Lessons From a Failed Startup — From and For First Time Founders(medium.com)
medium.com
Lessons From a Failed Startup — From and For First Time Founders
https://medium.com/swlh/4-lessons-from-a-failed-startup-from-and-for-first-time-founders-c61913df3bb5
47 comments
In my experience "do both" on any big decision is a recipe for disaster. Very hard to avoid tho. I've known this and still pushed for it just because choosing one of two hard options is itself so hard.
Famously, this is what Justin.tv did. They split the company into three parts:
1) Justin.tv 2) Twitch 3) SocialCam
I suspect if they had to choose one, they would have done SocialCam, and they would have missed the billion dollar opportunity that was Twitch.
Like most things, it depends.
1) Justin.tv 2) Twitch 3) SocialCam
I suspect if they had to choose one, they would have done SocialCam, and they would have missed the billion dollar opportunity that was Twitch.
Like most things, it depends.
We did both for a relatively short period of time (about 1 year) when we were a profitable company. So... very special circumstance. Btw - its kinda cool that people even know the backstory to Twitch.
I remember listening to you guys talk about your experience starting the company on a podcast (I think it was Startup from Gimlet media?). It was an awesome episode (I think two actually) and was very inspirational to listen to. I love the part when you guys received the money during one of the founders' wedding and seeing the number on the bank account.
HackerNews proving once again that you can get incredible insight in real-time from names big and small :)
Credit to the team having both you and Justin as great story tellers.
(my personal experience) 80% of the time, do both is the wrong choice. 20% of the time, it's the right thing. So say no 80% of the time and say yes less than 20% of the time.
Another version of "do both" I have seen and been guilty of is "let's just keep supporting X in case it will become relevant in the future".
Actually sitting now and deleting part of the code that should have died a long time ago.
Actually sitting now and deleting part of the code that should have died a long time ago.
Oftentimes you can frame it as "try both" successfully. If you have a big decision, think of the smallest, quickest way you could test both of the options and get some visibility on the results. Then do that, pick the one that's working better, and stop doing the alternative. You can at least be open to unexpected successes with this strategy, and protected against unexpected failures.
This also has the advantage of forcing you to think of the smallest, quickest way to test your hypotheses, which has a fair amount of value itself.
This also has the advantage of forcing you to think of the smallest, quickest way to test your hypotheses, which has a fair amount of value itself.
Yeah definitely agree here. This is probably also the best way to actively to avoid "doing both" in the long term. Twitch does seem to be a great example here (as mentioned above) and Emmett also talks a bit about it in his user testing class from startup school (starting @ 2:40ish).
https://youtu.be/qAws7eXItMk
https://youtu.be/qAws7eXItMk
I have mixed feelings on that advice. Sometimes, keeping a pair of old clients that have a closer relationship with your company provides priceless feedback on the product.
The advice is, in general terms, correct. It is not an absolute, though.
The advice is, in general terms, correct. It is not an absolute, though.
I really wish more information was written about why "do both" was so bad.
Why were the high touch customers such a distraction?
Why were the high touch customers such a distraction?
Because they're high touch? White glove versus self service. Self service Will always scale with technology, white glove services only scale with more white gloves.
Depends on margins. White glove works fine as long as margins are high enough. Many of the largest clients are not going to do self service.
"if it doesn't hurt, it isn't a strategic decision"
I suppose it may vary, but what do you think is the right way to decide on which of the non-do-both options is best? The one with more automation? The one that maximizes runway?
Of course it depends, but this is where having a mission statement is really helpful. I've been in this position before and what seemed like a hard decision at first was super easy once I reread the mission statement. "Oh wow...option B clearly fits into the mission while option A does not."
I would encourage every company, large or small, to work on a real mission statement that can be committed to for the long haul.
I would encourage every company, large or small, to work on a real mission statement that can be committed to for the long haul.
As I have gotten older, this is a good way to judge potential employers, especially if they cannot articulate the mission.
I am intrigued by the fact that they managed to get funding before finding product market fit. I was always of the belief that most VC's would only invest in companies that had traction and an initial revenue stream, i.e. that they already have PM fit to a certain extent that they have customers and a plan to get more of them.
Is it a case that some VC's are willing to take the extra risk to fund companies that are still in the stage of finding proper product market fit? With the associated possibility that this might never actually happen?
Is it a case that some VC's are willing to take the extra risk to fund companies that are still in the stage of finding proper product market fit? With the associated possibility that this might never actually happen?
