location.”

Since that first Demo Day in the garden, the event has just kept on growing and growing.

“Last year, we kept sending invites out, and then we started moving past 300 RSVP’s, which is the capacity of the auditorium. I’m starting to get nervous, like ‘Alright. What if everyone shows up?’—which never happens at an event, but in the case that it did, how were we going to fit everyone into this room?” Lily recalls. “Then we got to 600 RSVP’s and it kept climbing. So we were thinking of creative solutions. We ended up reaching out to this rental company and getting chairs that were more narrow, and we were able to fit 500 chairs and it was just an absolute miracle. I remember showing up the day of  and meeting with the equipment rental manager and we were literally going with a measuring tape across the room and just squeezing the chairs together. That was a classic.”

On top of the logistics of producing the event, there’s also the important job of supporting Accelerator founders to be on top of their game for the big day, with hours spent polishing slide decks and rehearsing pitches. 

All the hard work pays off when investors and founders gather to imagine the future together for a few hours. Plus, migrating to the massive lawn terrace from the conference room is always a showstopper.

“The garden, my God, the garden—everybody loves the garden!” Pejman laughs.

Indeed, with the beautiful garden environment, live band, hors d’oeuvres, minibar, and product demo booths, Pear Demo Day has become a righteous, glittering party over the years, far more than a mere networking event. 

“We try to keep it interactive and promote relationship building in a fun Pear-ish way,” says Lily. “The style of Demo Day is a nod to how Pejman has approached everything, where he was thinking, ‘I really want the networking afterparty to feel like an opportunity for people to chat and hang out. I want people to get to know each other, but still have a good time in the process.’”

At the end of the day, in spite of all the glitter, Demo Day is really about something quite simple — getting to celebrate the hard work of Accelerator founders.

“As corny as this sounds, it is always one of my favorite moments: where you just high-five each other and you’re like, ‘Damn, we did it—YES!’” says Lily.

While we won’t be gathering in the gardens this year, that is the spirit of Pear Demo Day that will never change.

Community is one of our top values at Pear. We believe deeply in the power of deep, authentic connections — it’s how founding partner, Pejman, went from being a rug salesman to a tech investor, after all.

Since the early days, we’ve devoted a lot of energy into nurturing a vibrant community of high-caliber founders, and we know how much work it takes. That’s why we’re excited to announce our new pre-seed partnership with a company seeking to empower the superheroes who do this important work: Gatsby.

Like all of the founders we back, Zach Rivkin is someone who deeply understands the problem he’s working on. As Joe Lonsdale’s Chief of Staff at 8VC, Zach had a hand in helping to manage Joe’s network. One of the most meaningful ways of nurturing relationships is to host intimate events, and Zach quickly became very familiar with the painful process of pulling such gatherings together.

“Let’s say there’s someone visiting from out of town, and you want to have a dinner with them, and maybe eight other people in your network. Who should you invite? How do you send those invites out? How do you figure out the seating chart? How do you track people’s dietary restrictions? How do you collaborate on this with other people in your team? There are lots of these small little things. I’d be back and forth all the time with the admins and executives trying to figure out how to work through these problems. And if these things break, it’s really bad!”

As someone with a front row seat to innovation, Zach thought, why don’t we actually try to use technology to fix these annoying workflow issues?

Back in August, Zach had met his first cofounder, Michael Zuccarino: an engineer at Pinterest with a deep passion for building indispensable products. The two had already been building on the side for fun and loved working together. They then brought in creative technologist, Chris Zelazo, from Pinterest to complete the team as their third cofounder. Michael and Chris first worked together on a project for Apple to rapidly prototype a new feature in the Pinterest app, which was demoed and presented at WWDC ‘19.

The magic moment happened when these three builders aligned on the Gatsby vision: build a powerful technology system to serve the administrative workers who manage high-stakes, complex relationships and their related workflows, such as intimate event planning.

You might be wondering why a good tech solution doesn’t exist yet, especially in such a tech-forward industry. We like it when our founders have some ideas:

“I think admins are somewhat trained to always make it look like everything is working seamlessly behind the curtain,” says Zach. “Also, I don’t think a lot of people ask admins for their opinions on what could be done better. It’s framed as a very execution oriented role as opposed to strategic, but I view a lot of this administrative work as highly strategic.”

We love that Zach has empathy for his users in spades.

“These admins are super powerful in a way that most people overlook. Their executives rely on them. They have tons of context and knowledge in their head, because they see everything going on. They own the keys to the castle and determine who gets meetings and who gets pushed forward.”

Indeed, we agree with Zach — it’s time to supercharge those powers with technology. We’re thrilled to be partnering with 8VC to back this incredible team.