Four Years & Two Million Dollars Later, Lessons from a Failed Startup
I was recently tagged on a LinkedIn post written by a MENA-based startup founder. The title was “Four years and Two million dollars later. Lessons from a failed startup. '' You always take note when you see something like this. I believe it takes great courage and self confidence to be so transparent and ultimately self critical – I congratulate Bassel Idriss, founder of Generics, on this excellent piece. Many of the points he makes are great, not only for future entrepreneurs, but also a timely reminder for all current founders who believe they are out of the woods.
One of the biggest challenges in the region is learning from others. Pieces like this provide the most valuable insights for all stakeholders, whether they are founders, investors, team members or government officials learning about the journeys of the people that are building disruptive businesses. It is also a timely warning for anyone who is looking to do it purely for glory or vanity. I strongly encourage you to read and share this with others so they are able to learn from other people’s journeys. Thanks again to Bassel for sharing it with us. – Philip Bahoshy, Founder and CEO at MAGNiTT
If you’re thinking of starting your own business because you’re after the ‘glorious’ end and not the journey getting there, don’t bother! … If you’re not tenaciously persistent; get excited by seemingly insurmountable challenges; easily swayed or care too much about what others think and say, don’t bother! … If you think failing will be the ‘end of you’, also, don’t bother!
At Generics, we set out to solve for poor fitting, uncomfortable earphones. We mak(d)e custom eartips to the shape and size of individual ears through an App, photogrammetry and 3D Printing. I failed to raise cash fast enough to scale. Here are some of the lessons I learned along the way.
Make sure you’re really solving a problem, not a nuisance.
A solution to a ‘problem’ or pain-point is a must-have. Conversely, a solution to a ‘nuisance’ is a nice-to-have. You’re looking to deliver a pain-killer, not a vitamin! Solving for a problem will dramatically improve your chances of success. The added bonus of solving for a big, difficult problem is a higher barrier-to-entry and fewer competitors. If you don’t know how big the problem you’re solving is, find out quick. Ask ‘potential’ customers and consumers, not family and friends, whether they will go out of their way and pay for your product. @Generics, we knew the problem was prevalent, however, today, judge it was more nuisance vs. pain-point for most people. Be brutally honest with yourself.
Deliver the simplest solution to the problem.
In startup jargon, this is the minimum-viable-product (MVP). Don’t fall into the trap of 'just one more feature to make product great'. Despite all your efforts to make your first product perfect, it will not be! Don’t waste time and resources trying to achieve the impossible. Just make sure your product provides value to users. Develop the ‘perfect’ solution later, when you better understand what your users want and have more resources. @Generics, we first made fully functional earphones. They had to fit well, feel comfortable, sound great, look beautiful, exude minimalism, have a rotating bezel, a removable ‘custom initials cap’, strong cable, cost less than $45… We should have focused only on making custom great fitting eartips for select earphone models, dropped everything else, we would have saved time and money. Be pragmatic, keep it simple.
Start fast, test faster and pivot faster still.
I took too long to decide I am starting my own business. Once I did, spent too much time developing an intricate business model that later proved worthless. Took too much time figuring out how to ‘sell’ my PowerPoint to investors. Took too long to raise money. Took too long to develop the MVP. To go-to-market. Almost 3 years! To get ‘paying’ consumers feedback. Took too long to make our first pivot, a little faster but still slow for our second pivot, even though I knew 73% of startups pivot (EPFL University). At the time, each of these felt really important and merited I spend ample time to get right, in hindsight, while important, they simply took too long. I should have skipped or completed much faster applying Pareto’s law. Don’t waste time, once your mind is made up, take the plunge, go all out, focus on the big things and correct course when you know you’re heading the wrong way.
Develop and test your ‘go-to-market’ as you build product.
Developing your commercial plan after you’re done building product is too late! Testing various go-to-market models will yield priceless learnings that will impact and shape your product development. Tweaking product to reflect learnings after you’ve locked development will waste time and money. Early results will also flush out ‘red flags’. You would rather find out quick there is no demand to what you’re building so you tweak or abandon project ahead of wasting months and hundreds of thousands in development. Don’t fear getting feedback on a ‘half-cooked’ product. Call it ‘beta’ and sell it at a reduced price if you must. Customers and consumers who don’t like it will not hold a grudge against you. When developing your ‘go-to-market’ don’t just think brand equity and key benefit communication. Think of your audience, the customers and consumers who are struggling most with the problem you set out to solve. Think ‘How’ and ‘When’ you want to reach them. @Generics, our audience were daily earphone users who listen to music while working out. We wanted to reach them during their exercise regiment as they experience their pain-point. Test different channels, figure out what works best for you and optimise for cost. Leverage digital, like SEM and social media, test others. Gabriel Weinberg & Justin Mares Traction is a great resource to help set your testing framework and inspire ideas. Prove product/ market fit.
Understand the skill-set required to build your product and commercial plan, only hire for that.
Make sure you have the ‘right’ people working your project. ‘Right’ are those with relevant expertise and/ or experience, those who are persistent and will keep at it. Only hire individuals working on your core solution. Make sure to focus their efforts on solving for and delivering your core product. Prioritise and make a deliberate choice to shed anything not fundamental to your core product. This will give you the best chance at successfully delivering solution, fast, without overhead costs spiraling out of control. Tell ‘under-performers’ what they are doing wrong, give them weeks to correct, otherwise, they are not the right fit. You will hesitate to let people go every time you think of the immense effort and time you must re-invest into searching, interviewing, on-boarding new team members. Time you could spend developing product and go-to-market. It remains the right thing to do. Keeping under-performing individuals will impact you more negatively vs. investing time to find the right hires. @Generics, it took me a while to figure out the required skill-set, didn’t find the right talent in the region, ended up developing product without a fully qualified team and only managed to do so due to the team’s intelligence, sheer will and extraordinary effort. Nonetheless, it came at a price! Sapped our energy and took way too long to develop. Another mistake was to front-hire, I expected a deluge of orders that never came. Hire for big impact, make sure individuals have the skills and attitude to succeed, hire slow and keep team focused on solving for core product.
