It’s been a crazy year at Twenty20 — layoffs, major shifts, amazing quarters, terrible quarters & everything in-between. Matt recently detailed the experience of how we burned millions here. In the chaos, there was one theme that was pretty clear: we scaled the wrong acquisition channel for over a year (a long time in startup world). It’s really obvious looking back, but…I guess hindsight is Twenty20.
Before diving into the story, let’s look at the chart I wish I would have seen two years ago:
As someone who takes pride in growing businesses, I feel shame — shame of not having seen it earlier, shame that I’m an imposter, shame that I hurt a lot of people through the layoffs and changes we had to make. I hope my sharing of failures can help other growth teams succeed.
We raised money on the promise of building a fast growing marketplace. I put pressure on myself to show results and to bring this dream to life (that we had spent years on). And, given the promise of our product, not growing revenue meant certain death. So when we starting getting signal that sales was working, I got excited — it was awesome that our product was resonating and we were bringing in cash. And with small data sets, my optimism bias kicked in and our team got greedy.
Looking back, I wish I could have told myself:
Hey Micah, it’s you…from the future. Take a deep breath and slow down for a second. While it’s fucking awesome that you’re starting to make money, there’s still a lot to learn. Just because you’re growing doesn’t mean it’s the right way to grow. Are there alternative routes to scaling? What risks are involved with scaling a people organization? How quickly do you need to scale?…
There’s no need to rush — better to take three months to test a big alternative than to waste millions for over a year with the wrong path. I know you feel the startup pressure to prioritize speed. But, your most important job is to slow down and have good judgement.
So, what actually happened?
In the beginning of the year, we decided to double our revenue-focused-employee headcount in six months (going from 23 to 46). Why? We were selling pre-paid annual contracts & returning more cash back to the business than we were spending. It was looking pretty good:
In March, we spent around $121,000 to support revenue growth & brought in $174,000 in bookings (cash for pre-paid annual contracts).
At the same time, we were struggling to raise another round of funding in the face of a cold VC climate. So, it was very appealing to grow on our own revenue. So, we went for it and decided to push harder than ever on sales. Things started to look good…
Then we had a really bad April in sales.
We had been speeding down the highway with worn tires, a quarter tank of gas and a small boat strapped to the top of the car — hoping that we could just keep it together long enough to win. But, alas, the wheels feel off and our cash took the hit:
I had sleepless nights filled with anxiety. I was so consumed with work that I couldn’t be present in my personal life — I had evenings with my then-girlfriend where I couldn’t pay attention to anything she said…my mind a million miles away.
At work, we spent weeks digging into “why” everything was broken. In the end, we found that: one of our main lead channels broke, the sales team was exhausted from a hard Q1 push, sales discipline & process fell apart, and we hadn’t invested in the right sales leadership and tools.
In May, I ended sending a video to the whole company describing what went wrong (as best I knew):
Note: this video was meant for internal use only at Twenty20…but I’ve decided to make it public as of December 2016.
If you don’t want to watch a 12.5 minute video, it can best be summed up with this:
By June, everything was fucked and we were burning lots of cash. We had scaled employees and seen New MRR decline sharply. It’s the worst position to be in for a startup running out of cash.
At that rate, the survival of the business was in question — the future unknown.
So…in July we decided to take a big swing to save the company and switch from a sales/services driven model to a self-service model. We were unsure how large a team we needed — but it was pretty clear we needed to do heavy layoffs and sprint to introduce self-service checkout.
Our leadership team spent the Sunday planning for 6+ hours. For me, it seemed a bit surreal and it was mentally exhausting. Ultimately layoffs are the fault of management, not the employees. Recognizing this, we did our best to take care of the team and plan for the next day. But, we were planning for a mission which ultimately would hurt a lot of people. It did and we also paid for it on Glassdoor:
Obviously it’s painful to read these kinds of posts. But, with a deep hunger to find meaning amongst the pain, I set out to execute on plans that we’d been brainstorming for a year…but never fully tested. We had made excuses not to fully test self-service for over a year (mostly because it would cannibalize our sales revenue). Like others inside the company going through this pain, I questioned whether I wanted to stay at the company. In the end, I knew I had to stay and see this through — only for my deep, deep curiosity for what might happen.
What were the results?
With launching of self-service checkout options, we’re now growing faster and spending way less money to do so.
It’s pretty incredible to see how much faster we’ve been able to grow. It’s really frustrating that we waited years to learn. But the truth is that, had we not acted, there was a real possibility that the company would fail. I’m so grateful that we made the decision fast enough…otherwise, I would be looking for a new job and I never would have satisfied my curiosity.
Our sales team of 30+ was never able to beat $14,000 in New MRR / month….now in December, self-service is on pace to bring in almost $24,000.
Not to mention, we’ve actually been able to pull in 4–5 sales deals recently. (inbound leads looking for larger pricing options than our self-service options)
And we’ve been able to grow with spending less money. Currently, we’re spending half of what we spent 6 months ago — including our fully weighted costs of labor (marketing, sales, services) + advertising spend, expenses for tools, etc. Pretty fucking cool.
Most important to me, we’re now able to grow with way fewer employees.
There are those that aspire to manage huge teams and have lots of power over their direction. With the weight of managing 45 people, I never felt like I could lift my head up for strategy or I had enough time to dig into the weeds to understand the business. At one point, meetings took up two full days (8am to 6pm) of each week….and other issues/meetings would come up the rest of the time. Fucking shitty.
Startups are all about disproportionate impact.
After this experience, I’m way more excited about having a small team of ambitious, intelligent hackers. This experience has proved what I already knew:
A team of 12 can learn and grow revenue faster than a team of 60.
The result of growing in a much more “cost-efficient” way is that we are burning way less cash. By burning less cash, we’re on our way towards our operating profit targets.
Side benefits of the change:
- Leadership team has more headspace for strategy & building a culture they want to work in.
- We’ve changed our mindset towards automation to solve problems (instead of with people)
- With a smaller team, it’s dramatically easier to communicate and we aren’t drowning in interviews and meetings.
- With subscriptions that renew monthly, conversions easy to measure, more customers to interview and a focus on automated reporting (RJ Metrics + Amplitude), we’re learnings at a faster pace than ever.
Looking back, I feel shame, grateful and excited.
Shame — I feel the weight of the pain we caused in the layoffs. I wish I had lifted my head up and done better. I feel shame that I didn’t test major alternatives and challenge our assumptions earlier.
Grateful — Like Steve Jobs said so elegantly, you can’t connect the dots looking forward, only backward. If we had raised money in Q1, things would have been way worse — as we would have been expected to grow revenue in the wrong way. I’m grateful that we figured out how to live another day and grow with a strong foundation — one where we have the right team, deeply understand our customers, use the best tools and build the right systems to scale.
Excited — I’m excited because of the deep resiliency of our team. Having stared death right in the eyes, our team is invigorated and truly living our cultural values. Early in the year we had company politics, miscommunication, features that were held sacred and assumptions that weren’t questioned. While things aren’t perfect, today we have a high functioning company — where there is trust, openness and excitement.
The truth is that this shit is hard. At startups, it’s easy to get excited to see sparks of things working. I wish I could say I have a way to prevent mistakes…I don’t. Hindsight isn’t about getting things perfect. It’s about consistently asking the hard questions. More than ever, we’re trying to build a culture where we trust each other enough to ask the difficult questions often and publicly. Our job is not to have all the answers — it’s to learn quickly and use good judgement.