Killing Your Startup and Staying Alive
Four Steps to Entrepreneurial Resilience
by Adi Hillel
More than 90% of tech startups fail. You were fully aware of this before you founded your startup, but it didn’t stop you from doing it. You believed you could do it, you knew you could; after all, someone has to be in the 10%, and that someone can (and will) be you.
Well, I totally agree with you. One must stand tall in face of these statistics, fight against all odds, and stock up on cognitive bias to survive the dazzling uncertainty of this risky, if not crazy, choice. There’s no other way — you need true passion, tons of optimism and profound confidence — in yourself, in your team, in your product. That doesn’t mean you are not full of doubts, but you’re up for the challenge, ready to fight back and show the world that a single-minded person like yourself can make it to TED and inspire others with your tale of a garage startup that disrupted the way people think/work/learn/move/eat/sleep/text/live. You can picture your future in minute detail — your daily schedule, one year before the IPO — because you heard that visualization is vital to success, you have to plan your hopes and map your dreams, and you do, diligently.
But then it happens. You fail. Welcome to the 90% club; I’m here, mixing some cocktails in the lounge, waving to too many friends and colleagues who mistakenly arrived here, just like me.
I’m the co-founder and CEO of an early-stage startup that failed. I’m also a first-time entrepreneur, so the slap in the face was strong and painful.
We didn’t make it to round A, only to pre-seed, but we did our share and took part in the game — we took a chance, established a company, bootstrapped as long as we could, launched a product, iterated, pivoted, built a community around it, we got up on any stage available to pitch our vision to anyone who’d listen. And… it didn’t work out. We burned ourselves out before reaching product/market fit. I hate to admit it, but we grudgingly fell under yet another statistic, according to which 42% of startups fail due to lack of market, not enough people needed the product. Sad, but probably true.
Pulling the plug on a startup is not an easy thing to do. Aside from the financial and legal bureaucracy, you need to come clean with your users, your investors and your team. But first and foremost, you need to come clean with yourself — or what’s left of you once it all starts to collapse.
Having to face these challenges myself, I decided to examine the last mile of this journey in order to maximize my learning and make peace with my decisions. This four stage path is personal, I’m just putting it here for the off chance that it might strike a familiar chord for someone, maybe provide some comfort or assistance. If you find you can relate, or if you wish to share your thoughts and experience, write a comment below; I’m fascinated by other entrepreneurial experiences and lessons learned.
First Step: Don’t Get Attached
As a founder, you probably devoted the last year/s to your startup.
You sacrificed everything you had (or didn’t have) — your time, energy, money, talent, professional and personal relationships just to make it happen, and you’re afraid that it will go down the drain if you quit now. In behavioral economics it’s called Escalation of Commitment, “the tendency to invest additional resources in an apparently losing proposition, influenced by effort, money, and time already invested”. Unfortunately, this tendency will lead you to irrational decision making, which business-wise, we all want to avoid.
To overcome this booby trap, we should distinguish between the sunk costs (the resources that were put into the project so far) and the prospective costs (future resources), and constantly remind ourselves that unlike the rose-colored gambler, we know that what has already been spent, will not effect the prospects of our future success (or failure). We must look at reality as it is, and not as we would like it to be (easy to say, hard to do).
For us, the three co-founders of Hubitus, this was the tricky part. We were so deeply in love with the vision and emotionally involved with the project, that we couldn’t admit that things went south while we were heading north.
We are stubborn human beings, and we were sure that one more iteration would make the difference. Well, it didn’t. But hey, it was Thomas Edison who said “I have not failed. I’ve just found 10,000 ways that won’t work”, and we just did what we thought was expected of unwavering entrepreneurs: we didn’t give up.
