Pining for the fjords

Be honest with yourself: can you get to the next milestone with the resources you have?

Worse Than Failure

I’ve discovered that most founders think in reasonably binary terms: your venture is a success or your venture is a failure, and often you will oscillate between those two extremes several times in the course of a single afternoon, depending on how things are going.

However there is a third outcome, which in my opinion is worse than failure:

Your venture is living dead.

Most investors in early-stage companies will be familiar with these sort of ventures, but unfortunately founders hardly ever realise when theirs is one.

Here are some features of your typical textbook living dead venture:

It has some customers, and associated revenues, but few if any who really love it. Because people don’t feel strongly about it, one way or another, it’s difficult to get any feedback on how to improve it. Product work crawls to a standstill because designers and developers can't get excited about working on something that hardly anybody is using. People don’t find it remarkable and so don’t tell their friends. It may even have a bunch of customers who stick around purely out of loyalty to the founders and because they are embarrassed to admit that they don’t use it (this can be hard to believe, until you see it happening - it’s like the absent gym member who can't bring themselves to quit because that would mean that their commitment to get fit is officially over).

It makes enough money that it seems silly to think about shutting it down, but nowhere near enough to attract further investment to drive growth, and probably not enough to properly pay people for their time. As cash burns down to below subsistence level the company is effectively driven down a dead-end street, because there is no longer enough money left to spend on trying different things to turn it around, so by default it trundles along on the path it’s on, accumulating sunk costs.

It operates mostly in the dark. The founders stop looking at the numbers, because they only make them depressed. Faith starts to trump facts in decision making. Investors don’t get any updates, because founders are waiting on fortunes to change so they can give an upbeat assessment (and this always seems like it must be just around the next corner).

Most tellingly, it has no momentum of its own. It atrophies. It only moves forward when the founders or investors really lean hard on it. And the progress, when that happens, is never in proportion to the investment of time and money - working on it is like running in soft sand.

If you find yourself in this position, as a founder or as an investor, you have a difficult but important decision to make.

Call It A Day

It’s tempting to think of your venture as your child, an embodiment of yourself. Who wants to kill their baby? Maybe it’s just a phase sent to test your commitment? Maybe there is hope just over the horizon? After all, in theory if you can just avoid dying you win.

But, this is not about the hard patch that every successful start-up seems to have to go through at one point or another. This is the one that has never really fired in the first place.

Because few early-stage companies are profitable it can be difficult to tell from the outside if any venture is on-track or not. So, when you are on the inside, it’s important to be honest with yourself about whether you think you can get to the next milestone with the resources you have (that could be getting to a cash flow break-even position or to a state where you are confident in raising whatever new capital is required to fund the next stage of the business). As long as you are confident that you are on-track then you are default alive, not living dead.

It seems nearly every early-stage founder thinks of their venture as a rocket ship (at least out loud!) This is often just bravado. But, I think it is actually a useful metaphor, if you think of it in practical terms. You always start out aiming for the stars, with the intention of getting it into orbit, but few will make it that far. And, unless you can find another booster stage to fire, once your momentum runs out it’s already over, however hight you may be at the time and whether you acknowledge it yet or not.

As soon as you admit that you are living dead, you need to consider all of the other potentially much more rewarding things you could be doing with the time and other resources that you are currently putting into a zombie venture. Or, take a meta view, and think about all of the successful startups that you and your team could be working with instead. They are almost all constantly struggling to hire enough good people and would likely be delighted to have your experience.

It’s a brave decision but a logical choice. The important thing to realise is that from this position it’s better to have already failed than to be continuing on as you currently are. You need to forget about the sunk cost and get your head around the opportunity cost of continuing.

In general working on a startup is an unbounded commitment, and in any life there is only room for one of those. As long as you stick with one you don’t leave room for any other.

So when it’s obvious you’re done, call it a day. Then get on with the next thing.

Who knows, the next thing might be the next big thing.