Anyone can start a startup but can you destroy one? Sure you can! It’s easier than starting one!
Let me tell you the tale of the startup that died a slow death that could have been avoided by just acknowledging enormous red flags along the way. If you’ve read my posts over the years you know I have some issues with startup culture and the sort of cult mentality that surrounds them and resides within them. I’m not anti-startup by any means but I am against bad, dare I say selfish and stupid, business practices that are common among inexperienced entrepreneurs that puts a stain on all startups much like the diversity issues that have been plaguing this same world for years now. So here’s how to not destroy your startup – or how to destroy it depending on how you interpret this. It’s a parable based on personal experience. It’s an amalgamation of anecdotes, experiences, and patterns I’ve seen over the past decade personally.
Disclaimer: This story is not the story of any one company. To be clear, this is an amalgamation of experiences I’ve had running companies myself, the stories of friends who have failed at the startup game, and a select number of companies I’ve worked for that have had one or all of these issues at once. This is not a hit piece directed toward any one company. If this sounds familiar to you then you’re either projecting or you’ve had the same experiences as I have at different startups in imagination land.
The story of no adult supervision
Once upon a time there was a startup that was really two different companies rolled into one. They had a “CEO” who had VC connections and was skilled at creating valuable web properties off the backs of contractors then selling them. This CEO had a pet developer that he named CTO of the whole operation. After a few successful one-off deals he decided one day that one of this developer’s ideas would be the next business they would work on.
Up until this point this small team created a few small mobile apps that made some money and were then sold off to the highest bidder. Now the CEO was embarking on a journey that would take a lot more effort than just pumping out a simple app to flip for fast cash. This was a “real business”. That sort of thing is something I admire greatly. A person pursuing an idea that people wanted, that would make people happy, and would make money. That’s when I was brought on board. I was to be a sort of partner. Not a full partner but a senior member of the team from day one. It was an exciting opportunity to shape the direction of the business and the development of the product. Unfortunately I soon found out that the inexperience of the entire team would lead to their downfall and my ouster.
People work for what they believe in
At Google there’s an interesting kind of work week. Many departments are given milestones and deadlines to hit. If you hit those milestones before the deadline you get to go home and take the rest of the week off. This actually enhances productivity. Work expands to fill the time allotted to it and this sort of approach avoids slacking off. People will work hard for something they believe in. Setbacks happen, so do mistakes, but when you believe in your work those things are far less likely to happen and when they do they don’t cause mayhem.
Everyone who worked at the company was either a junior, inexperienced person (from developers to non tech jobs with a few exceptions). The idea behind this was that these people could be paid less with the promise of a big payoff when their stock options are worth anything (stock options are basically Monopoly money unless you work for a public company). This was also done for tax purposes. Contractors have to pay their own taxes and on the face of it you get to make it look like they’re making more than they are until it comes time to file taxes. Of course there were some people who were okay with being paid below market rates because they were fresh out of college and just wanted to learn and gain experience. That’s great when you first join a startup but once leadership stagnates and there’s no more to learn what do these young, inexperienced devs do then?
The blind can’t lead the blind
Unfortunately for those who wanted to learn on the job, they weren’t getting much. Leadership was spotty and the executives had never worked a real job in their life. They’d only rode the coattails of rich investors and self proclaimed CEOs while proclaiming themselves senior leadership. That’s fine to an extent but you must have some adult supervision. Startups often begin with inexperienced developers with an idea and when that idea seems valuable they bring in experienced leaders to head the executive team.
Every week we would begin a new sprint but the features and tasks were never fully spec’d out. I would try to introduce new ideas and well tested agile practices that were standard practice in every startup and large company from coast to coast. These ideas would be met with praise but then either be ignored or implemented in some way that was nowhere near how the practice was supposed to be implemented (even though you can simply Google the overview of Agile and figure it out).
Our sprint retro meetings, one of which I recorded to review and take notes on, were full of good ideas about how to properly spec features and estimate schedules before the next sprint began. These ideas were coming from the few experienced developers that still worked there when I started. A common refrain from these senior employees was that we never fully wrote a spec nor did we ever set deadlines. We were always being pulled in different directions by the CTO, CEO, and product design team. The input from all these teams is crucial but the product team should be making design and feature decisions based on what the CEO assesses as what’s best for keeping the company solvent (which usually means making users happy). But that never happened. We would get a lazy “yes you’re right but…” and then an excuse would be made for why it was okay to keep going as we were. After all, by this point we still had steady income and didn’t have to worry about running out of money so we could feel good about ourselves by writing down these notes in a sprint retro and then forget about them the next day.
Each week there were meetings about meetings about meetings. Not unusual in the tech or startup sector. The really annoying part of these meetings were the last of focus in them. A meeting about the specs of a feature would turn into a lecture about this week’s latest scheme for how we (the company) would be acquihired later on that would last twice the meeting’s allotted time. The actual purpose of the meetings would be diluted down to the point of not having anything to do with what it was intended for to behind with almost every time.
I tried to remedy this by separating technical discussions from product, design, and executive discussions but this was apparently taken personally and as an insult to other teams. My suggestion was to have less meetings that were shorter and more focused. Instead I was made to look like I was trying to separate departments and shut down work between them. There is a healthy middle ground I would have liked to have seen where the development teams had their own sprint planning discussions, other departments met on their own, and interdepartmental meetings would also take place tie up these individual meetings. This was a chance for leadership to boil down all of the different discussions happening throughout the company into one “here’s what’s up”/“here’s the big picture” meeting.
