12 Lessons on Closing Down Your Idea
Semi-anonymized (but brutally honest) lessons from three top entrepreneurs
Contributors: Evan Baehr, Ofo Ezeugwu, Sebastián León
Compiled by: Brian Truong
Contributors
Co-Founder of Able Lending
Co-Founder of Outbox
Previously at Facebook, Rock Health and Clarium Capital
BA @ Princeton, MAR @ Yale, MBA @ Harvard
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CEO of WhoseYourLandlord
CEO of Untapped
Actor & Model (free-time)
BBA @ Temple University
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Co-Founder of Mirador
Previously at Twitter, Romulus Capital, and EdX
BS @ Massachusetts Institute of Technology
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To enable our founders to give their most honest, raw, and real stories, we’ve just anonymized their lessons below.
Lesson 1: Two founders is the best number of founders (not one, not three, and most definitely not five).
“First of all, don’t do it alone. When you’re alone, you have no one to bounce ideas off of; you don’t have someone to tell you you’re wrong. When you have more than two founders (e.g. 3), you can have two founders team up against the third one. Factions can form. One super-angel once told me that of all teams with 3 co-founders he invested in, 90% of them bullied one of the founders out. Once you have more than two, you have a lot of personal politics come into play. With just one co-founder, you can sort through issues together. You want a partner, someone who is a majority stakeholder like yourself who shares in the decisions. You can make decisions more quickly.”
Lesson 2: Companies die for two reasons: you either give up or run out of money.
“Looking back, I guess you could say that things did not look promising when I had to push my co-founder(s) to work. If your teammates judge whether they will stay based on hitting certain benchmarks month to month, it won’t work out. You can’t really have partners who are in it conditionally because if things go south, they are the first ones out. You want people who will work on this unconditionally even if it goes nowhere. Ultimatums are not how companies should live.”
Lesson 3: Don’t be too fast when bringing on teammates.
“When we first started out, our process of building the company was to first define the product, talk to customers, and then try to find people to plug in. This is wrong because rushing to find people to fill roles results in bad hires. What you really need to start with is a concept and the right people to do it. Be slow in bringing on team members and only bring on people you absolutely need because if not, you end up with many people who can’t execute but that you have to manage”
Lesson 4: Believe what customers do, not what they say.
“When we were building the product out, we were received with great fanfare with bloggers, tech CEOs, and writers. People were really excited to talk about it, and everyone signed up on the list with a “We love it. We want it.” mentality. But when we launched and finally asked our sign-ups to actually use the product and give us their personal information, people no longer wanted it. Customer acquisition costs shot up. The lesson here is that it is one thing for customers to think it’s a good idea and another if they will actually use it.”
Lesson 5: Cultivate deep relationships with your investors.
“Because we had a trusting and deep relationship with most of our investors, there was a level of confidence from them that clearly this was the right thing to do [to shut down the company]. Invest in your social capital account with them, so that when you face a difficult decision, they will help process your decision and trust you with their money. The last thing you want are your investors angry at you as you close down your company. ”
Lesson 6: Limit what you offer.
“We failed in that we tried to tune our product to everything we thought the client needed rather than what we ourselves could build well. The hardest part when offering lots of features is that clients continue to say that they like what you offer, but at the end of the day, it won’t work out unless you can do 1–2 things absolutely right and expand from there. There’s just not enough time in the world to do 40 things well right from the start.”
Lesson 7: Your 2–3 sentence pitch needs to make sense.
“If it takes 15 minutes to explain your idea, it’s probably not going to work. You can’t recruit anyone if you can’t explain your idea in 2–3 sentences. That’s what happened to us.”
Lesson 8: Friends don’t always give “honest” feedback.
“We asked our friends for feedback on our initial idea. And on one end, it was great! They were very willing to try things out and were patient with us. We knew all the people, and we could be comfortable asking them for advice. However, they had a friendly bias that they wanted to say nice things to us. They were what friends were for, but they were not people who had a reason to be very very honest with us.”
Lesson 9: Starting with the technology first rather than problem first is a bad idea.
“It’s hard to be motivated when you aren’t passionate about a problem. You don’t want to retrofit. As technologists, start with the idea and problem first and work back the technology to fix the problem.”
Lesson 10: In-house talent reigns over outsourced consultants.
“Don’t ever outsource your main functionality. Your core product or service shouldn’t be outsourced because even if it is great, you still won’t make much profit because you just become a middleman. Basically, who needs you if you aren’t the driver of the main product?”
“Pull as much in-house function as you can because any function that is critical to achieving product-market fit, you need to have someone on the team who is the owner of that. This includes anything related to user acquisition or product or marketing. With someone who is not working with you every day, it massively delays the product-market loop; you need to spin that loop as fast as you can and as many times as you can in order to get things right.”
Lesson 11: Don’t start a company with someone you wouldn’t want to hang out with.
“I previously made the mistake of starting a company with someone who I could not spend time outside of work with. I just felt weird around him. Even though he was one of the best at what he did and was crazy intelligent, it didn’t matter because I never felt like we were on the same page. Some people are very different one-on-one versus within the context of the whole team, so it’s good to measure how they act in the context of their friends and peers. My advice would be to spend a weekend outside of work with your team. Check the chemistry of the whole team together, and see if you can hang out with them even if you weren’t starting a company together.”
Lesson 12: Try to understand your gut feelings.
“A compelling argument can be made either way in making it work. It [closing down] kind of came down to a gut decision. In your core, do you believe that this can work? Is your heart in a place to make it work no matter what? For us, we were very much at peace in saying that we gave it our all, learned a lot, and have no more passion or confidence to run after this and believe that we can make it work. That’s when we decided to shut it down.”
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