Depends on the product, depends on the potential market size, depends on the founders, etc.
And you can definitely have traction and an initial revenue stream without having product-market fit in a meaningful way. You can survive for years on a large-enough group of savvy early adopters (and get funding based on that initial enthusiasm), but if you don't cross the chasm, your revenue stays flat.
And you can definitely have traction and an initial revenue stream without having product-market fit in a meaningful way. You can survive for years on a large-enough group of savvy early adopters (and get funding based on that initial enthusiasm), but if you don't cross the chasm, your revenue stays flat.
Well, they got into YC in an era where funding available to YC companies was basically infinite. Plus they had nonzero sales and an early graph that probably looked good. What VC could say no to that? (Keep in mind “spray and pray YC” is probably a top quartile VC strategy.) Getting into YC post ~2012 basically makes VC funding an afterthought. So the interesting question is what made them attractive to YC. (I’m not questioning, just clarifying.)
Edit: also there are tons of companies that get insane amounts of funding on total punts, with future failure obvious. (Just go trolling through AngelList, you’ll find plenty.) Thinking any one thing is truly necessary to get VC funding is a wildly incorrect mental model.
Edit: also there are tons of companies that get insane amounts of funding on total punts, with future failure obvious. (Just go trolling through AngelList, you’ll find plenty.) Thinking any one thing is truly necessary to get VC funding is a wildly incorrect mental model.
Product market fit is a pretty undefined term and people interpret it differently; you see companies dying after several rounds of funding for not being able to build a successful business. Usually companies raise the first round of funding (seed) with a prototype or an idea.
To be honest, this is highly amusing to me because nowhere in the musings on the failure did I see the writer(s) acknowledge that they have not a foggiest idea of the apparel (i.e. fashion) business. I bet no one in the entire company was a subject matter expert.
No one here would be surprised if Bob, a literature professor, who played tetris five times in his life would fail at building a video game startup. This is Bob, a literature professor, who gets his clothes at Macy's on sale ( still at ~400% markup ) building a fashion startup and failing.
That is why they failed. The founders are all men. The biggest consumers of apparel are women. Those that run successful boutiques are women and they largely service... women. Those that decide to do their own knock offs of the on trend are owners of the successful boutiques. Surprise surprise they are also women. What do they all have in common? They know that the market is in the throw away clothes that are supposed to last just one season ( trends move ), be cheap ( trends move ), and look kind of like what has been walking down the runway during the Milan FW, Hong Kong FW, New York FW and London FW. Turn around on this stuff in design is about 1 week, manufacturing is another 1 week and mass production is in 3-4 weeks. Designers of the knockoffs ( ok, call them inspirations ) can be talked with in NYC fashion district and in NYC Chinatown (I'm sure it can also be done in LA and during MAGIC in Las Vegas but they are in NYC weekly). Those that want to tweak designs can request it right there and in 3 weeks time i.e. a month after Willow Hand walked down the catwalk in Pineapple pants and well before D&G supplies their stores all those boutiques would have $40-$100 pants inspired by that.
I bet they did not hear what their potential customers were telling them.
And that's not even talking about the likes of Zara and H&M.
There was no market for this kind of a company.
No one here would be surprised if Bob, a literature professor, who played tetris five times in his life would fail at building a video game startup. This is Bob, a literature professor, who gets his clothes at Macy's on sale ( still at ~400% markup ) building a fashion startup and failing.
That is why they failed. The founders are all men. The biggest consumers of apparel are women. Those that run successful boutiques are women and they largely service... women. Those that decide to do their own knock offs of the on trend are owners of the successful boutiques. Surprise surprise they are also women. What do they all have in common? They know that the market is in the throw away clothes that are supposed to last just one season ( trends move ), be cheap ( trends move ), and look kind of like what has been walking down the runway during the Milan FW, Hong Kong FW, New York FW and London FW. Turn around on this stuff in design is about 1 week, manufacturing is another 1 week and mass production is in 3-4 weeks. Designers of the knockoffs ( ok, call them inspirations ) can be talked with in NYC fashion district and in NYC Chinatown (I'm sure it can also be done in LA and during MAGIC in Las Vegas but they are in NYC weekly). Those that want to tweak designs can request it right there and in 3 weeks time i.e. a month after Willow Hand walked down the catwalk in Pineapple pants and well before D&G supplies their stores all those boutiques would have $40-$100 pants inspired by that.
I bet they did not hear what their potential customers were telling them.
