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Yes. I am fully aware that I am about to suffer the wrath of every hoodie-wearing, comp-sci grad who has started a company within the last 5 years and sleeps with an Eric Reis book under their pillow. But let me fill you in on a little secret, you are focused on the wrong things.
With the glut of startups today and the lightning speed at which the industry is evolving, we have begun to commit two huge errors that will prove to be the fatal flaw for many promising companies. First, we are starting to deviate from sound, fundamental business practices. Second, we are using these mutated principles as scorecard to measure our success.
This is not a rant against the lean movement or other philosophies. In fact, I am fully aligned with most of their core principles. This, however, is a rant on how we, in our haste, have begun to interpret these principles.
Below are a few of the things that I feel have been misconstrued:
Embracing failure and celebrating failure are two very different things. When did it become so cool to fail? Failure sucks. Failure costs. Failure hurts. I am not saying that failure should be absent at a startup…quite the opposite. I love to hire people who have failed (and failed miserably). They are far more likely to take calculated risks because they are not as scared about ramifications of missing the mark. A beekeeper who has never been stung, is going to be limited by fear and be wildly ineffective compared to one who has felt the sting and overcome it. Unfortunately, for some reason, we as an industry have taken this celebration of failure to such an extreme that we seem to stand around applauding the guy who strips naked and runs head first into the bee colony. At Hubba, we embrace taking chances; it is embedded in our culture. We celebrate the action (the DOING and MAKING). We also celebrate the win if it works and the lesson if it doesn’t. We don’t ever celebrate the failure.
There is an extremely fine line between making the right decision to fail fast or to hold on and persevere. This line is almost always drawn retroactively based on the success of the company. A good outcome and the team is lauded for sticking with it. A bad outcome and everyone will point to the moment that the company “should have pivoted”.
So f*ck failing fast. Focus on failing smart. The winning companies will be the ones who have the experience, instruments and agility to identify they have made a wrong turn and take corrective action before their competitors and before they expend resources going down the wrong path.
“We as an industry have taken this celebration of failure to such an extreme that we seem to stand around applauding the guy who strips naked and runs head first into the bee colony”
Let’s get one thing clear, Lean does not refer to your burn rate. Although it has financial ramifications, it is not a financial term. Businesses need to spend money. As all startup founders know, money is like oxygen. It sustains your business and keeps you alive. Far too often, Lean has been misinterpreted as lowest possible burn and success is measured on the duration that you can make your capital stretch. The real metric of success is the value that you get for the money you have spent. As a business, identify what your goals are for the upcoming phase of your company and aggressively go after them. Your ability to succeed will be based on your actions and ability to execute, not on your ability to tread water for a longer period of time. Repeat after me, “Spending is OK”. I am not sure when spending became a bad thing but it is pretty clear to me that the winners will be the ones who master the ability to maximize the impact on every dollar they spend, not the ones that simply try to make it last longer.
Getting To Market
At what point did Minimum Viable Product mean piece of crap? There is a huge focus on the MINIMUM part. It seems as if there is a race to the bottom where companies are doing all they can to ship a product that is just good enough to prevent major backlash. A Minimum Viable Product is not about shipping shallow product. To the contrary, depending on the market you are going after, a Minimum Viable Product may be quite mature and sophisticated. “Minimum” refers to doing the smallest amount possible to get the feedback and data you need to make the right decisions about the business. A consumer shopping app and an enterprise software suite are going to have two very different thresholds of an MVP with each varying maturity, feature set and capital investment.
The winning companies will be those who are able to surgically align the product with the business proof points they are looking for. If the product is too immature, it will not be used and therefore not produce the validating data. If the product is too mature, you have likely wasted valuable financial and development resources that are also at risk of being thrown away and redesigned.
All companies, in particular early-stage fundable startups, face pressure to demonstrate a good story to the outside world. This helps with raising brand awareness, attracting talent but, more than most care to admit, it helps with securing the next round of funding. The key element that anyone is looking for is whether or not there is a product/market fit. Unfortunately, the most popular way (and in my humble opinion one of the worst ways) to determine this fit seems to be the number of users. This approach may work for the dozen companies that show explosive growth early in their life-cycle (read: Instagram, Facebook, Twitter). For the other 99.99% of companies, number of users doesn’t necessarily confirm that there is a product/market fit. At an early stage, more detailed user metrics like growth rate, churn, lifetime customer value and customer acquisition costs are going to be skewed and not necessarily tell the real story (for example, I think churn is a good thing for many early stage consumer companies but I will save that for another blog).
I have to admit, I fell into this trap at Hubba. It took a lot of very persuasive and knowledgeable advisors and VCs to convince me to stop focusing on user numbers and start focusing on proving the use case. The feeling was that, for my business particularly, it was more impressive to see a handful of good companies using the system, seeing value and becoming advocates than it was to show growth. It took me a while to come around but, looking back at our go-to-market strategy, I would have been able to bring on a lot of smaller businesses in various industries but as a whole it would have been a skewed audience. I would have a great vanity metric but I would not a solid foundation for data on which I was making my future assumptions.
“We are going down a dangerous path”
So the way I see it, we as an industry are going down a dangerous path. We have established some great frameworks to run our businesses but they have taken on a life of their own. We seem to be in world where the fundamentals of business have changed. It is leading us down a path of shipping sub-par products to the wrong audiences and celebrating failure while being petrified to invest our capital.
At what point do we look back at this time and say “what the hell were we thinking?” How have we deviated so far?
Even worse, we have begun to use this warped framework to measure the success of a company. “You started the company 4 days ago and you haven’t launched yet? I would have thought you would be on version 8 with 16 pivots by now. What is wrong with you?”
Many of the startups that I work with confuse operating approach with business principles. When I ask the objectives of the business they tell me that they want to be lean or agile or some other flavour of the week. How backwards is that? These are simply approaches on how you as a company are going to meet your business objectives, not the objectives themselves.
So what can you do? There is a simply recipe. Let’s get back to fundamentals: Understand Your Customers Problem, Solve Your Customers Problem, Create An Ecosystem, Cultivate An Amazing Team. Once you have these locked down, you can determine the optimal methodology for your business to ensure that you accomplish these goals.