I particularly remember a moment from back then: the moment I realized my company was going to fail. My cofounder and I were at our wits’ end. The dot-com bubble had burst, and we had spent all our money. We tried desperately to raise more capital, and we could not. It was like a breakup scene from a Hollywood movie: it was raining, and we were arguing in the street. We couldn’t even agree on where to walk next, and so we parted in anger, heading in opposite directions. As a metaphor for our company’s failure, this image of the two of us, lost in the rain and drifting apart, is perfect.
It remains a painful memory. The company limped along for months afterward, but our situation was hopeless. At the time, it had seemed we were doing everything right: we had a great product, a brilliant team, amazing technology, and the right idea at the right time. And we really were on to something. But despite a promising idea, we were nonetheless doomed from day one, because we did not know the process we would need to use to turn our product insights into a great company.
It’s as if the world were falling out from under you. You realize you’ve been duped. The stories in the magazines are lies: hard work and perseverance don’t lead to success. Even worse, the many, many promises you’ve made to employees, friends, and family are not going to come true. Everyone who thought you were foolish for stepping out on your own will be proven right.
Entrepreneurship is management. And yet, imagine a modern manager who is tasked with building a new product in the context of an established company. Imagine that she goes back to her company’s CFO a year later and says, “We have failed to meet the growth targets we predicted. In fact, we have almost no new customers and no new revenue. However, we have learned an incredible amount and are on the cusp of a breakthrough new line of business. All we need is another year.” In general management, a failure to deliver results is due to either a failure to plan adequately or a failure to execute properly.
It’s as if we have all of the raw materials: kindling, wood, paper, flint, even some sparks. But where’s the fire?
A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.
Boy, the amount of learning they get is just immense now. And what it does is develop entrepreneurs, because when you have only one test, you don’t have entrepreneurs, you have politicians, because you have to sell. So you build up a society of politicians and salespeople. When you have five hundred tests you’re running, then everybody’s ideas can run.
What if we found ourselves building something that nobody wanted? In that case what did it matter if we did it on time and on budget? When I went home at the end of a day’s work, the only things I knew for sure were that I had kept people busy and spent money that day. I hoped that my team’s efforts took us closer to our goal. If we wound up taking a wrong turn, I’d have to take comfort in the fact that at least we’d learned something important.
Unfortunately, “learning” is the oldest excuse in the book for a failure of execution. It’s what managers fall back on when they fail to achieve the results we promised. We all can tell a good story when our job, career, or reputation depends on it.
However, learning is cold comfort to employees who are following an entrepreneur into the unknown. It’s cold comfort to the investors who allocate precious money, time, and energy to teams. You can’t take learning to the bank; you can’t spend it or invest it.
It was a wonderful and terrifying time: we were full of hope about the possibilities for success and full of fear about the consequences of shipping a bad product.
As launch day approached, our fears escalated. In our situation, many teams give in to fear and postpone the launch date.
I was a devotee of the latest in software development methods (known collectively as agile development), which promised to help drive waste out of product development. However, despite that, I had committed the biggest waste of all: building a product that our customers refused to use. That was really depressing.
In light of the fact that my work turned out to be a waste of time and energy, would the company have been just as well off if I had spent the last six months on a beach sipping umbrella drinks? Had I really been needed? Would it have been better if I had not done any work at all?
Anybody who fails in a startup can claim that he or she has learned a lot from the experience. They can tell a compelling story. Certainly our stories of failure were entertaining, and we had fascinating theories about what we had done wrong and what we needed to do to create a more successful product. However, the proof did not come until we put those theories into practice and built subsequent versions of the product that showed superior results with actual customers.
The irony is that it is often easier to raise money or acquire resources when you have zero revenue, zero customers, and zero traction than when you have a small amount. Zero invites imagination, but small numbers invite questions about whether large numbers will ever materialize.
This phenomenon creates a brutal incentive: postpone getting any data until you are certain of success. Such delays have the unfortunate effect of increasing the amount of wasted work, decreasing essential feedback, and dramatically increasing the risk that a startup will build something nobody wants.
Unfortunately, if the plan is to see what happens, a team is guaranteed to succeed — at seeing what happens — but won’t necessarily gain validated learning. This is one of the most important lessons of the scientific method: if you cannot fail, you cannot learn.
A true experiment follows the scientific method. It begins with a clear hypothesis that makes predictions about what is supposed to happen. It then tests those predictions empirically. The goal of every startup experiment is to discover how to build a sustainable business around that vision.
- Do consumers recognize that they have the problem you are trying to solve?
- If there was a solution, would they buy it?
- Would they buy it from us?
- Can we build a solution for that problem?
Many things about it are remarkable, but I’d like to focus on only one: how Facebook was able to raise so much money when its actual usage was so small.