It took me a while to understand that a good manager is courageous enough not only to sail into the ocean, but also to ditch the ship once it sinks into the deep abyss. So we poled a thought experiment, in which we forecast the future — based on our core metrics — and pictured the worst-case scenario and the best-case scenario for our company. Surprisingly, it was the best-case scenario that made us close the curtains. We realized that even if we met our highest expectations (launching a new version in three months, reaching 10% growth per week, witnessing a beginning of a viral effect), it’s already too late. We have no resources left to make it to the next step. Reaching our next milestone wouldn’t bring us to the one after. Painful as it was, the rational choice was to admit we couldn’t pull it off.
Second Step: Take the Time to Mourn
It’s OK to be sad. You were expecting a roller coaster, not to be pushed out of the game. You might feel anger, anguish, despair, embarrassment, defeat, apathy or self loathing, that’s OK too. You’ve just run a bloody marathon, and even though you didn’t make it to the finish line, you have every reason to feel exhausted and out of breath. Fighting it won’t help. Let go. Allow yourself to fall without judging. Do nothing. Go to the cinema, you probably haven’t see a decent movie in six months. Meet some friends. Answer “I don’t know” when you’re asked about your plans for the future. Treat yourself as if you have the flu, and behave accordingly. Be gentle with yourself. Remember that everything is temporary, and that you are temporarily depressed now.
Very often, our negative predisposition towards our negative feelings is the thing that holds us back, not the feelings themselves. Take the time to process your loss. Accept it. And know that you’re about to get strong again. Strong and stronger.
As for myself, I just lost faith. I felt that my actions had no impact whatsoever on reality, so I’d better stop trying to force my intentions on the outside world. I had no reason to get up in the morning, and no ambition to find a reason; I slept a lot; I cried once or twice; I released sarcastic poisonous remarks wherever I went, trying to get rid of the delusional me, the one who thought she stood a chance. I felt relief, and guilt for feeling relief; I thought of moving to the country, and leaving everything I knew behind, including my laptop; I binged on “Better Call Saul”, and became suspicious of all lawyers, including the ones who were about to liquidize our company; I dumped a full stack of business cards in the trash. And then, I think it took me a month or so, those destructive emotions gradually faded away. Like all things do. So my advice would be: when reaching this stage of self-pity don’t panic and just fucking rest! The world will wait.
Third Step: Re-frame Your Failure
As entrepreneurs, we always strive to make it to the next step — to build a team, create an MVP, obtain a POC, build a product, launch it, gain product/market fit, grow a community, raise capital, penetrate the market, make revenue, scale, explode, exit. Each step is defined, measured and monitored by hard-line metrics such as traction, retention, CAC, LTV, MAU, DAU, referrals, K factor, profit. We are in a relentless race to iterate, optimize, to hack growth. Failing to reach the forthcoming level in this life time cycle has one meaning — failure.
Having said that, the entrepreneurial ecosystem also sees failure as an inevitable part of the game. Behind almost every successful entrepreneur, there are a handful of failures, from which they learned and evolved. Type “entrepreneur who failed then succeeded” in google, and you’ll find hundreds of stories of people who got back on their feet and touched the sky.
But again, these are the stories of those who made it, and they are colorful examples of the survival bias we’re all trapped in. Failing per-se is not a guarantee of future success, but it is an opportunity to grow.
As I see it, when dealing with failure, one needs to pass two junctions that might seem counter-intuitive when coupled together. I am personally determined to experience them both, for the mere hope that this attempt will help me regain my confidence in myself, and in my ability to innovate and make a small dent in the world.
First, own your failure, and keep up a strong internal locus of control; this may shift the full responsibility on you and not on external causes such as luck or chance (which are not to be trifled with), but it will sustain your motivation (once you’ve come through stage 2). Talk to your users. Thank them. They bet on you, and they deserve a genuine explanation. They are irreplaceable, and they should be aware of that; if it weren’t for them, you wouldn’t have had this adventure in the first place. Be transparent with your investors and your team; you’ll probably meet them again on your next round, so it’s important their recollection of you will be of a friendly and trustworthy comrade. Write a post-mortem analyzing the reasons and circumstances under which your startup went astray. It’s amazing what writing can do for the soul. Use the 5 Whys to trace the human factor behind these factors. Reflect on your conduct since the beginning, and draw your conclusions. Admit your mistakes, so you won’t make them again. Think what you could have done differently, if you were offered a second chance.
