Being a successful entrepreneur is hard on its own. So being a failing entrepreneur is harder still. But as entrepreneurs, startup founders should be prepared for failure, just as much as they should be prepared for success. Failing well, though may seem like something nobody wants to know how to do, is how an entrepreneur sets him or herself up for future successes. In a game of high risk and high reward, you lose more often than you win, so losing well is key.

Here are a few of the hardest ways to fail as an entrepreneur, and what you can do to salvage something from failure.

1. Do Everything Right, and Still Fail.

Apollo 13: Some failures you can be proud of.

I was fascinated by the recent demise of Outbox, a startup that promised to digitize and streamline the postal experience in the United States. By most accounts, Outbox did everything right. They had only 2,000 paying customers in one market (Austin, Texas) at their peak, but they had enormous brand recognition in the United States, and a waiting list of 25,000 customers in several other markets, including San Francisco. The company’s original goal was to partner with the USPS, and reroute customer mail to a local warehouse, which would digitize and digitally transmit user mail via email. Important documents could then be selected for delivery.

Long story short, the USPS killed the partnership when they realized Outbox’s potential for destroying the direct mail marketing business, by unsubscribing customers from mass mailings, costing the USPS potentially millions of dollars a year. An outmoded and failing government enterprise killed a cutting edge and potentially thriving new market, to secure an already weakened profit stream. Without the partnership with the USPS, Outbox would never be able to support customer acquisition costs and improve service density to the break-even point, much less profitability.

What you Can Learn From It

What killed Outbox was more than a structural problem. On the surface, the cycle they faced looked a lot like Pets.com, a popular, attractive, effective business from the consumer point of view, that just happened to cost the company more and more money, the more customers it managed to gain. But this failure was not founded on the idiocy that defined the rise and fall of Pets.com. Rather, Outbox made smart and effective investments into technology, a complex backend that worked well, and a level customer service that won them a lot of affection from customers. They did most things right, but it just turned out that doing most things right wasn’t enough to make money, or even to get back the investments they’d made.

The post office has been around for 300 years in the US, and so they were late by a few centuries. Even a vastly superior product has a hard time competing with that kind of a lead to market. But the founders of Outbox can leverage these innovations, and pivot towards a more profitable vertical, which is what they intend to do. If you’ve done everything right, you’ve put in the hours, and you’ve treated customers with respect and caring, and built a product that works well, it can’t ever be a complete failure. There will always be something in it that is of value. Possibly far more than you would ever have anticipated. Sometimes a product or service is just way ahead of its time- but the knowledge and connections gained, even in this failure, may well lead to something even better.

2. Do Everything Wrong

As Paul Graham of Y-Combinator is fond of saying, most often, an idea that seems bad is actually a bad idea, or even if it is good, it may be fundamentally unworkable as a business. Or it may be impossible to grow. It’s the black swan, the idea that can work as a growing product and as a sustained business, that VCs look for, and that startups try to become. Because the best startups are ideas that seem bad, and are actually brilliant. Dropbox entered a geeky, techy marketplace, and delivered a product that my mom uses. Facebook entered a marketplace in which Myspace predominated, and beat them by being *less edgy*. WhatsApp was acquired for 11 figures for its take on an app that has been around since before smartphones. Those all seemed like loser ideas at the time, but there was something about each of them that just worked, from their marketing, to their backend, to their core concepts. They appealed on some level that allowed them to ignite and grow in a way that all their competitors failed to do.

But most of the time, perhaps 99% of the time, entrepreneurs will be involved in “all their competitors” and not in the one app in 100 that makes it to a massive acquisition or an IPO. Everyone here at StartupYard has been involved in one of these types of failures. The idea is good, but it depends too much on a community that doesn’t exist. Or the community exists, but no amount of pivoting seems to open a sizable, sustainable revenue stream. Or, after funding has come and gone, it’s found that the increase in size and revenue has still not yielded a profitable business.

