Startup Horror Stories: Scary Situations Entrepreneurs Can Avoid With Stress Tests

startup horror stories

It’s midnight. Eric is alone. His laptop screen glows in the dim cavernous workroom. Eric is feverishly finishing a pitch deck for a crucial investor meeting. Suddenly, his phone explodes… with text, after text, after text.

“You won’t believe it….” “Something bad happened…” “We’re in trouble!”

Eric calls his teammate. She shrieks, “Danielle fell down a flight of stairs!” The Chief Technology Officer of Eric’s startup was raced to the hospital. She cannot lead the early morning presentation – let alone work for some time. Panic takes hold. Eric’s worst nightmare is coming true: his startup loses a key teammate at a critical juncture.

This fictitious startup horror story isn’t all fantasy. Many entrepreneurs are not prepared to handle any number of scary scenarios that could put the nail in the coffin of their fledgling startup. This is where a stress test can help early stage inventor-entrepreneurs plan for the worst.

“Similar to how engineers stress test prototypes to see where a product will break, business-related stress tests help entrepreneurs identify weaknesses in their venture,” said Eli Velasquez, director of venture development at VentureWell. “Exposing weaknesses during the venture development phase allows startups to better develop contingency plans before they experience a disaster.”

We recently spoke with several early stage innovators from our ASPIRE program for a peek into their real-life startup horror stories (minus the gory details). Their treacherous tales show how scary situations can impact a new venture – and what future inventor-entrepreneurs can learn from these all-too-real nightmares. A downloadable guide to help startups facilitate their own stress tests is available at the end of the article.

The Curse of the Invisible Customer

Andy Dalman, co-founder of Advanced Bone Technology
2017 ASPIRE Program participant
North Dakota State University

Company developing 3D-printed artificial bones was threatened by an early demise due to lack of customers.

Deafening silence. That’s how Andy Dalman, co-founder of Advanced Bone Technology described the initial market response to his company’s early innovation. “We had no sales.” said Dalman. “No one was interested in what we thought was a breakthrough idea.”

Despite earning some industry recognition (Dalman made Forbes’ 30 Under 30 in Manufacturing List in 2016) and sinking a significant amount of money to keep the venture afloat, the company was on the brink. “It was a brutal experience. Not only were we afraid of losing the company, we feared disappointing the people who helped us become a startup,” says Dalman. “It showed us what not to do on countless levels.”

“Andy and team learned a hard but valuable lesson about the importance of customer discovery,” said Velasquez. “Many student inventors are dazzled by their own technology, which can often blind them to making something that solves a real customer problem.”

Terror of the Unknown

Haley Keith, co-founder of MITO Material Solutions
2017 ASPIRE Program participant
Oklahoma State University

Startup creating additive to toughen composite materials unexpectedly became bureaucratic zombies.

Crippling dread. That was not how the MITO Material Solutions team expected to feel after winning three consecutive business plan competitions. Unfortunately, a surprise licensing obstacle stopped them dead in their tracks. “It was terrifying,” exclaimed Haley Keith. “We went from feeling like we were at the top of our game to possibly losing everything overnight.”

The team was forced to put everything on hold – including entertaining investment opportunities – in order to sort out the licensing agreement with their university. After countless meetings and assistance from many mentors, the team is finally getting back on track. “The six-month limbo phase impacted our momentum and reputation,” said Keith. “It’s less than ideal to play catch up, but the thought of losing everything you worked so hard to build is a much scarier alternative.”     

“Licensing can be a long, winding road,” said Velasquez. “Expect to hit some bumps. To make the ride smoother, try to get everything in writing, from the process and deadlines to roles and responsibilities. If you’re licensing a technology, invest in hiring a good patent attorney.”

The Scammers!

Michael Moore, co-founder and CEO of Medkairos (formerly Soft Lesion Analytics)
2017 ASPIRE Program participant
University of Michigan – Ann Arbor

Startup automating the point-of-care biopsy assessment process ran screaming from investment scammers.

Diabolical deal. Hypnotized by a big dollar signs, Michael Moore was tempted to sign on the dotted line of a too-good-to-be-true investment opportunity. An overseas private equity firm offered to invest $1 million dollars in the company after very little back-and-forth communication. Things were moving too quickly, and none of Moore’s questions were being answered. Scared, Moore reached out to advisors for input.

“Our advisors were very skeptical,” said Moore. “They said large deals should never move this quickly.” The biggest red flag: the fine print stated that the startup had to wire $10k to the investor for “legal services” before finalizing the deal. “There’s a strong chance the company would have taken our money and run,” said Moore. “Needless to say, we didn’t sign the deal.”

“When you’re just starting out and struggling, it’s tempting to go after any financial opportunity that presents itself,” said Velasquez. “No matter how good the deal sounds, startups should conduct due diligence on the investor or partner to determine if it’s a wise long-term strategic fit.”

Beware of the IP Phantom

Emily Kennedy, co-founder and CEO of Hedgemon
2017 ASPIRE Program participant
The University of Akron

Venture developing an innovation to help reduce risk of concussions within high-contact sports faced a scary vulnerability with their IP filing.

Panic stricken. Fear gripped Emily Kennedy when her mentor discovered a gap in Hedgemon’s IP filing. “We exposed ourselves. Potential competitors would be able to create a workaround to our innovation without infringing on our patent,” said Emily Kennedy. “The oversight could have cost us our business.”

The team quickly sought out advice from a new patent lawyer – an unexpected cost for the young company. After a nail-biting two-month process, the team was able to add a continuation in part (CIP), which broadened coverage in their IP filing. “In hindsight, we should have budgeted the time and resources to review the paperwork with mentors and multiple patent lawyers before filing,” said Kennedy. “This ordeal was a painful but valuable lesson.”

“I always remind startups to seek advice from mentors or legal professionals before submitting an IP filing,” said Velasquez. “While it may take extra time and money, having a patent attorney review your documents for gaps and vulnerabilities will save you some costly headaches down the road. It could even help save your company.”

Starting a business requires the coordination of many fast-moving parts at once. Something is bound to go wrong. Conducting a stress test can help startups identify business-related vulnerabilities and brainstorm contingency plans.

“The sooner startups get into the habit of conducting regular risk assessments, the better they can handle situations that could be fatal for their business,” said Velasquez. “Startups should tap into the expertise of mentors and other experts in their networks to help conduct risk assessments. As startups scale into larger ventures, they should use their board’s experience to help identify risks that the founder can’t see, and advise on how to de-risk the potential problem. No matter what phase you’re in, it’s better you find the problems before your customers do.

Face your fears! Download this guide to facilitate your own stress test.

VentureWell’s ASPIRE program is an intensive experiential workshop that prepares startups for the investments and partnerships necessary to launch their ventures. Learn more about the program and application deadlines here.