No matter who they may be, every CEO has undergone through
times when they realize that things aren’t working out for
them. While this might as well be very true, what is not
completely true is the feeling that generally accompanies
them. They may feel alone and that this problem is unique to
them only.
Having dealt with all sorts of startups from both the inside
and outside, from seed rounds to billion-dollar companies, I
can confidently say that this situation that calls CEOs to
experience every once in a while. From board meetings to
dinner with various CEOs, coaching sessions, leadership
retreats, I’ve listened to similar problems other startups are
experiencing reach my ears time and time again. Here are some
of the most common ones:
-
I don’t have product-market fit (PMF)
-
I desperately require more money to run my company but
investors don’t want to give it to me
-
Important people keep leaving my company
When you are experiencing one of these many problems and you
are unsure of what to do, it’s easy to feel stuck in a rut.
But keep in mind that you are not alone in these situations,
many others have managed to solve these issues in their own
companies. This article will go on to describe what are the
most common reasons behind these issues, and how you can
properly solve them inside your company.
I don’t have PMF
If you don’t manage to find a product-market fit (PMF), then
you startup is completely screwed from the get go. You may not
have a product-market fit if:
-
You aren’t growing
-
You have high turn out
-
Your product is difficult to sell
-
Customers aren’t interested
This may lead towards you feeling constantly stuck in the
early process of a startup, drawing up new product ideas,
gaining no traction, and then going back to the drawing board.
A second alternative of this is that you’ve reached the
middle-stage because you did have PMF at some point, or at
least believe you did, and then you scaled up your team. This
can lead to difficulty in getting things out because you may
have a lot of momentum with a customer base or an idea that
isn’t really working anymore. It can be quite hard to pvit
what you are doing because of the public commitment you’ve
already made to your employees, customer, investor and most
importantly yourself.
Pre-conditions on finding product-market fit
I won’t go into explanation on how to find a proper
product-market fit, there are already tons of great articles
on how to find a product-market fit. Although, I’ll explain
the necessary pre-conditions for finding PMF and what the
usual blockers are:
Decide who your customer is
At times, you will have a difficult time deciding on who your
primary customer are. Because of this fear of fully committing
to one side, and thus trying to please everyone, you’ll lead
to poorly servicing everyone interested in your works. Only
when we finally decided to focus on selling to a certain
consumer base and later on expanding your business will you
truly find product-market fit.
Focus on that customer
It can be quite difficult to become distracted by new upcoming
opportunities. For example, a large customer base (10x larger
than an existing customer) may come around with a huge revenue
opportunity. But servicing that revenue opportunity may lead
into a ton of custom work. Do you decide to take it? Many CEOs
will be tempted by this, but it won’t help you serve the
customer based you’ve already decided to serve. As a matter of
fact, it will hurt you capability to execute as well as you
could for your original customer base.
Have a talk with that customer
Plenty of founders create whats on their mind, never bother to
check their assumptions of the market. It can be simple to pay
lip service to the idea of “talk to your customers” without
actually doing so. You need to place yourself out there and
talk with a few of your potentials and five of your actual
customers so that you can see what your are currently
servicing and what you can do to improve said services. When
talking to your customers, you need to learn what type of
person they are, what they care about, and what their needs
are. This is the information that will allow you to focus on
what they truly need. Furthermore, this isn’t a one time
situation, it should be practiced on gauging how the needs of
your customers change as your service continues to grow and
improve.
A team who can execute a solution
This should be considered much better than alternatives (along
with at least one important dimension). This is a step that
goes ignored far too many times. If the new customer base and
new product requires a certain kind of skills to actually make
something very good, you’ll need to have those skills at hand.
At times, most teams will not have the necessary skills to
execute on complex product but refuse to admit this to
themselves, until they completely run out of cash and die off.
I desperately require more money to run my company but
investors don’t want to give it to me
Searching for the right and investor and meeting them can be a
challenge all on its own, before trying to convince them to
invest in your company. You may feel like you deserve the
financing, and that it’s unjust that you aren’t gaining any is
a very common sentiment among founders struggling to deal with
this process.
