Failure Files
Two of the most frequently cited causes of startup failure are lack of financing/investors and this cash-related problem.
What is running out of cash?
A founder becomes distracted by five side projects and stops paying attention to the core venture.
What is inattention?
This describes recovering and adapting after adversity or failure.
What is resilience?
This financial statement answers: “Did we make money?”
What is the income statement?
Money collected from customers from normal business activity generally belongs in this section of the cash flow statement.
What is operating activity?
A financial statement showing what you expect to happen in the future rather than what already happened is called this.
What is a pro forma financial statement?
A business can show a profit and still fail because it does not have enough of this available to pay its bills.
What is cash?
A startup has no effective process for handling customer complaints, so important information repeatedly gets lost.
What is process inadequacy?
This describes sustained commitment and persistence toward a long-term goal.
What is grit?
This statement shows what a company owns, what it owes, and the owners’ equity at a specific point in time.
What is the balance sheet?
Buying a major piece of manufacturing equipment belongs in this cash-flow category.
What is investing activity?
A startup predicts revenue by estimating customers, conversion rate, purchase frequency, and price. This is this type of forecasting approach.
What is bottom-up or build-up forecasting?
A startup discovers through customer testing that its original idea is not working and changes direction rather than closing. This entrepreneurial change is called this.
What is a pivot?
A founder realizes she does not have the managerial skills required to lead a rapidly growing company.
What is lack of ability?
An entrepreneur worries, “If my business fails, everyone will think I am incompetent.” This source of fear relates to this.
What is threat to social esteem?
This statement shows where actual cash came from and where it went.
What is the cash flow statement?
Taking out a bank loan belongs in this cash-flow category.
What is financing activity?
Creating best-case, most-likely, and worst-case forecasts helps entrepreneurs evaluate changes in these.
What are assumptions or scenarios?
A startup sells rapidly, but customers do not pay for 90 days while suppliers must be paid in 30 days. This illustrates how rapid growth can create this type of problem.
What is a cash-flow problem?
A company deliberately tests three prototypes knowing that some will probably fail so it can learn which design works best.
What is exploratory experimentation?
An entrepreneur fears spending three years on a business when she could have been developing another career. This fear relates to this.
What is opportunity cost?
Complete the equation:
Assets = Liabilities + ________
What is shareholders’ equity?
You sell a product today but allow the customer 60 days to pay. The amount owed to you becomes this balance-sheet asset.
What are accounts receivable?
A startup asks, “What happens if sales are 25% lower than expected?” This is an example of this analysis.
What is sensitivity analysis?
Chapter 11 argues that the goal is not to avoid every failure, but to create small failures that produce this before a catastrophic failure occurs.
What is learning or useful information?
A founder knowingly misrepresents the performance of a product to customers and investors.
What is deviance?
The chapter identifies emotional, cognitive, prior experience, and this fourth factor as contributors to resilience.
What are social factors?
Revenue minus cost of goods sold equals this.
What is gross profit?
The time between cash leaving the company and returning through customer payment is measured by this concept.
What is the cash conversion cycle?
A startup projects 100,000 first-year customers in a market containing only 20,000 realistic prospects. It has failed this test.
What is the reasonableness test?