Three Lessons From a Failed Startup.
This time last year a well-funded, fast-growing Silicon Valley startup was drying up. A silent C-suite exodus would be followed by a series of layoffs. Within a few months, less than one-tenth of the team remained. Once touting audacious goals to transform an entire industry, the withered company was forced to abandon all but a small-scale packaging supply effort.
It was a tragic story. But not unusual in the startup world. It is often where passion overrides pragmatism and product infatuation blinds the suitor to the disinterest of their customer. These themes can foreshadow a bad ending in business…or inspire comedic cinema (e.g., “Something About Mary”; “Dumb and Dumber”). It has been said the provinces of tragedy and comedy share a common border. When you can cross the boundary and view experiences with humor, you know you’ve gained the perspective necessary to internalize what you learned.*
It is with this light-hearted objectivity we will share lessons from this story others can use to improve their own entrepreneurial narrative. Though we cannot delve into the details of every chapter, what we can share is sufficient to make the case for three important startup precautions:
Don’t lose focus. Most startups cannot afford a “Swiss Army knife” product strategy. Even when resources exist the expertise to safely manage a flywheel of sharp objects takes time to develop. Let’s unpack that.
In our example, the startup aimed to disrupt an established global supply chain. Naïve to recent technical innovation, the industry provided ample opportunity. The start-up was giddy with excitement, and like a kid on an egg hunt scooped up every problem it could find from sourcing to last-mile delivery. Though at different stages of development, at any one time there were five to seven diverse products in flight.
Failing to settle on one problem to solve at a time, the startup lacked focus and coherence across the business. Here’s what happened:
People. Teams were fragmented, so much so people had a hard time identifying with any one initiative. With individual contribution distributed across products, no single effort was adequately supported. Reporting structure was hazy and leaders conveyed conflicting priorities. The complexity of managing so many projects and teams left folks confused, stretched thin, and discouraged. They could not see their work accruing to any demonstrative progress and it was unclear what they were trying to achieve. Productivity, teamwork, and morale suffered. Attrition followed.
Product. The saying goes, “all boats rise together”, but when the water is spread over an ever-expanding surface it never gets deep enough for anything to float. Lack of measurable objectives, prioritization, and a clear timeline fostered the emergence of an R&D facility versus a business thriving around a champion product. It was tinker town — a display of half-finished hobbies like those scattered across the workbenches in Grandpa’s garage. When no boats float, no boats launch.
Profit. The greater the number of products in development, the higher (and more complex) the risk. To sustain the effort over time, one or more products must generate revenue (or you have to find an investor with unconventional patience). But no one wants to buy a concept. The business development and sales teams were peddling promises, but customers wanted performance. With so many products in development simultaneously, it took the startup too much time to land an MVP. When they reached the point where revenue could be booked, sunk costs would mean profitability was a long way off.
Aiming to solve a lot of problems is not in and of itself an issue. It can be righteous. However, few companies can tackle them all at once. Solve one problem at a time; sequence the rest. Do the hard work of deciding where to focus at the outset, plan your route, and establish constraints to avoid wandering off your chosen path.
The “anything is possible” mentality is commendable, but just because you can transform an entire ecosystem, doesn’t mean you should try. Take a tip from the medical practice: physicians confronted with a patient presenting an array of symptoms identify the treatment most likely to address the primary complaint and start there. Once solved, they tackle secondary complaints that persist over time.
Don’t bombard customers. The term “whale” is common vernacular for customers representing a significant revenue opportunity. But it’s hard to catch a whale from a small boat. Startups lucky enough to hook a big fish should establish a solid footing, maintain consistent pull, and have patience when reeling in. Also, when a fish takes your bait, don’t change it. Let’s talk about what that means.
In this story, the start-up was fortunate to land a large national multi-brand customer. The customer was sold on a single product idea well aligned with the near-term goals of one of their brands. The startup was eager to leverage the full weight of the opportunity. Before the preliminary proof of concept had been developed for Product 1, team after team was sent to pitch the customer ideas for other products and services. It was like the subway at rush hour, pushing as many bodies as possible through the door before it closes.
