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No shiva for failed start-ups

The start-up nation has its failures, as well as its successes, but they're harder to find that its successes
Entrepreneurs gather at the Google campus in Tel Aviv. (Anna Morein)
Entrepreneurs gather at the Google campus in Tel Aviv. (Anna Morein)

The text message came a few days before Rosh Hashanah. Although the start-up had attracted more than $600,000 of investment and attracted thousands of users to its app, it was shutting down. Thanks for your support. On to the next new thing.

What Vailly users now see when opening the app.
What Vailly users now see when opening the app.

Would the world survive without Vailly, which promised to “replace your voicemail with simple, dynamic messages”? Probably. Would I give its failure more than the moment’s thought that it took to delete the text message from my phone? Nope. I hadn’t invested in the company. I’d only a passing acquaintance with one of the founders through a “let’s connect” message on LinkedIn.

A month later: “Vaily who?”.

The crash of Vailly is a natural phenomenon of a healthy start-up nation. How many succeed? Is it one in 100? 500? 1,000? The numbers don’t really matter. What does is why and what can we learn.

The why is something that Yuval Lazi has thought a lot about. He’s an attorney with Tel Aviv-based law firm Zellermeyer Pellosof. We met recently at Google’s Campus TLV, where founders of a few dozen start-ups had been invited to breath the Google air, drink the Google coffee and get answers to questions they hadn’t yet thought of to ask of Google’s young, smart people.

The success rate of start-ups in Israel is not quantifiable, Lazi said. Even the definition of what is considered as a “start-up” is not clear. “Most people still confuse a simple innovative business venture with that of a true start-up.”

“When people look at the statistical success rate, they fail to take into account those that fail at the pre-seed stage – when a group of people spends hundreds of hours of their time, and sometimes some of their own cash — to get the start-up going.” Those are excluded from the statistics, the ‘invisible factor’ that we never are aware of.

It’s possible, after hearing the pitches of hundreds of ventures, to identify the likely early-stage failures. Here are a couple of characteristics that Lazi offered.

The people involved cannot provide the same level of attention to the start-up, which typically occurs when the individuals involved are at different stages of life (for example, one has a full time job, and the other is completely unemployed). The expected commitment is usually at the level of “total dedication”.

Equally critical, founders failed to address at the onset the sensitive decisions, like how much money does everybody needs to put in, roles and responsibilities and allocation of holdings among the group. This is a classic start-up stopper, Lazi noted.

“Sometimes people are so blinded of the idea that they forget to spend the required time to review the market,” he said.

(Note: I reached out to Vailly’s founder Guy Balzam, who indicated he was unable to respond by deadline.)

Failure is not something that is highlighted in the Chief Scientist’s annual report. Founders of failed ventures aren’t invited to the receptions at the President’s residence. Pas Nisht. Still, it’s a natural part of the start-up ecosystem.

We need to find a way — and accept the need — to learn from those failures as the most successful new venture cultures already do.

About the Author
Robert is a financial writer and editor covering the Israel business scene at TLV Strategist and Analytika Research. He's a former editor at Bloomberg News in Tel Aviv, McKinsey & Co. and McDonald & Company Investments.
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