What You Can Learn From It

Learning how to walk away from this kind of experience is painful. Especially when you’ve created a product that thousands of people really do use and love. But if you can’t make the business profitable, and you can’t make the business grow and open up new opportunities for profit, then you’re losing. No matter how slowly, you’ll still lose. So moving on and licking your wounds is an important lesson that most of us have to learn at one time or another- rather to own up to these mistakes and miscalculations as soon as possible, and move on with your knowledge and experience to something that has a chance at changing the world.

3. Cheat, and Fail

Cutting corners and massaging the truth are attractive options for any startup with big ideas and not-quite-big-enough results. “Fake it till you make it,” is a truism among startups, but that’s a mentality more than a license to bend the truth.

Most of us have lied at one time or another, either to get a job, or to keep it, to get something we thought we deserved, or to keep from losing something we really didn’t. Very often, these little lies don’t come back to haunt us.

Colors is a great example of a startup’s chickens coming home to roost. Having pitched a totally unproven technology with a poor UI and poor user statistics for $41 Million in silicon valley, Color was in deep trouble two years later. Court cases and allegations later revealed a history of poor management and alleged fraud against employees. It bears repeating, now and always, that a high valuation for a startup does not make its founders rich. If anything, it has to potential for exploding a bubble, if there is one. if a company is based on lies and innuendo instead of fundamentals, eventually everyone will realize this. Unless you’re Frank Underwood  in House of Cards of course. In which case, this never happened.

What You Can Learn From It

But if you actually intend to achieve the success you would like, you should expect that everything you say will, at one time or another, be scrutinized. Whether it’s embellishing your own resume, like Yahoo’s Scott Thompson, or lying about your metrics, to telling your investors that you’ve made more progress than you really have, the truth will eventually out. So cheating early is a guarantee of problems down the line.

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Meet 2 More of Our Incoming Teams

We closed our application process earlier this month, and we’re excited to announce that we have invited 6 teams to join the next round of acceleration, beginning in April 2014. 

As we mentioned last week, 6+ teams have been accepted and invited to Prague. We’ve collected their answers to our “getting to know you” questionnaire, and we’re sharing those answers here.

Teams to join StartupYard range from cloud based consumer services, location based mobile apps, and news aggregators, to search engines and data mining tools. The breadth of these projects is tremendous, and the potential we see in these teams, as well as their ideas, is really exciting.

How did you find out about StartpYard, and why did you decide to apply?

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In a few months, StartupYard teams will descend on Prague for what will hopefully be the most productive three months of their relatively young lives. And while running and growing a startup is serious business, there’s a good reason we’re in Prague, and it’s because we freaking love it here. In terms of tourism, Prague ranks highly with travelers, and according to this nifty database, it stacks up well in terms of cost of living against virtually any other technology hub, ranking just above Kiev (94% as expensive), in terms of price index (for comparison, London is 181% more expensive, while San Francisco is 118% more expensive).

Adding to that, our StartupYard teams will be living on our dime while they’re here. We’re covering the rent, so they can focus on what matters: the startups they will dedicate their time to growing with us.

But it’s not just about how far a Euro (or a Czech Crown), can go in this city. It’s about what you can do here that you can’t do anywhere else. While we won’t pretend not to be biased, we can say with no hint of prevarication that Prague is an awesome place to live, even if it’s only for 3 months. Here are 5 things teams must try while they’re here:

1. The Prague Beer Festival

Prague’s pubs are great, and it’s a time of great change and exciting innovation in Prague’s beer culture. But still, unless you know the city well, you’re likely to find your choices at the average Prague pub to be somewhat limited, and uninspiring. Boring pilsners and ordinary lagers are the order of the day for most Czech beer drinkers (sorry, but that’s a fact), and though Czech beer can’t be reproached for it’s quality, it can be lacking in imagination.

But not to fear. The innovative spirit of Prague has inspired a host of mold-breakers in the past decade, and today, the Prague Beer Festival is a showcase of some incredible brewing talent. Locals will lift their noses at the prices (a scandalous €1.64 for a half liter, or €3.28 for a premium selection), but the selection of adventurous, fresh, and delicious beers, as well as the… appealing style of service, will convince more visitors that it’s time to start shopping for a home in Prague.

Highlights

Traditional costumes, live bands, huge selection of beers and excellent Czech cuisine, a party atmosphere and excellent prices. There’s also a great system here where you buy tokens (called Tolars) at the entrance, and pay for your food and drinks without ever needing to worry about making change.