And that's not even talking about the likes of Zara and H&M.
There was no market for this kind of a company.
That's a lot of assumptions you've made without any backing.
1) Building a startup requires the ability to build a tech product and knowing how to solve a problem and sell it. Bob the literature professor is not a good example, as he would not know either - but these guys could clearly build the product at the very least.
If you looked at their backgrounds, at least the CEO (OP) had previously started a fairly successful apparel company. https://www.linkedin.com/in/kentmori
So to correct your analogy, this is like if Bob the video game software engineer was starting a video game startup.
2) Many top fashion companies are built by men. In fact, H&M - your example - was founded by a man.
https://en.m.wikipedia.org/wiki/Erling_Persson
I'm all for diversity, but your comment is overly harsh in tone and not back by substance.
1) Building a startup requires the ability to build a tech product and knowing how to solve a problem and sell it. Bob the literature professor is not a good example, as he would not know either - but these guys could clearly build the product at the very least.
If you looked at their backgrounds, at least the CEO (OP) had previously started a fairly successful apparel company. https://www.linkedin.com/in/kentmori
So to correct your analogy, this is like if Bob the video game software engineer was starting a video game startup.
2) Many top fashion companies are built by men. In fact, H&M - your example - was founded by a man.
https://en.m.wikipedia.org/wiki/Erling_Persson
I'm all for diversity, but your comment is overly harsh in tone and not back by substance.
> If you looked at their backgrounds, at least the CEO (OP) had previously started a fairly successful apparel company.
It was not successful. It was an unknown flop.
> So to correct your analogy, this is like if Bob the video game software engineer was starting a video game startup.
It was Bob, a professor of literature, who tried writing a tetris clone in college got to drawing pieces, who tried starting a video game company
> 2) Many top fashion companies are built by men. In fact, H&M - your example - was founded by a man.
In nineteen fourty seven.
> I'm all for diversity, but your comment is overly harsh in tone and not back by substance.
This is not about diversity. It is about a vegan starting a butcher shop and getting accolades for waxing about reasons for a failure.
It was not successful. It was an unknown flop.
> So to correct your analogy, this is like if Bob the video game software engineer was starting a video game startup.
It was Bob, a professor of literature, who tried writing a tetris clone in college got to drawing pieces, who tried starting a video game company
> 2) Many top fashion companies are built by men. In fact, H&M - your example - was founded by a man.
In nineteen fourty seven.
> I'm all for diversity, but your comment is overly harsh in tone and not back by substance.
This is not about diversity. It is about a vegan starting a butcher shop and getting accolades for waxing about reasons for a failure.
You're probably right, lack of knowledge of the context and the industry helped lead to or caused this company to close. Having someone in the company who was a subject matter expert, if they didn't, probably would have helped them in many ways obvious and not obvious. That doesn't seem to have anything to do with sex or gender though. It might, sure, but it doesn't seem to obviously relate to it.
SMEs in women's fashion tend to be women. That's the elephant in a room.
Zara founder is a dude and he was the richest person in the world for a period of time.
In 1975.
Zara mass market pioneered and optimized the retail aspect of "knock off the runway" optimizing the entire knock off to shelves process to about two weeks. It really showed up on the scene twenty years ago. Those markets are gone and they are not coming back.
Zara mass market pioneered and optimized the retail aspect of "knock off the runway" optimizing the entire knock off to shelves process to about two weeks. It really showed up on the scene twenty years ago. Those markets are gone and they are not coming back.
I like the lessons here.
But just to provide a contrarian perspective on #4, one of my previous jobs was at a company that did both, where we have dev department that built the software, and a growing and profitable consulting arm that helped customers customize and use our system.
A better example is Microsoft, many of its enterprise solutions, like..cough..SharePoint, is supported by an army of consultants hand-holding their customers on non-trivial use cases.
The larger clients tend to be less willing to adapt their internal processes to a new solution, and in many cases it'll require special customization or hand-holding/training to make a sale. On the plus side, they also tend to be able to afford those kind of things, you just have to charge them at a profitable price point.
But just to provide a contrarian perspective on #4, one of my previous jobs was at a company that did both, where we have dev department that built the software, and a growing and profitable consulting arm that helped customers customize and use our system.
A better example is Microsoft, many of its enterprise solutions, like..cough..SharePoint, is supported by an army of consultants hand-holding their customers on non-trivial use cases.