By all accounts, what impressed investors the most were two facts about Facebook’s early growth. The first was the raw amount of time Facebook’s active users spent on the site. More than half of the users came back to the site every single day. The second was the rate at which it had taken over its first few college campuses. Facebook launched on Feb 4, 2004, and by the end of that month almost three-quarters of Harvard’s undergraduates were using it, without a dollar of marketing or advertising having been spent.
For every successful entrepreneur who was in the right place at the right time, there are many more who were there, too, in that right place at the right time but still managed to fail. Henry Ford was joined by nearly five hundred other entrepreneurs in the early 20th century.
You cannot be sure you really understand any part of any business problem unless you go and see for yourself firsthand. It is unacceptable to take anything for granted or to rely on the reports of others.
We took a WordPress Blog and we skinned it to say Groupon and then every day we would do a new post. It was totally ghetto.
Early adopters use their imagination to fill in what a product is missing. They prefer that state of affairs, because what they care about above all is being the first to use or adopt a new product or technology. In consumer products, it’s often the thrill of being the first one on the block to show off a new basketball shoe, music player, or cool phone. In enterprise products, it’s often about gaining a competitive advantage by taking a risk with something new that competitors don’t have yet. Early adopters are suspicious of something that is too polished: if it’s ready for everyone to adopt, how much advantage can one get by being early? As a result, additional features or polish beyond what early adopters demand is a form of wasted resources and time.
This is a hard truth for many entrepreneurs to accept. After all, the vision entrepreneurs keep in their heads is of a high-quality mainstream product that will change the world, not one used by a small niche of people who are willing to give it a shot before it’s ready.
How many features do we really need to include to appeal to early adopters? Every extra feature is a form of waste, and if we delay the test for these extra features, it comes with a tremendous potential cost in terms of learning and cycle time.
One of the most vexing aspects of the MVP is the challenge it poses to traditional notions of quality. The best professionals and craftspersons alike aspire to build quality products; it is a point of pride.
MVPs require the courage to put one’s assumptions to the test.
Most products — even the one that fail — do not have zero traction. One of the most dangerous outcomes for a startup is to bumble along in the land of the living dead. Employees and entrepreneurs tend to be optimistic by nature. We want to keep believing in our ideas even when the writing is on the wall. This is why the myth of perseverance is so dangerous.
Over time, through dozens of tests, it became clear that the key to student engagement was to offer them a combination of social and solo features. Students preferred having a choice of how to study.
He has plenty of learning that he can use to rationalize the failure he has experienced with the current product. That’s exactly what many entrepreneurs do. In Silicon valley, we call this experience getting stuck in the land of the living dead. It happens when a company has achieved a modicum of success — just enough to stay alive — but is not living up to the expectations of its founders and investors. Such companies are a terrible drain of human energy. Out of loyalty, the employees and founders don’t want to give in; they feel that success might be just around the corner.
Vanity metrics can allow entrepreneurs to form false conclusions and live in their own private reality. This is particularly damaging to the decision to pivot because it robs teams of the belief that it is necessary to change. When people are forced to change against their better judgment, the process is harder, takes longer, and leads to a less decisive outcome.
When an entrepreneur has an unclear hypothesis, it’s almost impossible to experience complete failure, and without failure there is usually no impetus to embark on the radical change a pivot requires. The failure of the “launch it and see what happens” approach should now be evident: you will always succeed — in seeing what happens.
Most entrepreneurs’ biggest fear is not that their vision will prove to be wrong. More terrifying is the thought that the vision might be deemed wrong without having been given a real chance to prove itself. This fear drives much of the resistance to the MVP, split testing, and other techniques to test hypotheses. Ironically, this fear drives up the risk because testing doesn’t occur until the vision is fully represented. However, by that time it is often too late to pivot because funding is running out. To avoid this fate, entrepreneurs need to face their fears and be willing to fail, often in a public way. In fact, entrepreneurs who have a high profile, either because of personal fame or because they are operating as part of a famous brand, face an extreme version of this problem.
As we learned the hard way at IMVU, the very actions that made us successful with early adopters were diametrically opposed to the actions we’d have to master to be successful with mainstream customers. We lacked a clear understanding of how our engine of growth operated. We had begun to trust our vanity metrics. We had stopped using learning milestones to hold ourselves accountable. Instead, it was much more convenient to focus on the ever-larger gross metrics that were so exciting: breaking new records in signing up paying customers and active users, monitoring our customer retention rate — you name it. Under the surface, it should have been clear that our efforts at tuning the engine were reaching diminishing returns, the classic sign of the need to pivot.
What is generally less well known are the pivots that required to discover those strategies. Companies have a strong incentive to align their PR stories around the heroic founder and make it seem that their success was the inevitable result of a good idea.