Once upon a time there was a company filled with ideas and millions in investor money.
The startup graveyard is stuffed with willing managers and great funding rounds .
I should know, and this needs some disclosure. I personally failed to do a great business out of Centroid, an awesome idea for a location optimization tool for large groups, setup with a friend in 2011. We had a working prototype with features cooler than Google's, but our target customer was big organizations, which have super large sales cycles. We made it to some VC talks but our business model seemed to cumbersome for them, as it implied synch with Hotel and Flight bookings. We had no money and after 6 moths, the idea was buried. We failed to get going. Skin, an online cosmetics store with its proprietary tools and focus on transparency, rose from 2012 to 2014 from zero to a yearly run rate in the many hundreds of thousands of euros and operational profitability at its 2nd year. But we struggled to raise capital for the next waive of growth, organic growth couldn't fuel an expansion and even a safe net. And so angel investors kicked in with alternative and more conservative plans that would give them cash flow, and at a minority I parted from leadership. While I have the feeling of having done all I could, and leaving behind a company with solid customer development processes, from a results perspective, I have yet to become a successful business leader.
Among the problems Centroid and Skin faced, which made success become costlier, slower or just plainly impossible, was the lack of focus. Many times, due to uncertainty or fear of showing slack behavior, we embarked on crazy ideas or projects we weren't ready for yet.
One situation comes to mind. At Skin I personally squandered about 10% of our total investment money in a premature expansion to Brazil. How did this happen? Me and the board looked too much at where the incumbent was getting their revenue from. We sent a person there for some months, translated the whole store, and then sales didn't come. We didn't have a team to support the Brazil operation in the day to day, and also customers simply didn't love the proposition of waiting a week (or 4) for their stuff, even at 40% lower price (Brazil is know for its incredibly high prices of European products). It was a massive waste of money relative to our total funding, and it consumed thousands of hours from the team.
Why did this happen?
- we had a very detailed strategy, which valued the proximity and quality of service as fundamental to growth
- our cohorts supported our strategy, with higher return rates than the industry average, healthy baskets and a low CAC
- growth was happening, slowly but steady, even in a Country riddled with economic problems
- we could not afford to do it. At that time we'd burned 50% of our cash. We needed the rest to get to profitability
- our competitors had a successful business selling cosmetics from Portugal directly to high-end customers in Brazil, but it had been founded 5 years before, when south-American customers had no other chance. Their website was inferior, as was their content. It looked like they were living off the past.
Despite all these crystal clear arguments, at the time we were still significantly below expectations. After 10 months since we started the project, a full 6 months into sales, these were 50% below my own business projection and we had to triple them to get to break-even. So I as a CEO was under significant pressure, and at these times you start going down a path of disbelief in your assumptions. In the outside you continue motivated, because things work, and you pass on the motivation to the team, but you get less assertive about focus. In the end, my fear that we had a wrong strategy and the pressure from the Board made me agreed to take the risk.
We should have followed our direction, and we didn't. When we later refocused on our direction (to make the most transparent and informative dermo-store) and our need (to make cash last), we got huge gains in efficiency and better growth.
My learning from this episode was that strategies and vision sometimes take time to pay off. You should completely involve advisors and your board in your decisions, but you should not react to a lack of sales by trying unsound advice or mimicking competitors, as much as that can help you manage stakeholders expectations. This "AB" testing of business decisions is very corrosive.
Directions change. But keep in mind that there are plenty more roads to doom than to success, and sellers of those strategies are plenty and close to the heart. Follow your own vision, informed by the needs of the customers, the direction of the industry, data and optimism. It is the best proposition.