The larger clients tend to be less willing to adapt their internal processes to a new solution, and in many cases it'll require special customization or hand-holding/training to make a sale. On the plus side, they also tend to be able to afford those kind of things, you just have to charge them at a profitable price point.
You need to look beyond just profitability as product vs. consulting businesses grow in very different ways. Do you have a pipeline of quality potential hires? consulting headcount grows more in line with workload than product, which tends to stair-step. Can you handle the boom/bust of consulting? demand tends to be infinite or zero. Can you manage a long sales cycle? product (especially enterprise) sales can easily take 6-12 months. These are the clients that will also likely demand the most customization with software purchase.
I like looking at the motivations for consulting, of which revenue is just one. You also get great ideas for new features, solve existing pain points and leverage relationships for new sales leads.
You can do both but should have a very clear picture of why you do both.
I like looking at the motivations for consulting, of which revenue is just one. You also get great ideas for new features, solve existing pain points and leverage relationships for new sales leads.
You can do both but should have a very clear picture of why you do both.
Regarding Point 4: One recurring point in a lot those post-mortem articles is how hard it is to sell software, but how (relatively) easy it is to sell service (incl. consulting). Why is that?
Customers want problems solved. Tech people (me included) assume that once the hard part is done (the product/software), the rest is a minimal effort.
This is usually false. Customers are not familiar with the software, they may have a tech knowledge gap, its usage may entail organizational change. There are many possible reasons for adoption to be a very relevant factor.
Consulting means you are responsible for the whole process, not just providing software.
This is usually false. Customers are not familiar with the software, they may have a tech knowledge gap, its usage may entail organizational change. There are many possible reasons for adoption to be a very relevant factor.
Consulting means you are responsible for the whole process, not just providing software.
This. People don't buy technology, they buy solutions to problems they have.
People don't buy new network infrastructure for it's own sake, they purchase a solution to eliminate bandwidth issues and increase productivity of the employee base.
This is why a lot of tech companies have professional services departments internally as well as partner out with established players who already have clients, because customers want solutions, not technical details.
People don't buy new network infrastructure for it's own sake, they purchase a solution to eliminate bandwidth issues and increase productivity of the employee base.
This is why a lot of tech companies have professional services departments internally as well as partner out with established players who already have clients, because customers want solutions, not technical details.
I think it's more than this. Lots of people are willing to pay consultants $50k to build something for them. They are much less inclined to pay exactly the same price for the same product if it's pre-built and off-the-shelf.
People subconsciously feel that paying for someone's time is "fairer" than paying for something that's already built.
It may also be why aftersales and support contracts are so lucrative (in lots of industries).
People subconsciously feel that paying for someone's time is "fairer" than paying for something that's already built.
It may also be why aftersales and support contracts are so lucrative (in lots of industries).
This is also why every developer should be required to do a bit of technical support and some sales calls.
Yes! This is an underappreciated reason why Twilio was such a success early on. Every employee (including software engineers) had to work 10 or 20 support tickets in the first two weeks on the job.
Besides the stuff about solutions below, it also has to do with budgets. A lot of places have $X for one time charges, like consulting, but have to get approval for ongoing costs, which include purchasing SaaS or even box software that has to be renewed or upgraded.
There was that article on Joel on Software a long time ago about how they chose to price their software at $999 because $1000 was the typical amount that required approval. Similar to that.
There was that article on Joel on Software a long time ago about how they chose to price their software at $999 because $1000 was the typical amount that required approval. Similar to that.
I really appreciate #3 about founder-led sales.
Even if you don't make the mistake of bringing in a VP of Sales too early, it's easy for founders to get lost during this stage of the company.
When founders struggle to get those first paying customers, I wonder how many conclude that they haven't yet found product/market fit when really, they're just terrible at doing sales. It's especially difficult for technical founders (who tend to be bad/new at doing sales), and particularly challenging when selling B2B software.
Even if you don't make the mistake of bringing in a VP of Sales too early, it's easy for founders to get lost during this stage of the company.
When founders struggle to get those first paying customers, I wonder how many conclude that they haven't yet found product/market fit when really, they're just terrible at doing sales. It's especially difficult for technical founders (who tend to be bad/new at doing sales), and particularly challenging when selling B2B software.
"Founders are the only ones willing to get excited about a constantly changing product."... so true!
So, without knowing the company any more than what was hinted at in the article, the goal was to build some kind of digital version of Zara (short lead-times, short to-market cycles) for all the individual designers out there.