2. Indoor Skydiving

Prague is home to the only wind tunnel with a circular glass enclosure in the world. That means that with no preparation other than a short briefing with a flight instructor, you can safely simulate a free-fall skydive in a chamber nearly 5 meters wide, and 14 meters high.

Highlights

200km/h winds, inside a tube = fun. Need we say more?

3. The Dox Gallery

The Dox Center looks a lot like startup fairyland. If you dream of the kinds of offices you might design when you go IPO and rake in your huge valuation, it may be just the place to visit. Built on the premises of an old factory in a traditionally industrial sector of the city, Holešovice, the center’s gallery is home to iconoclastic, ironic, and challenging exhibitions like Pharmotopia, an Zone in Motion. It’s a space that will be sure to fire your imagination.

When you’ve been sitting at your keyboard for one too many hours, peel yourself away from your startup to get some inspiration, and browse the design shop for some desktop ornaments.

Highlights

Weird cool architecture, and minimalist design blends the old with the new, waking up the senses and awakening fresh new ideas. Also, there’s a café.

4. Go Blind for a Day

I met this really cute girl at a pitch black restaurant.

No, seriously. This is a good idea. Following a fashion introduced in the late 90s, Pod Kridlem Noci offers a pitch black dining experience, in case you’ve ever wondered what it might be like to socialize and dine in a world with absolutely no light.

If dining in pitch black isn’t enough of the blind experience for one day, you can add a visit to the “invisible exhibition,” a sort of museum that simulates the experience of blindness with a set of exercises in a pitch black environment, forcing you to use your senses to tell what’s going on around you, and to navigate an unknown terrain. Again, for programmers and startupers, it can be important to get new perspectives, so opening yourself up to a totally new way of interacting may inspire new thoughts and ideas, taking you out of tunnel thinking and lifting barriers to creativity. Seen in that way, activities like these are a must for a startup accelerator team.

Highlights

None. You won’t be able to see them anyway.

5. Disco Boats, Pub Crawls, and General Mayhem

We’d be kidding ourselves if we didn’t mention the reasons so many young people come to Prague in the first place. The accelerator is a place to work, but we won’t deny that Prague itself is a playground of sorts. When you aren’t coding your fingers to the bone, you have our permission to let loose a little bit, and enjoy some of Prague’s nighttime offerings like:

The Party Boat

Pretty much exactly what it sounds like, I can’t say personally that the Party Boat is exactly my thing. But then, when I first moved to Prague at 23 years of age, it was exactly the kind of thing I wanted to try. And if you’re not old and married (and therefore proudly boring), then this might be just the ticket for a night’s relaxation. The party boat follows a traditional pub-crawlish structure, only with a boat added: drink a lot, get on a boat where you drink a lot, get off the boat and go to a club where you drink a lot.

If that sounds like your thing, then you’ve got far more energy -and less sensitive ears- than I do, and you’ll be in good company.

Pub Crawls and General Mayhem

There are a mess of these sorts of outings in Prague, and they generally attract the 18-25 crowd of Erasmus students and tourists. Again, expect heavy drinking and a fair amount of incoherent yelling. As a self-described local, I’m not actually allowed to like the idea of pub crawls, as they are boisterous and annoying, and full of young people having the time of their lives. Old boring married people don’t publicly endorse these kinds of shenanigans, but between you and me, if you’re under 25, this is the sort of thing you’ll hate yourself for doing the next day, but thank yourself for doing 10 years from now. So maybe you should do it. I won’t tell anyone.

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Last Friday, investors and mentors from Startupyard met with 16 candidates, chosen from the most promising of a total of 60 applicant teams for the upcoming accelerator round.

I was there, not to participate in the interviews or to vote on who would be included, but to see what sorts of teams I might be working with come April. The results were intriguing, and the following are a few of my takeaways from the process.

