While this frustrating from a data science perspective, not to mention as an investor (who doesn’t want to predict the next Facebook or Twitter!?) it is heartening as a founder — because every day is another chance to turn it all around.
When we look at metrics, whether they’re “soft” KPIs like web traffic or hard ones like cash flow, it is a reflection of the past. It might be an indicator of the future but we don’t have enough data to backtest and prove that yet. It takes much less energy to make something in motion go faster than does to get it started moving in the first place, so I think a company that has momentum this week is more likely to have momentum next week. Still the most I think we could predict right now is which startups will be competitive for their next round of funding.
The future isn’t promised, in either the positive or negative sense. In financial advising and investing the phrase my Dad always reminded me of went like this: “past performance does not guarantee future results”. Nowhere is this more true than in startups. While we’re busy working on making our measurements, algorithms, and data collection a better reflection of each fund’s reality I hope investors are dropping notes to their companies with helpful value add to bring the bottom to the middle, the middle to the top, and the top to their ultimate outcomes.
I’m proud to say I’m still doing the same thing. As with most of my journals, I don’t usually write much when things are going exceptionally well in my life. For more writing on startups definitely check out the blog on Mattermark and subscribe to our newsletter.
We’ve all heard that line about the 10 year “overnight” successes.
A friend* recently told me a key metric of his company was growing 4% week-over-week. Actually, he related with some dismay that it was only growing at 4%, and he was looking to build another product to make their company more attractive for raising the next round of funding.
I was shocked.
The base number that this 4% growth is accumulating on top of is in the billions, without much marketing or distribution yet. They found a problem many people had, solved it elegantly, and then forgot to tell those people about it.
Instead of doubling down on something that was working, going big and blowing it out of the water, they went chasing after another adjacent product without real market validation, significant platform risk, and delusions of grandeur. All to raise a Series A.
I’ve seen this story play out before, and it doesn’t end well.
Double Digit Growth Addiction
Paul Graham’s essay on Growth is extremely important reading for early stage startup founders, and this guideline in particular is quite useful:
A good growth rate during YC is 5-7% a week. If you can hit 10% a week you’re doing exceptionally well. If you can only manage 1%, it’s a sign you haven’t yet figured out what you’re doing.
Important context for this advice, which I believe is often missed, is that the majority of companies in YC launch during the tail end of the program.
If your startup has some success in the years following graduation from the incubator, you’ll discover the painful truth: it’s incredibly difficult to grow 10% week-over-week once your TechCrunch spike is gone, you’re 3 months out from demo day, and you’re still not doing marketing because [enter excuse here].
Gone are the days of the lovely hockey stick graph you proudly showed investors from the Demo Day stage. It’s been six months now and their money is in the bank, but the rush of winning those signatures has long passed. You feel like every update you send them is a bit anti-climatic. “Grew 14% this month,” you write, and paste in a graph with bars as blue as you feel.
The 6 Month Crisis
For startups who are funded, it’s easy for founders to tell themselves that fundraising isn’t the most important thing but a lot harder to feel it, know it, and truly believe it. Often raising a round is the first external-facing “win” you’ve experienced in months. It becomes a new emotional local maximum, and six months after raising you might find yourself looking for the next burst of excitement and validation to match it.
Long gone are the double digit numbers, because the base you’re growing from is much bigger now. You can’t hand crank this machine you’ve built anymore. You need people to help you feed it. There aren’t enough hours in the day. You’re a generalist but now you need specialists.
Things have changed, and that’s okay.
Building a company is quite different from starting one. The shine of being a “startup” wears off, and it’s time to be a business. As soon as you’ve found some product market fit your job shifts from finding the market to capturing it. If you don’t make this mental switch, and keep fighting for the new hotness, you’ll be like so many companies with too many ideas and too little execution. You’ll die.
Most wins you’ll have are incremental, so subtle that you might not even realize you’re winning. When seasoned CEOs say the harder road lies ahead as you toast champagne to a milestone like a financing round closed, big contract signed, crucial hire started, key acquisition completed etc… they know the truth.
All that vision, all that ambition, all those grand dreams of the future… they felt so close as you pitched your big vision but as you wallow in the weeds and details of really nailing each sales call, each deployment, each planning session, each new hire… all that feels so far away. In some ways, you might feel held back.
It’s so tempting to dabble. Now that you have money in the bank, a team around you, and some traction you feel you could build anything. You can see your market more clearly than anyone else on Earth, and you’re intimately aware of the problems your customers face. You want to solve all of them. You want to be their hero.
Your ego is going to hate you for this, and it will fight you.
The Longest Road
Building a startup is about fighting all the temptation that lies out there for a maker. You can prototype anything, maybe you also have some visibility and platform to speak from, it’s easy to think you can dabble in anything that could be a big market opportunity. The “Crossing the Chasm” strategy of tackling and winning a beach-head, which sounded so right and so daunting 6 months ago, is now happening. You haven’t won yet but like a soldier who yearns for home you’re looking to the future and, if you allow it, that distraction can become so acute you’ll die in a daze on the battlefield. You might not even know you’re dead.
Investors, advisors and other people will also start seeing the future more clearly – because you did a great job painting the picture for them. They’ll try to get you to talk about what’s next, they’ll add more temptation to focus on the next battle when you haven’t yet won this one.
Don’t let them.
*details have been changed to protect the anonymous