Though good-natured and accommodating, persistent randomization and desperate pressure caused the customer to question motives and maturity. The hook was slipping. In frank and concise terms, the customer made it clear the startup would need to establish capability, reliability, and flexibility with the first product before others would be considered. It was not a subtle clue. But unlike a seasoned fisherman, the startup failed to heed the signs and the whale slipped away.
When you’re a startup, every customer counts. Once “yes” happens, there is no question you have to make the most of it. But don’t mistake couch crashing as blanket permission to move in. Product 1 is your chance to establish the stability necessary to open the door to broader opportunities. Customers may have different expectations for what that means, but here capability, reliability, and flexibility meant the startup needed to prove they could be trusted to build a great product, that would consistently perform, and could adapt to their needs over time.
Parading new concepts before delivering a single product was not only premature but distracting to both the customer and the team. It was like staging multiple road races with the same start time and starting line — everyone was running but no one knew which direction to go. The strategy drained resources and wasted time. What is more, it was fraught with avoidable risks we will cover in the next section.
Don’t solve possibilities. A possibility is intangible. It might be a pain point, it could meet a need, it may become a problem, but there is not enough evidence to cause your customers concern today. For example, it’s possible it may rain this time next year, but today I’m more concerned about whether I need an umbrella tomorrow.
Most customers commit limited resources to solve pressing problems and by necessity must deprioritize investment in others. That doesn’t mean a good hunch or hypothesis will never have value. It simply means they are not problems until they become palpable. As we’ll see, building products on possibility is like investing in a gourmet kitchen before you can afford to buy groceries.
The startup caught wind of pundit commentary predicting rising concern with tampering during delivery. Internal Slack channels lit up with anecdotal support for the growing issue, which served to up-vote the echo chamber long since erected around the leadership team. Leaders hailed the “industry imperative” a top priority. Wanting to be the hero, the startup decided to invest in an IoT device to solve that and other potentially related problems.
After weeks of engineering and hardware development, the startup planned a grand unveil with their customer. The goal: hit up the customer to actively partner and co-invest. In a room flanked with customer executives, they proudly passed around a prototype intended to detect everything from pressure changes to rotational positioning.
What happened next was poignant and uncomfortable. The customer did not agree there was a problem; they owned their delivery and had preempted the issue long ago. Further, the product, with a unit cost more than delivery allowances, required pairing with a mobile app, activation, charging, and secure storage. Operationally, said the customer, we cannot afford the hit on efficiency and even if we could there is less than a 1% chance it would be successfully adopted. And, they added, even assuming this thing had any value to our business, why would we pay to generate so much irrelevant data? Ouch.
The lesson was plain. Find real problems and craft the simple solution. This is not new advice but it’s harder to follow than it sounds. Customers care if you solve their problem or substantially improve the solution they currently use. They don’t give extra points for solving someone else’s problem or fixing something that isn’t broken. The right product shoots for an actual need, with business impact, that’s easily adopted (never underestimate the importance of “operational tax”).
Looking back, it’s hard not to chuckle at a game with more fumbles than receptions. But it’s also frightening to realize few on the team noticed what was happening until the game was over. Everyone marched on the field and executed the same plays over and over, seemingly unaware no gains were being made. Perhaps the most important lesson from this story is to recognize how easy it is to stick with a losing game plan — even when the booth commentators perched above the field are jumping out of their seats. Find the perspective that lets you see humor in the moment, and it may help you avoid looking back on a dark comedy.**
*(To be clear, there is nothing funny about hundreds of people losing their jobs; rather, find humor in the shortcomings of human behavior that can lead us to self-sabotage and undesired outcomes.)
**(In King Lear, the king employed a court jester to provide insight through humor — giving license to mock and make frank observations to advise the monarch on potential folly. If you are not yourself a comedian, perhaps it makes sense to empower another to humor you.)