Here one thing you should understand though: No business
deserves to be funded. Investment is amoral. Generally, no one
truly cares about the amount of work you’ve placed into your
startup, what your backstory is, or why you really care about
solving this problem. They are mainly concerned with how
strongly these items indicate a hefty fruitful investment
opportunity.
If you are having a difficult time convincing investors to
hand money over to you, something is really wrong with one or
more of the following:
-
The market
-
The metrics
-
The narrative
Validate your market
Investors want to place their investment into large markets.
The entire venture model is predicated on searching for home
runners that deliver such massive returns to make every
General Partner into a billionaire. This may come off as
unfair, but that doesn’t change the fact that this is part of
reality and it doesn’t change the economics of venture funds.
Consider pitching the largest idea into the most massive
market that you actually believe in.
If you are having a difficult time convincing investors your
market is huge enough, they may not give you the feedback to
your face Backchanneling through mutual connections can be a
much better way to gain some authentic data.
If your market is considerably small, maybe raising money
isn’t a possible solution for you. I’ve personally seen
founders who refuse to accept how small their market size
fundability is. During these times, it’s best to admit this to
yourself and figure out a way to fund the business with
revenue instead.
Identify your key metrics
Investors want to invest in good metrics. What metrics are
considered important all comes down to the type of business
you are running. In the case of hardware related business,
bill of material cost, margin, customer, acquisition cost, and
revenue growth rate are often vital indicators of overall
performances. For Software as a service (SaaS), the metrics
most focused on are usually acquisition cost, average customer
value, churn, sales, efficiency, and revenue growth. While
consumer businesses will mainly focus on daily active users
and retention.
Regardless, every business is pretty much a spreadsheet
equation that generations cash flow of profit number at the
bottom. Investors are doing their best to select the
spreadsheets with the most profit, and the lowest risk of
having the variables changed upon them at the last moment.
While most founders deny reality by stating that their
business is different from others. It’s actually not.
Coming up with a compelling narrative
It’s important for you to tell a compelling story about the
reasons why anyone would even care about your business. Most
founds will tell a story that’s either too complex, assuming
too much effort for an investor to decode complexities or
industry jargon. Well constructed stories are simple,
powerful, lead you to a natural conclusion.
If the narrative you’ve made doesn’t work, you are relying on
investors working themselves to the bone to figure out whether
your company is great or not. Unfortunately, most won’t bother
to do any of the work.
Important people keep leaving my company
If you are having an issue with decent people continuously
deciding to go to business school with the realization that
they don’t want to work at a startup, or going back to their
old jobs, it may be because of one of the following reasons:
-
You haven’t created clear career paths for people
-
You haven’t defined the purpose of the Mission
Promote career development
Founders tend to be unaware of this but people do care about
their careers. It’s really easy to forget about that when it
feels like there are existential issues on the line each day.
After you’ve startup managed to grow to a certain size, people
will really begin to care about their opportunities and were
working at your company will land them career-wise. In order
to properly handle this situation, you should implement a
leveling system, sooner rather than later. Also, create a
performance review system and a skills grid that explains what
skills are needed to be achieved or demonstrated by each
person at every level to rank up to the next level. This makes
it much easier for your team to be aware of what they need to
do in order to advance their career in your company.
Company’s mission
Your staff will need a reason to get out of bed and show up at
work each day. Paying rent is fine and all but, if that’s the
only reason, then as soon as someone shows up with a much
larger wad of cash they’ll leave you to secure that huge cash
bag.
Some companies will begin with a mission-oriented founder with
a purpose, and some companies launch by accident. If you are
in the latter (and even the former), you should take the time
to think about what your company’s purpose is and whether it’s
attractive to the correct pool of talent. Culture-minded
professional will take your company’s mission into
consideration when deciding whether to become a member of your
team or not, so it’s important to think carefully on this
subject.
Once you’ve come up with a mission suited for you, make sure
to properly communicate it. However much you think you are
communicating it, it most likely not enough. It also very
crucial for you to help connect back what rank and file
employees are contributing to the mission so that they can
know their work has a purpose behind.
Conclusion
Everyone has their own set of problems and founders are not
exempted from this. Any founder out there has their own set of
problems to deal with and are likely to be similar to yours.
Simply look for resources where founders like yourself are
meeting to solve these similar situations you all undergoing
through.