There is this joke: “what is the first and foremost reason companies go bankrupt? They run out of money”. It’s funny because it’s true, but only partly. If you ask my two partners, each will provide different explanations for the failure of Hubitus. There isn’t one answer, there are many, although there were some indisputable indications — the product just didn’t catch. Each of us emphasized different factors, according to our position and personality.
If you ask me, I think I was so obsessed with the details, that I overlooked the big picture; I changed my priorities too often and was drawn to haphazard offers, which at the time seemed like opportunities; I was unrealistic in my approach to growth and scale, and wasn’t bold enough to initiate collaborations; I didn’t move fast enough, and wasted valuable time on planing instead of executing, projecting instead of focusing on the here-and-now. I think I was afraid of success, more than I was afraid of failure. I wasn’t hawkish enough. There! I’ve said it! Now I have an entire lifetime and hopefully ample opportunities to iterate myself, and come up with a better version of me.
Now that I have full ownership of my failure, it’s time to realize that the startup failed, I didn’t. We — the startup and I — don’t share the same metrics of success. I need to define my personal milestones, which must be fully aligned with my startup objectives of-course, but are independent and unconditioned, nonetheless.
Our GTM strategy of targeting a niche market of writers as early adopters was proved to be wrong. Nevertheless, in order to reach this conclusion I had to learn how to run experiments, carry out interviews and conduct usability tests. Our product only reached beta stage, but I learned how to create an MVP with zero resources to validate our wildest hypothesis, run a pilot, coordinate and supervise all aspects of the product dev. from paper prototype to a live application. We were unable to scale our initial community, but I’ve learned how to initiate a community, how to address users, track their activity, get viable feedback and create engagement. My learning was sometimes slow and bootless, but it was real and genuine. I have become a better entrepreneur, by trying to become one.
So come on. Make a list of all the things you've learned along the way, since you first came up with the idea up till this moment, where you need to turn your back on it. It will help you reach closure, and remind you that nothing, but nothing, ever goes down the drain, as long as you know how to cultivate it. And you know how. Your’e an entrepreneur.
Fourth Step: Turn Your Life Into a Startup
In the previous stage, I learned to acknowledge all the practical knowledge and know-how I’ve gained by turning an idea into a product. Can I leverage it even more? Is it possible to use the tools, techniques and doctrine of the startup world in everyday life? I believe the answer is yes.
Let’s try and see our lives as the biggest venture of all, by applying the relevant methods. Almost everything you’ve picked up during the way can become an instrument that can help you optimize your happiness and well-being. I, for instance, would like to boost my career as an entrepreneur, after years of professional frustration as a scriptwriter in an overflowing market. For starters, I can set goals for the next five years of my life and draw a road map, comprised of desirable milestones. Moving forward towards well defined destinations, instead of just wandering about and grabbing any half-baked opportunity that crosses my way; it can help me stay focused and will make my decision-making wiser and easier. Market analysis will tell me what my competitive advantage is, and provide me with a ballpark by which to state my pricing. By defining measurable metrics in advance, qualitative and quantitative, I can estimate whether my efforts bore fruit or not. I can run minor experiments to test my assumptions while documenting the results and iterating accordingly, even when it comes to writing my resume. I can go lean, and allocate resources in accordance with the stage I’m in. I can replace the ‘product’ in product/market fit with me/market fit, just to make sure I can deliver enough value to a specific market, and if not, do something about it. I can tell, and re-tell my life story according to my audience, while addressing different pain points and supplying interchangeable solutions to my listeners. I can learn to pitch my attributes in 20 seconds, in case I’ll bump into someone in an elevator. And if needed, I can pivot. I’ve done it before. I can become the customer success manager of my life.
And you can too.