It wasn’t about users
We had two separate but overlapping businesses running at the company. We had some money from angel investors in the bank but our main source of income was an online/social media marketing business that was making enough money to cover monthly expenses and generate a small profit. It really was enough money to make small fortunes for a handful of people but it was instead used foolishly to prop up a startup idea no one wanted.
During this time our marketing arm was generating income and bringing in new users (new users who had a horrible retention rate) things were great. Morale was high. Moods were relaxed. The execs held it together, were transparent and worked with everyone to make the product better. Then the shit hit the fan. As soon as we weren’t able to bring in new users through our marketing arm (it was basically a network of spam websites) new user acquisition dropped by a lot and with no way to make money the company was forced to make some make or break decisions.
Lack of focus
Our product had a general focus and we did pivot once but we generally lacked a focus on where the product was going. The execs had a long term plan for expanding but our user retention was appalling. We had a product that no one really needed or wanted. Inside the company we believed that this was something people wanted but we never did any real user tests. All of our decisions were made based, essentially, on guesses and assumptions. We would work on a feature for weeks, ship it, then pull it immediately after a few days without really analyzing whether the new feature was to blame for falling retention rates, a particular detail within the implementation, or something unrelated like our marketing efforts that coincided with these releases.
I’ve never seen a company turn on a dime with regard to their feature rollouts or have such vague plans for anything. Yes, startups move fast and break things. That’s normal. But what I saw was far beyond what was normal even for the most aggressive Silicon Valley startups.
Without a way to generate income and a product with plunging retention and acquisition rates we needed to cash quick to survive. With our marketing arm dead in the water (banned for spreading spam links on Facebook) we fired all but two of our marketing team members. Then things really fell apart. We either had to make money or get another round of funding; this time it would have to be a series A. We didn’t have a product that anyone wanted so to save money in the meantime (our runway went from 12 to 10, to 7 months within a week somehow) we had to get rid of more people. So who do you get rid of? The guy making the most money. That was me. And that was a decision that actually made sense to me. The reasons they gave me for the layoff were laughable but I won’t discuss them here. Let’s just say it came down to extending runway till they could secure a series A.
Product market fit. Did you even think about it?
No one wants or neeeds the product they were making. Can you picture an “all in one universal free media player”? You know… like your smartphone!? Let’s say that’s what this app was except it combined all the major media platforms in one and gave you some recommendations based on what you listened to. Guess what. No one wanted it. The world was and is fine with using YouTube for video, Spotify for music, and for more niche players like SoundCloud and Bandcamp, people are actually drawn to using their apps separately because of the features that are unique to them. Sure, there’s a small contingent of users out there who want all of their media in one place but even if you could make this idea appealing to the public at large how does this app, that’s providing content off the backs of other content services make money? You can’t charge people access to Spotify or SoundCloud without going through Spotify or SoundCloud and you can’t bundle these services together without either handing over a large chunk of change to the intermediaries and charging consumers a premium they would get for less if they signed up for those services on their own.
Besides all that however, the big issue was that the company had an unfocused product. It tried to be everything to everyone… sort of. On the one hand it was built for the CEO and on the other, the CEO believed his vision was what the entire market wanted. Meanwhile our “no ads ever” policy was thrown by the wayside and we began adding advertisements into the app as a short term way to earn a few bucks.
In the end, there just wasn’t a product market fit. Maybe they’ll turn it around but while they’re running around in panic mode that fit isn’t happening.
The beginning of the end
I mentioned earlier that one day the marketing arm of our company was shut down within a day. We did a lot of shady things and most of our focus was on social media. We were blocked by the biggest network around. We were able to find a workaround that worked for a about two weeks but when that failed our marketing arm went down the drain. A few days later everyone working on that team (about half the company) was laid off (except of course for the CEOs best bros).
Don’t believe the hype
At this point we lost the income that was keeping our company operating. The marketing arm funded the startup and the tech arm spent it.
Now we were told that we had 10 months of runway left. That number would go down to 5-7 months within a few days. When asked, the answer to the question “how will we make money” the answer was “ads”. Bad answer. The revenue from ads, even if every user sat through an ad, still would not be enough to cover expenses.
So you’re losing money on a product no one wants. You have two execs that believe in the product and a CEO that is getting desperate and reverting to his old “sell the company and cut your losses ways”. What do you do? Hire overseas contractors and get rid of any senior person who can see what’s going on and makes the most money.
This kills morale. Even the guys at the top are over it but trying to hold it all together. This is a startup failure. At this point it looks like the company is going down. Even if it doesn’t and somehow scrounges up enough money to survive a while, the damage has been done. A complete reset is the only way to restore order and confidence in the company.
My point here is this: get adult supervision to run your company. Your business model should be baked into your business from the start, not bolted on later. What’s the difference between a startup and a business? A business sells a product or service to someone. A startup builds something and scrambles to try to find a market that’s willing to pay for it. These aren’t the dictionary definitions of course. It’s just what they’ve turned into these days.
When you interview at a startup, trust your gut. Don’t listen to the vanity metrics. In fact, if someone is trying really hard to sell you on how great a company is to work for and you haven’t expressed any concerns that’s a bit of a red flag. This is sometimes a tactic to get you to take a lower salary than others in your industry. Generally, be wary of salesmen. Ask what the burn rate is and what the revenue is. Those two numbers will tell you everything you need to know about the health of the company and whether it’ll be solvent for long.