How Startups Fail Even with Cash and Growth
Everybody in startups should be reading Paul Graham's essays. He just hit it out of the park again. Go read "Default Alive or Default Dead?" and then come back.
I've co-founded a startup (1, 2), worked as a growth intern at another (3), and met with hundreds of founders over the past two years. These classic 3 steps to success more often than not were the foundation for too many startups:
- Funding will finally let us hire, scale, grow, develop, succeed...
- Growth will get us funding
- Collect $100k - $100 million from VCs, Rinse, Repeat
I'm as guilty as any to have held this view. After reflecting on Teknically and working with other startups since, my eyes have been opened.
Paul Graham puts it so well in his latest post:
"Here's a common way startups die. They make something moderately appealing and have decent initial growth. They raise their first round fairly easily because the founders seem smart and the idea sounds plausible. But because the product is only moderately appealing, growth is ok but not great. The founders convince themselves that hiring a bunch of people is the way to boost growth. Their investors agree. But (because the product is only moderately appealing) the growth never comes. Now they're rapidly running out of runway. They hope further investment will save them. But because they have high expenses and slow growth, they're now unappealing to investors. They're unable to raise more, and the company dies."
I'm just speechless how clearly this explains the systematic failure inherent in the most common founder perspective on startup success.
Founders are baited by initial VC money to optimize for quick launch and fast growth. This all to the peril of building a product and business model that will last.
It's easy to dismiss this and believe that your startup and perspective is different. Yet, too many founders are blind leading the blind.
Many startup cultures don't encourage any employees to voice concerns or ask questions. Founders spin anything to reinforce their viewpoint that success will come with the next founding round or growth spurt.
I wish more founders would step back and realize if they're default dead or default alive. I didn't do this myself in Teknically and regret the ultimate cost of our "it's going great" culture.
Looking back, we were default dead. We just didn't realize it until we had died.