Many Teams Didn’t Have a “Pitch”

This is understandable, considering that in a few cases, the teams also didn’t have a real product or a market fit. That’s what we’re here for. Not having a finished pitch at certain stages of the process is fine, but it seemed that a few of the teams ought to have thought longer and paid a little more attention to selling their ideas. When there is, as we say “money in the room,” meaning that people are making real financial decisions about you and your team, and not only your ideas, teams should be prepared to sell whatever they have, even if it is just their own promising talents. In fact, there was interest in some teams based purely on their personal talents, and much less on their specific ideas.

Having a pitch of some kind also signals to the investors in the room that you have at least thought about the marketability of your ideas. A few of the teams had clearly rehearsed precise lines and questions they would use to pitch their ideas, and while our interviewers saw through these ploys, having a bit of a sales spiel is not insulting to an investor. To the contrary, comments on interviewees who attempted honest sales pitches were very positive: “at least he’s clearly thought about the market,” was one comment following such an interview.

Start Thinking About Your Market

This was a big one at the table on Friday. Some teams struggled to define who their customers might be. If you can’t imagine who might pay for your services, then it may be difficult to get an investor to agree to anything at all. An interview for an accelerator is not an investor meeting, but the accelerator is still investing some money, and good deal of time and energy, into your ideas. So having some ideas, at least, of potential markets for your products can help to convince the accelerator that you’ll be able to find a market- that you think in those terms when you need to.

You don’t have to have any customers to know something about who might buy your products (most of our applicants don’t have any current customers), but you do need to have any idea of where the value of your product is. In other cases, the products being described filled very crowded markets. If your product is already essentially a feature of a more successful product, that may be fine. However, you have to be able to reasonably justify why your product adds value that the competitor doesn’t. And you have to be prepared for the investors to ask questions about your more visible competition: why would someone end up using your product or service, if it is included in a competing platform? Is it cheaper, more streamlined, more appealing in some other way?

What Problem are You Solving?

There were two initial questions that Cedric Maloux, our CEO, asked every team, and the answers were probably the most telling about how far along each team was in thinking about their product or services as a real, viable business. “What problem does your product or service solve,” and “what are the extant alternatives?” The ideal answer was clearly that the product solves a serious, possibly costly problem, and that there are no current alternatives. More often the case was that the problem was one of convenience, of cost, or of lost efficiencies, and the alternative was either business as usual, or an alternative product with a different focus.

The most pressing problem that some teams had in answering this question was that they attempted to pose the problem as being related to their exact product, rather than a broader problem.

For example, we heard from founders who said something like this:

In some cases, the interviewers found themselves answering this question for the founder, when it should have been the other way around, finding uses for the backwards running watch that the founder had not proposed. These resulted in negative marks against those applicants- a founder that doesn’t think in terms of the market and in terms of solving problems may not be a desirable candidate for an accelerator.

It clearly wasn’t, for the interviewers, that the founder needed to know all use-cases of their product ideas, but they had to have some use cases for them. And “if you wanted to [do exactly what my product does]” is not a use-case. Products have to be adaptable to different purposes: they have to appeal to customers who themselves need different things.

The Team on Paper and the Team in Person are Two Vastly Different Things

There were a couple of teams that barely made it into the interviews, because on paper, their projects didn’t seem like ideas with a lot of potential. But when they got in front of us, they blew us all away with their energy, and their insights into how they would make their business ideas work. And the opposite was also true: we entered one interview virtually certain that the team would impress us, because the idea sounded great on paper. But the interview proved that while the idea seemed good on paper, the founder in question didn’t have the energy or the interest he needed to convince us to accept him. Cedric, who led the interviews, commented afterwards that it was a powerful example of how much depends upon founders themselves, and not just their ideas.

Gadget Startups Are Very Risky

A gadget based startup, or one that needs a physical product in order to realize their sales, are risky. We had a few pitches for physical products, and they were actually very good pitches, and excellent ideas. The problem is that the burden of proof that such a product will work and will be attractive to a market is much higher than for a purely software product. Not only do the founders need to know much more about their market, including the costs and challenges of manufacturing the product, but they also risk a much larger upfront investment in a technology that may not sell later on. This is in fact why gadget startups with physical products so often turn to preselling and crowdfunding, as has been the case for startups like Pebble, Tile, and Omni. Physical products are very attractive for preselling because the customers can be identified and locked-in long before the investment is actually made, guaranteeing at least a shot at profitability. Building and marketing a device from scratch, without an existing customer base, is therefore doubly unattractive for an accelerator.