And that basically makes this company less of an apparel or even a tech comapny and more like a dedicated supply chain service company for the apparel industry. Which requires solid SCM skills and the corresponding solid organisation and network. And maybe it's just me, but I have the impression that they focused almost exclusively on the tech-part. It's nice offer a service to manage "logistics" through an app. But what happens in the background of said logistics? That customer seemed to complain about long lead-times whatever happened wasn't that great. Considering vertical integration, the micro-factory in China, is not a solution if you don't have the experience running apparel manufacturing, in China of all places. And if you do have that experience you don't need an own factory, just use local partners like everybody else. Or don't in order to avoid all the ethics issues that come with it. Thing is, lead-times are reduced by cutting waste out of the process, and I didn't read anything regarding how they wanted to use technology, which is great in doing just that when used right, in order to achieve that.
And that basically makes this company less of an apparel or even a tech comapny and more like a dedicated supply chain service company for the apparel industry. Which requires solid SCM skills and the corresponding solid organisation and network. And maybe it's just me, but I have the impression that they focused almost exclusively on the tech-part. It's nice offer a service to manage "logistics" through an app. But what happens in the background of said logistics? That customer seemed to complain about long lead-times whatever happened wasn't that great. Considering vertical integration, the micro-factory in China, is not a solution if you don't have the experience running apparel manufacturing, in China of all places. And if you do have that experience you don't need an own factory, just use local partners like everybody else. Or don't in order to avoid all the ethics issues that come with it. Thing is, lead-times are reduced by cutting waste out of the process, and I didn't read anything regarding how they wanted to use technology, which is great in doing just that when used right, in order to achieve that.
Really great distinction made regarding raising.
It's not about having the time to think up and try a bunch of different ideas, but executing a list of prepared hypotheses. This would pitch way better to VCs, too.
It's not about having the time to think up and try a bunch of different ideas, but executing a list of prepared hypotheses. This would pitch way better to VCs, too.
I agree with the idea that startups should generate clear hypothesis and do well-documented experiments.
VCs should be more vigorous about grilling founders on their hypotheses, imo. The experiment logs also make for content-marketing and investor documentation.
VCs should be more vigorous about grilling founders on their hypotheses, imo. The experiment logs also make for content-marketing and investor documentation.
Mori sounds like a lost MBA.
LA Koreatown has an entire and modern apparel industry.
They could have validated anything they wanted from SoCal.
LA Koreatown has an entire and modern apparel industry.
They could have validated anything they wanted from SoCal.
Point #1 seems completely over-thought to me.
> At the beginning, startups are simply a belief that a problem out in the world needs solving and that someone is willing to pay for the solution. This can be based on intuition or experiences, but they’re still assumptions and hypotheses that must be verified.
You don't need 7 different steps to find excuses to pat yourself on the back. Either someone pays you, or they don't.
> At the beginning, startups are simply a belief that a problem out in the world needs solving and that someone is willing to pay for the solution. This can be based on intuition or experiences, but they’re still assumptions and hypotheses that must be verified.
You don't need 7 different steps to find excuses to pat yourself on the back. Either someone pays you, or they don't.
I mean it's true that either someone pays you or they don't, but there's still plenty of grey area:
1. Some people might pay you but it's not enough revenue to sustain a business
2. People may not pay you now but are willing to pay you later
3. Sales cycles can be quite long esp. for B2B, and can cease at any point for quite a few reasons (e.g. legal)
4. People will definitely pay you $0.99 for $1.00, but that's not a sustainable business. It's super easy to fall into this trap especially when you consider the monetary value of time
5. It's usually a good idea to figure out if people will pay you before you spend a bunch of time and money building something
Having a process for determining whether you're falling into one of those traps seems valuable.
1. Some people might pay you but it's not enough revenue to sustain a business
2. People may not pay you now but are willing to pay you later
3. Sales cycles can be quite long esp. for B2B, and can cease at any point for quite a few reasons (e.g. legal)
4. People will definitely pay you $0.99 for $1.00, but that's not a sustainable business. It's super easy to fall into this trap especially when you consider the monetary value of time
5. It's usually a good idea to figure out if people will pay you before you spend a bunch of time and money building something
Having a process for determining whether you're falling into one of those traps seems valuable.
"People will definitely pay you $0.99 for $1.00, but that's not a sustainable business." Looking at founders of Uber and many other "Unicorns" selling $1.00 for $0.7 is pretty popular strategy for becoming a billionaire.