Premature scaling -> startup death

by kevbot_robot. Posted on Sep 12, 2020    5    2


Mine is a cautionary tale to tell about the dangers of prematurely scaling your startup.

It’s hard to believe we worked on this thing for 3 years, spent tons of money, sold hundreds of products for our clients, and even had great startup mentors who coached us through difficult situations —all of that just to witness the lights fade until one-by-one we all left and joined the corporate world.

Let’s start from the beginning:

I was not a founder, just employee #1 with a decent chunk of equity —enough to get me excited about making the business succeed even if my salary was only enough to pay the rent and grocery bills. I started as a web developer but ended up wearing many hats: marketing, sales, customer support, etc. It was a fun challenge to constantly be switching roles.

I believed in the founder’s vision of the future of brick and mortar retail. He believed that the best shopping experience is a combination of online and in-store. Especially in the outdoor retail industry, customers prefer researching products online and then going to a physical store to try out the product before purchasing. Our software was designed for this type of customer experience. Such a grand vision, however, meant building big software systems that would require the retailer to change their processes and behaviors in order for it to work.

The product journey:

We struggled to figure out where to start. We wanted to build a marketplace of brick and mortar retailers — an Amazon-like experience for customers to shop local retailers online all in one place. After launching our MVP we hit many major roadblocks hindering our traction. Retailers liked our marketplace but it was too hard for us to become profitable purely off of our commission-based pricing strategy —because of the cost of advertising the margins were slim to none on each item we sold. It also wasn’t the no-brainer sign-up product we thought it would be for new retailers.

After a bunch of iterations with the marketplace, we went on to make a series of pivots trying to find an easier way to gain that initial traction we desperately craved. Here’s a few of our pivots for example (some bigger than others):

  • Turn-key email marketing
  • Automated text and email review links (reputation management)
  • Work order/service ticket tracker
  • CRM
  • Point of sale (POS)
  • Brand allocated inventory

Anyway, I’m rambling and not getting to the point.

Here’s the point:

After many disappointing product launches, we came to the conclusion that we needed to hire a professional sales person —because it wasn’t the product’s fault customers didn’t love the product it was our sales skills ;) The CEO’s strategy was always to act big, pretend we are already successful, fake it until we make it. So, we kept pretending and hired a VP of sales with a large salary. We also exhibited at many trade shows, wrapped a sports car with our company logo, and gave away thousands of dollars of swag. This VP of sales and our growth efforts ended up being very expensive and quickly depleted our investment money. Once the money ran out, we failed to show enough traction to raise yet another round of investment money and each of us had to stop working full-time on the startup.

1st lesson learned:

If you haven’t achieved any semblance of product-market fit, don’t try to scale. Run as lean as you can to extend your runway and allow you more time to experiment and nail the product.

2nd lesson learned:

Pivoting can sometimes save your company and lead to incredible innovation. However, if you’re an early stage startup and you’re already pivoting every few months… this probably means you don’t understand what your target market needs. Throwing shit on the wall to see if it sticks isn’t a good product development strategy (I’m not saying the stuff we built was complete shit, just not good enough for retailers to make the switch).

Closing thoughts:

If I had to do it over again, I would have encouraged our team to go to fewer trade shows and worry less about streamlining our sales process. Door-to-door sales was the strategy that led us to our favorite early-adopter customers and we could have found more of them this way if we spent more time doing it. Marty Cagan suggests in his INSPIRED book that product-market fit for a B2B company can be achieved if you have 6 or more happy, referenceable customers in your vertical market. This should have been our goal from the beginning —really nail our product with a handful of early-adopter customers and then figure out our go-to-market strategy (if it’s not already spreading rapidly through word of mouth by then). And do this one product at a time.

I know I haven’t laid out everything in great detail, but what are your thoughts, impressions, and opinions?

Based on what I’ve shared, do you think I learned the right lessons from this startup experience? Why or why not?


Comments

MaxPast 3

I see the best lesson here is to double-down on what already works, not spreading attention over a number of other shiny options. You were successful in door-to-door sales, so you should have scaled that first instead of trying to scale in unproven directions like trade shows and an expensive salesman.

My "home runs" were mostly because I just continued to press the same button again and again. And, whenever I started to dream big too soon, it always lead to disappointment.

Anyway, I feel that your story isn't over: you just need need to get back to basics and start selling door-to-door again.

  kevbot_robot 2

Words of wisdom.
It’s tough now that none of us are working on it full-time. But yeah, I agree we need more door-to-door hustle to find those valuable early-adopter customers.