“Success is a lousy teacher. It seduces
smart people into thinking they can't lose.”

- Bill Gates

Introduction

The Northern California entrepreneurial startup ValueNetworks, LLC struggled for 42 months before it was abruptly dissolved in June 2011. It failed because it had no customers or free cash flow. It had a terrible balance sheet.

Investors, customers and markets determined ValueNetworks and its main ‘Insight’ offering had no benefits or advantages to business. Customers did not want to pay money. They voted with their feet and closed wallets. ValueNetworks collapsed for the same simple reasons many startup firms fail – not enough customers wanted the offerings. End of story. It is routine and common.

Only the founder and leadership are responsible for the demise of any startup. Exogenous conditions such as capital, markets, economics, etc., have no bearing on startup success or failure.

ValueNetworks

Value networks are not new. Axiology, the deliberate study of value, goes back to the dawn of the 20th Century. Network analysis and science had a mid-Century debut. The Austrian School introduced various theories of value in the late 19th Century. Modern exchange analysis started with thinkers like Adam Smith in the 18th Century, and so forth and so on.

Today, of course, the most prominent exponent of value networks is Clayton M. Christensen. Clayton is the highly praised book author and Professor of Business Administration at the Harvard Business School.

Meanwhile, IBM has a patent application for value network analysis. Other variations, Websites, applications, research and so on for value networks exist worldwide in many forms. Some are documented.

ValueNetworks, LLC based its offerings on a value network derivative. It originated from Michael Porter’s pioneering scholarship on value chains in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.

The ValueNetworks version of value networks drew from circa 1990s organizational development and knowledge management methods.

Adapting Porter’s chain metaphor to networks and delivering value network analysis productivity software made sense. It was an excellent product prospect to apply startup logic and risk capital.

Stakeholders and investors believed this practical, enterprise-style product version of disruptive network analysis could be a fast-growth entrepreneurial startup deployment and adoption model.

Startup Failure

In Northern California, in Silicon Valley in particular, startup failure is seen as a net positive. For some, this can seem odd. In reality, it’s a powerful cultural idiosyncrasy of the region.

In a broader, US sense, the legal, financial and business structures are arranged to encourage and expand entrepreneurial activities. However, nowhere else is deliberate, rapid-fire failure seen as an approach to entrepreneurial success than NorCal.

‘Learning from failure’ is not some dopey platitude in NorCal; it’s precisely how the region innovates and creates enormous wealth. The startup failure post-mortem narrative activity, like this founder’s blog, is a critical learning method. By no means is it pejorative; it is constructive and required reading for entrepreneurs. The more we can learn from predictable disasters the better.

Let’s not forget mighty Steve Jobs/Apple calamities, Lisa and Newton, a generation ago. Fast forward to Mountain View and Google’s recent train wrecks include Wave and Health. All failures serve to inform and master future product generations.  

The NorCal startup firm ValueNetworks, LLC failed because it lost focus of one thing: customers. After an auspicious start with a robust customer and product focus, the firm quickly devolved to an inconsequential consulting boutique offering bombastic ‘Insight.’

Lofty speeches, code words, arcane writings and pseudo-profundity carried the day.  Meanwhile, prospects simply rejected the 1990s-style, survey-based, management intervention methods of ValueNetworks. They certainly had no use for ValueNetworks Insight.

A simple customer focus would have revealed this grave problem. It would have led to a different business outcome for the firm. Entrepreneurial startups are not equipped to deliver broad management didactics, pedantic methods, interventions, coaching and other waning activities of management consulting and employee development. Startups deliver products.  Their singular focus is on customers.

Importantly, the ValueNetworks firm was not even structured for entrepreneurial finance. For example, multiples for consulting firms like ValueNetworks hover around .5-1.0 of EBITDA. For agile enterprise SaaS productivity applications they are around 30. Stakeholders and investors rejected ValueNetworks because it offered no potential for investment return.

Venerable firms like Bain or McKinsey may furnish “Insight” for $10,000.00/day. That’s fine. For an entrepreneurial startup and its customers, consulting/insight is a deadly non-starter, a red-flag and a recipe for confident failure.

In entrepreneurial finance for software technology startups, customers and discounted cash flow determine success, not loopy consulting concepts like ‘intangible value.’ (?) If you take an investment deal to an Angel or VC talking about intangible value your failure is guaranteed. That’s what happened to ValueNetworks.

Remember, startups are not for everyone, especially management consultants, trainers or speakers. Startups must show product innovation benefits to customers immediately and continuously.

Note: the startup mindset is out-of-the-building, on the proverbial sidewalk, perpetually working proximally with prospects and customers with practical solutions that advance productivity milestones. No exceptions.

Furthermore, startups are NOT think tanks or research centers. There is no quarter for the ridiculous Confucius-type mandarins of management consulting. Customers and customers only determine if your product offering has advantages and propels business productivity. They will prove your product when they write you checks and tell their colleagues to do the same. Nothing else matters. As ValueNetworks found out, its ‘thought leadership’ malarkey was the fast track to startup bankruptcy.

Sadly, painfully and predictably ValueNetworks was on the road to oblivion for 42 months. That’s way too long to test flimsy value network concepts, out-dated intervention methods and dubious management theories. Look, if startup product ideas don’t work relatively quickly, if they don’t catch-on then move-on. 

Conclusions

Startup failure is like falling off a horse. You get up, dust yourself off and hop-back-on. No one doubts there is value in networks. However, ValueNetworks offered no benefits or advantages. They could not achieve positive business outcomes vis-à-vis the firm’s poorly-defined offerings.

Startups must reset, recalibrate and regroup every hour to assure their product offerings continuously exceeds customer expectations. 

Remember, absolutely no successful startup in history ever finished with the exact ideas, models and offerings that started it. For example, ValueNetworks held onto obsolete, overweight offerings like survey-based analytics, management development interventions and training. They could not attract the right customers or numbers for startup scaling or success. Game over.

Finally, for startup success, don’t stick to meaningless, annoying code words that businesses don’t want. Don’t prolong inevitable failure with lofty theories. Rather,  pursue the painfully obvious: customers. As ValueNetworks discovered, everything else is a complete waste.

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