Your Startup Is Probably Less Valuable Than You Think — Take It From Me
Your startup is probably not a rocket ship.
I’ve been fortunate to be part of three startups across three different industries. I spent around seven years in e-commerce with Shopping.com, another seven years in advertising technology with Adap.tv and four more years in mobility with Zirx and, now, STRATIM. At each, there have been stratospheric highs, despairing lows, moments of existential worry and everything in between. I’m also an active investor, adviser and board member to many Series A and Seed companies.
In short, I’ve seen a lot.
In 2007, we were planning to launch Adap.tv — which at the time we called “a contextual video ad platform.” Our thesis at the time was primarily:
1.) Video content options would grow dramatically
2.) The delivery of that content would move from cable TV to the internet
3.) New advertising sources would arrive to meet this proliferation of digital video content.
Our solution was to take audio and visual clues from the digital video content and display contextually relevant advertising as “overlay video ads.” The most tangible example was our demo — a digital video of Will Smith with Adap.tv ads promoting Will Smith videos on Amazon.
We launched the service and saw massive user engagement — 7%+ of users clicked on our highly relevant ads. For a brief few days, we considered ourselves aboard the next big “rocket ship.” After a few heady days, we looked at our metrics again. They were still sky high. But with examination, we saw that 99%+ percent of our clicks were within a few pixels of a very small “Close” button on our highly relevant ads. Users were definitely engaging with our ads — by accident. When we made the “close” button larger, our engagement fell — to almost 0%.
As I spend time with more and more founders and entrepreneurs, it’s becoming clear to me that start-ups tend to fall into three categories.
• Rocket Ships: These are the companies we all know. Some might call them unicorns. They get all the media attention, and it’s pretty obvious to spot when a venture becomes one.
• Middling: This is the messy middle. These startups have something, but not quite enough to be a rocket ship. The value is nichey, the growth isn’t quite fast enough, the value generation isn’t great.
• Nowhere: These are startups where there just isn’t any there there. As with the rocket ships, it’s pretty easy to tell early on.
But it’s not always so easy to know where you are from the inside. And, if, like me, you have been unsure of your status in the start-up stratosphere — chances are you’re a notch lower than you think.
I say that from personal experience and with a ton of respect as a fellow entrepreneur. There are times where I wish I had the courage and foresight to honestly put my company in either the middling or nowhere category.
The value of honestly assessing your business is among the most powerful exercises you can do as a founder. A sober assessment can empower you to make the changes, choices and decisions you need to get to that next level. And, as an entrepreneur, time is among your most valuable assets. Any time wasted pretending you are close to a rocket ship — when you are really going nowhere — robs you that most precious resource.
By way of example, let’s look at Zirx, an on-demand valet service which I helped found.
We had one of the best product-market fits I have ever seen: we’d park your car for you in places where parking was hard to find! But we also had among the worst unit economics I have ever seen. We were wise to see the writing on the wall, and make a swift pivot to the burgeoning fleet management space as STRATIM — an entirely new company. I had assumed, incorrectly, that Zirx was solving such a real problem that it was destined to be a rocket ship. With the benefit of hindsight, it was obvious it was going nowhere.
My failure to see that at the time cost us a lot of money, time and energy. In the end, we had a great outcome for our team, our customers and our investors — we were one of the few companies that was able to successfully reinvent itself while still in the early stages. But a sober assessment of Zirx’s real value in the marketplace would have greatly increased our options and flexibility to evolve, not to mention many fewer headaches. I’m still amazed we were able to pull off the switch.
We all want to be part of a rocket ship. The hard part is resisting the urge to act like one prematurely.