Hi Tae, I wanted to share a recent article by CB Insights. They compiled 143 postmortems from startup founders since 2014 (https://www.cbinsights.com/blog/startup-failure-post-mortem/#2015update). The candor with which people reflect, the clear demonstration that there is in fact a community of startup founders who have wound down their business (including companies like Quirky and Homejoy), and the desire of others to learn from these mistakes/acknowledge that the founders of these companies have knowledge to impart, really support your advice above. Thanks for sharing your advice here.
Eric, thanks for the post. I agree that optimizing for these vanity metrics could easily create a situation where the feedback mechanism of meeting or failing to meet KPI targets is ineffective. If a business is tracking the wrong metrics or failing to set appropriate targets (like in Dinr), it could waste significant resources by scaling before it has achieved product market fit. The challenge I see is not in physical products/services where unit economics provide hard data to point to, but rather in social media plays where the get big fast mantra has dominated the dialogue. In social media, scale often drives revenue. Accordingly, scale is very important to track, but is dangerous because you are right, the product-market-fit and health of the business are difficult to point to. These businesses could easily scale before they are ready because the relevant metrics of true business health are difficult to identify/hard to track in the early stages. Other than tracking user engagement (e.g., DAUs), any tips on how social media ventures should think about their metrics and target settings?
Amelia, always enjoy reading your thoughts! I agree that it is important for founders to define success, but as I tried to force rank success metrics like maintaining a strong personal life, meeting financial metrics, making a meaningful impact, growing a team, inspiring loyalty from investors/employees, etc – I am struck by how difficult it is. It is easy to say “I want to be successful” and assume that success is a binary as opposed to a scale. Maybe the question should be which types of success are most important to you, and which types would you be willing to trade away?
Austin, I am really glad you added the last section about maintaining a ‘lifeboat’. Having a reserve account seems critically important to managing a business responsibly.
Additionally, I think it is a good idea for founders to be transparent about their desire to build a big company instead of a company that makes a soft landing (and that this may entail a going all in on the company) prior to raising capital. This foresight may be possible in the winner take all situations that you outlined in #1, but I think it would be almost impossible to predict in situations #2 and #3. In those situations, I think on-going clear and consistent communication with investors is the best policy. The founder of Yabbly’s approach to impartially laying out risks and rewards, and allowing investors to vote with their feet seems to be a sound way to manage this particular stakeholder group in situations where it is necessary to go all in.
Mils, thanks for sharing your thoughts – these issues are difficult! I think that these problems could be mitigated by crafting a diverse initial team. While having a team from similar backgrounds and with similar personalities and ways of looking at the world can lead to quick iteration and pleasant work environments, it could reinforce the “me”-centric behavior you describe above. True diversity in backgrounds and viewpoints in trusted early team members could help provide the founder with more well-rounded advice and perspective on the market, appropriate risk levels and belief in the idea.