Founder Lucas, CEO of Clinkle

How to Avoid Wasting Years of Your Life Due to a Startup Incubator (Part 1)

A lot of smart founders join startup accelerators and raise money prematurely. Over the past 3 years, I’ve seen many of my friends’ companies pivot before, during, and after startup incubators. Often times with millions of dollars in the bank (or spent), and a handful of employees demanding top engineering salaries.

Obviously that is not ideal, but the biggest concern is that joining an accelerator like Y Combinator too early may result in you wasting years of your life.

How do I know this? Because we almost did just that. We almost wasted a few years of our lives building a product that nobody would end up buying. The product was extremely technical and ambitious. In order to build it in 12–18 months, we would have had to hire a half a dozen engineers too.

We had multiple seed fund offers from top VCs, partnerships established with Fortune 500 companies, and nearly 300 companies register their emails for beta. But all of these were vanity metrics.

Luckily, largely thanks to the Citrix’s Innovators Program and the 6 month Alchemist Accelerator program, we were forced to interview as many potential customers as we could before coding anything. We ended up interviewing nearly 100 potential customers until realizing that we should abandon the concept.

If you’re admitted to a 3 month program like YC or TechStars, you do not have time to spend an entire month emailing 500 potential customers (or many more if it’s not b2b), interviewing them, and synthesizing what to do based on their feedback. You have 3 months to launch a product, get hockey stick traction, and prepare for demo day. As Jessica Mah, the InDinero CEO (YC 2010) describes in her interview with Steve Blank, the peer pressure is tremendous too:

When you’re surrounded by other companies rushing to launch, and your investors want you to launch, you’re just going to do it.

Not coding, growing, or raising money will make you feel like you’re falling behind. Peer pressures makes teenagers do much stupider things–I would have done the same thing in Jessica’s position.

Due note, I am not criticizing programs like YC in any way–these programs are incredible for startups that have a proven business model and need significant capital to grow ten times faster. I just believe that there is nothing worse than building a product that nobody wants, and this is very easy to do as engineers, especially when you have investors egging you on.

So what did we do?

For 6 weeks, we struggled. We searched for new business models in various verticals (consumer packaged goods, automotive), different departments of businesses (supply chain, sales forecasting), and more. Personally, I probably interviewed 150 different potential customers for 5 different concepts. Identifying new business models is hard. Even prestigious “Entrepreneurs in Residencies” at top tier VC firms can fail after months of assisted research and advice.

During our investigations, we actually managed to identify 2 business models that seemed viable. We attracted seed offers from multiple VC firms too.

Luckily, we decided to continue searching for a business model that would generate revenue early on. By this, I mean avoiding funding, achieving profitability, and keeping the team as small as possible until we were forced to hire more employees. With just 2 cofounders, we had plenty of time to search.

There are thousands of small businesses outside of Silicon Valley that do not receive any outside funding, yet they achieve sustainable growth and profitability. Somehow, Silicon Valley entrepreneurs believe funding is required to create a successful company, and this is simply not true.

Even VCs agree: many VC firms actually spend a significant portion of their efforts searching for established bootstrapped companies that never received funding.

As two contrasting examples, look at Clinkle and Firefly. Clinkle raised $25 million dollars, the largest seed round ever, in June 2013, then laid off 30+ employees by December. They even hired the ex-CFO of Netflix, and he left 5 months later. Talk about a rough start.

Compare this to the wildly awesome success story of Firefly, the 2 person company founded by Dan Shipper and Justin Meltzer during the summer of 2012 (I shared an apartment with them that summer). They bootstrapped the company while still in college at Penn, achieved profitability, and sold it to Pegasystems in June 2014.

My next post will discuss more about where we ended up landing, but for now, I encourage all the entrepreneurs out there to:

  1. Avoid the incubators and VCs before you’re confident in your business model.
  2. Interview as many customers as you can before investing months of sweat equity in code.
  3. Consider bootstrapping the business entirely without any funding.
  4. Moonlight at your current job for as long as possible.
  5. Look for programs that are longer than 3 months like Alchemist.

You owe it to yourself, your time is your most valuable asset.