Build traction. Build traction. Build traction.
Sell your product to every relevant customer and consumer you meet. Start selling day one, it’s never too early and it’s Ok if you start small! Apart from collecting learnings, it is imperative you build ‘sales-history’ or traction. Traction is like magic! With it everything is, at least, x100 times easier. Motivating yourself, your team and collaborators. Negotiating with suppliers, engaging your community and media. It is also pivotal for investor discussions. A growing sales trend over a sustained period proves customers and consumers want what you built. It is your single, strongest data point with potential investors. Growth hacking will help you get there. Apart from being one of startup world’s biggest buzzwords, growth hacking is combining programming and marketing know-how to get more and more people paying for and using your product. They need to become aware your solution exists, they need to feel compelled to try it and keep coming back for more. Sean Ellis & Morgan Brown’s Hacking Growth is an excellent resource to get started. @Generics, we held back on sharing product until we thought it was ‘perfect’. We also spent a lot of time developing equity, brand character and voice, tweaking our 'look and feel', however, kept it locked behind closed doors, didn’t test various channels, too afraid to reach out to our audience ahead of completing our product ‘masterpiece’. We wasted learning and optimisation opportunities. We disproportionately invested in 'perfecting' product and started building traction too little too late, when we had run out of money. Without traction our quest to raise more money and investor discussions were painful. Build traction.
Check your bias.
Yes you must be data-driven and yes you should ‘marry’ this with gut feel. However, what you think is right because of everything you learned throughout your career might not be right for your current challenge. @Generics, we developed a product to sell consumers. It was always very clear, we are a direct-to-consumer proposition, that’s what I have always done throughout my career. I am a Business-to-Consumer model guy. I overlooked the amount of resources it takes to build awareness, trial and equity (unless you’re lucky and your product goes viral). Throughout my career I was supported by marketing powerhouses, there was always ‘minimal’ support; in startup world there is no ‘minimal support’ at your disposal. We should have focused first on selling to earphone manufacturers (Business-to-Business) vs. trying to sell consumers directly. Take stock, give your innate reaction another thought, (re)assess what others in your space are doing before you decide on your course of action.
Surround yourself with the right advisers, they make a world of a difference.
What is a ‘right’ adviser? Individuals that bring something tangible and fast to the table. Who are ‘advisers’? Mentors, board members, consultants etc. You are not looking for ‘head-nodders’, they will just massage your ego. You also want to avoid constant challengers, they will tire you. You want people who have expertise in a certain area you need, at a specific stage of development, action-oriented and will say it like it is. Leverage advisers to solve a clear imminent challenge, such as introducing you to your first customers, retailers, partners, investors. Give you fast access to legislators and influencers. They will remove ‘roadblocks’. Once up and running, look for more strategic, less operational advisers that can help you make the right decisions long term. Be mindful your requirements will change at various stages of development, change advisers accordingly.
When it’s time for investors, make sure you understand their mindset and needs.
Move East or West if you’re building a hardware startup. I judge it’s ‘almost’ impossible to succeed building hardware in the Middle East today. Two key reasons, you will struggle to find (i) individuals with manufacturing expertise and (ii) the right investors. ‘Regional’ investors are not interested in and lack experience with hardware development and startups. The challenges, potential pitfalls and myths of building hardware are ‘top of mind’: takes more money and longer to develop, a mistake more costly vs. software, constricted Arab borders make distribution very difficult. And they are spoiled for choice behind the region’s explosive software startups growth. The good news is these same investors are hungry for software startups, have way more experience working with them. Many have developed best-in-class models for assessing a startup’s potential and providing the required support. Do your homework, research potential investors prior to engaging them, understand their mandate, startup portfolio, affinities and selection criteria. There is money out there for 'software' startups, you can get it.
Brace yourself for an emotional roller coaster ride (with a physical toll).
A snippet from my ride: Happiness at locking first round of funding... excitement at bringing team together... thrill of first working prototype... despair digesting magnitude of challenge... anguish at delayed production... delight at mass production completion... some sleepless nights... joy at beating crowdfunding target... gratification with first units shipped… elation and despair reflecting on early consumer feedback... anxiety with pivot… misery of new investor rejections... pride with 3rd party product endorsements... a few more grey hairs... heartache with more investor rejections... a minor slipped disc... distress with further investor rejections, as we run out of cash, as sales slow down to a trickle and higher cholesterol levels. The physical toll might be a consequence of me starting my entrepreneurial journey at 40, I am almost sure though stress played a co-starring role. My investors, friends and more importantly family were supportive, without them, I would not have kept on. Reach out to your confidants for emotional support when you need it.
I also made a few promises to myself early on that helped keep me steadfast, here are a few:
- I promised myself to stay upbeat, optimistic and believe in what I am doing in the face of setbacks. Some days were really tough, I was tested on multiple occasions. Externally... I kept my promise, internally... I doubted myself on occasion, but kept going for my team, investors and self
- I promised myself to stop if I am not learning. I am a better business person today vs. 2015
- I promised myself I would not compromise my family’s pre-entrepreneurship 'standard of living'. I slipped here, I intend to make it up over the next few years
- I promised myself (and partner) to cap my losses at two thirds of my savings. Knowing when to call it a day is mandatory. I delivered.
I didn’t deliver on my goal: a successful, thriving business. Despite this failure, I loved and embraced the journey. I would do many things differently, however, after a recharge, I would do it all over again!