4 Lessons From a Failed Startup — From and For First Time Founders
My startup, Maderight, is shutting down. We were a software powered apparel manufacturer that allowed companies to submit designs and manage prototyping, production, and logistics through our web app. We were accepted into both Y Combinator and StartX and received venture funding, but after three years of operating we were unable to find product-market fit.
Since letting people know of our decision, my co-founders and I frequently get asked what we learned from the process. I jotted down some key lessons we took away from our experience.
1. Build a framework to document, test, and evaluate your hypotheses. Refer to it often.
At the beginning, startups are simply a belief that a problem out in the world needs solving and that someone is willing to pay for the solution. This can be based on intuition or experiences, but they’re still assumptions and hypotheses that must be verified.
While we eventually adopted a system that worked for us, Maderight would have benefited by implementing it from Day 1. We settled on the following 7 questions to steer our discussions:
- What are the assumptions/hypotheses we need to test to get us to product-market fit?
- How will we test our hypotheses (e.g. talking to customers, selling, landing page)?
- How and when will we evaluate the results?
- What needs to get built to conduct the test?
- What are we working on and why is it essential?
- What is our progress from last week / what are the results of any test?
- How can we move faster?
We found that these questions helped pull us out of the day-to-day “operator” mode and guide discussions around progress and priorities.
2. Instead of maximizing runway for length of time, maximize for the number of hypotheses you can test.
At Maderight we were extremely conservative with our spending, something we were proud of. We knew that the problem we were solving was large and sales cycles were long, so we operated lean to maximize our runway.
But the goal shouldn’t be to maximize runway, it’s to maximize the number of hypotheses you can test with a given amount of money. To use a sports analogy, maximizing quality shots on goal is more important than increasing time of possession. Sometimes this may result in the same outcome (especially with SAAS or bootstrapped companies), but as technology expands into industries outside of pure software, it’s dangerous to assume they’re automatically the same thing.
For example, our customer’s biggest pain points were slow lead times and product quality. We believed our technology would solve this, but factories were not adopting our technology so we considered two options:
- Operating a “micro-factory” in China ourselves (<20 people)
- Building out a service team in china (<5 people) to use our software, acting as a manual step until we had the scale to force them to use it.
We chose to build out the service team because we wanted to maximize our runway. In retrospect, operating our own factory deserved a deeper look since it would have put us closer to the root problems and allowed us to test/iterate more solutions, faster.
#3 — Founder Led Sales. No Exception.
Before you reach product-market fit, sales must be led by a founder. We made the mistake of bringing on a VP of sales too early and the double mistake of taking too long to let them go (I feel like these mistakes always go hand-in-hand).
What I didn’t understand at the time is that sales before product-market fit isn’t about revenue. It’s about talking to customers, problem identification, and testing solutions. The sale is just a byproduct of a successful test.
Founders are the only ones willing to get excited about a constantly changing product. Plus, you’ll get the added benefit of understanding the type of person that should be hired and a good performance benchmark when you eventually do hire someone.
#4 — Avoid “let’s just do both” situations.
We started Maderight as a service company so we could get customers from day 1, start talking to them, and get a deeper understanding of their problems. About a year into operating, we were acquiring customers efficiently, they were paying us, and we were getting repeat orders. But our attempts at automating the process just weren’t getting used.
Finally on our 4th iteration we saw adoption. But we had a problem — while new customers were adopting the technology, our existing clients still wanted the “high-touch” service we were providing.
We had three choices:
- Option 1: Drop our existing customers (and corresponding revenue) and focus on the new product and customers.
- Option 2: Keep our existing customers and focus on operating as a service company.
- Option 3: Do both.
We went with option 3, after all it was the “best of both worlds” and we were afraid of losing our only revenue stream. Unfortunately, it split time & resources and made both projects suffer. I believe we could have found success in either case, we simply needed the courage to make a hard decision and focus.
Running Maderight was the most rewarding professional experience of my life. We got to manufacture hundreds of thousands of apparel products, work with dozens of great companies, and build great friendships along the way. Thank you to all the investors, mentors, and friends that helped us throughout the journey. While the outcome was not what we envisioned, the experience was without question worth it.