Does your Product Have Global Potential? Does it scale?

Teams were sometimes not aware of what their competition was, especially when asked about the market outside of their home country. Accelerators in general, especially ones like Startupyard, focused on data and analytics, are looking for startups with global potential, so ideas that work in smaller markets that require a great deal of TLC (that’s Tender Loving Care), are not going to fare well in this kind of environment. The elements of a product that can make it a success in a local market can work against it in a larger one, presenting problems like language dependence, organic growth limits, and scalability of service and of sales. This doesn’t mean these products are bad, just that they may not be right for an accelerator. If a product would benefit more from slow local adoption with personalized sales and marketing, then it shouldn’t be in an accelerator at all, and some ideas are best grown city-to-city, gaining their greatest value from their local nature, rather than wider adoption and more aggressive growth.

Do Rapid Prototyping

We’ve written about this before, and it remains important. Teams often didn’t have a product to show us because they were working on the demanding problems that their backends presented. While that’s the right idea, some modest attempt at demonstrating the end-user functionalities involved would have gone miles towards convincing the board of Startupyard to take a second look at a few projects. Even non-functional mockups of the end product can make a product much more tangible and attractive than a description can. A picture is worth a thousand words, not because pictures are better, but because they inspire the imagination. They feel real, even when talking about an abstract idea just doesn’t.

Rapid prototyping can also help founders to define what exactly it is that their products do. A prototype virtually demands that a the designer at least start imagining use cases for the product. This is why rapid-prototyping can be so important: it is more than a demonstration- it is a piece of the process of envisioning your finished product, and the customer who will use it.

Give Specific Answers to Specific Questions

Nerves play a big part in these types of interviews, and the interviewers understand that. But at the same time, not every question is a test, and not every answer needs to be perfect. If an interviewer asks you a simple yes or no question “do you have any paying customer?” for example, you should start by answering yes or no. While for some people, the instinct is to get out ahead of the question, and to answer the concerns they think it raises, often times the interviewer is really interested in something else, and a straightforward answer, followed by a short explanation, is always the best way to go.

Be honest, and trust that the interviewer will seek the information he or she needs to make the appropriate judgements. If you answer a question like that one with “well, right now, we’re not worried about the monetization because we’re still growing the userbase, and we think that…,” the interviewer will not know the answer to the question, and will be frustrated at having to ask it again. And it’s likely the interviewer just wants to know the status of your product or service, not in using that information to judge your competence. The right answer might be “Yes, we have a few paying customers, but growth is slow because…” or “No, however we are still concentrating on growing our user base.”

One of the most pleasing moments during the interviews came when a very young founder answered a question about his company’s scalability by saying: “I’m just not sure about that.” There was a visible reaction from the table of interviewers, and you could see them thinking: “here is someone being honest about himself!”  You run the risk of outsmarting yourself, by trying to figure out what answers the interviewers want to hear: just answer the questions as they are asked.

Appearances Matter

Candidates don’t necessarily need to be in black and white.

Much study has been done of the links between attractiveness and trust. We don’t consider ourselves shallow judges of character, and the point of being a professional investor and a mentor for startups is having the ability to look beyond appearances and see potential where other people don’t. But all the same, the way you look sends important signals about how you work with other people, what you think about yourself, and how aware you are of these things.

While nobody arrived for their skype interviews in their pajamas, my personal observation was that the more professional looking teams were taken more seriously. While this is as much a function, I think, of how those teams behaved and spoke, and were aware of the questions that needed to be answered, and how they needed to be approached, the psychology of appearance can be just as important for the interviewee as for the interviewer. Taking 10 minutes to think about what shirt you’re wearing, the expression on your face, and even the placement of your webcam and lighting fixtures (for an online interview), can give you confidence and perceived control over the interview, that will translate to answers coming more easily, and with fewer hiccups. An interviewer will remember how you looked when they spoke to you, and you want to look like someone that they could work with for 3 months.

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