Start-ups have always been risky, perpetually hovering with an uncertain future, but the pandemic is turbocharging natural selection and causing a hiatus for many. In just a few weeks, many have cut or furloughed employees, and funding is drying up – startup funding in the first three months of 2020 was on a pace for its second-steepest quarterly decline in ten years, said CB Insights. The virus just nailed it.
The fallout is hitting the highest-profile tech businesses too. For example, Airbnb. valued at $31Bn, has stopped hiring and has suspended $800m of marketing. The coronavirus outbreak is economically akin to a major earthquake occurring for weeks on end. There are no distractions now, there is no coddled. You need to have thick skin and a high adversity quotient.
Start-ups in some sectors – telemedicine, food delivery, online learning, remote work, gaming – are thriving amid the quarantine, but the pain is now deeper and most likely just beginning as investors, already bruised by the collapse of a string of tech unicorn valuations last year, become even more cautious. Indeed Sequoia Capital issued a warning to start-ups, calling Covid-19 the black swan of 2020, and calling on its portfolio firms to rein in costs, conserve cash and brace for capital scarcity.
The coronavirus strikes at a time when many of the tech unicorns were looking ropey. Their perpetually loss-making business models and exuberant valuations were increasingly being questioned. Most telling, the gospel of growth at all cost has gone out of the window. After years of ‘blitzscaling’ being done without much focus on profits, path to profitability is the new watchword. The law of economic gravity has returned, as some discern an echo of the bursting dotcom bubble of twenty years ago. The F-word is out there. Failure. Others are more sanguine. Whoever is right, startup pastures that emerge in the aftermath will look very different.
Unicorns have come a long way since Aileen Lee, founder of Cowboy Venture Capital coined the term in 2013, to convey wonder and rarity. Post Covid-19, it’s reckoned that a third of tech unicorns will thrive, a third will disappoint and a third will be taken over or die. But the euphoria began to ebb last year. First, Uber’s IPO priced at a 30% discount to what the investment bankers had promised, Slack disappointed, then, in October, WeWork disclosed that it lost as much money as it generated in revenues. Its valuation was cut from $47bn to $8bn. A different F-word there.
So, I need to confront the F-word taboo this week, as I’ve heard a few tech founders use it in the UK, and it’s become part of their vocabulary. Yes, Failure.
We’re hypocrites about it. You find scores of pleasant aphorisms celebrating the inevitability of failure of underdogs and entrepreneurs, their determination to come fighting back and the importance of learning from it, but in real life failure is painful. So rather than thinking about startup funerals, wakes and autopsies, lets focus on survival, and determine the priority of startup patient fixes and treatments, based on the severity of their condition that can halt the terminal decline. Let’s talk about startup triage.
Triage is the process of determining the priority of patients’ treatments based on the severity of their condition. The term originated during the Napoleonic Wars from the work of Dominique Jean Larrey. Those responsible for the removal of the wounded from a battlefield or their care afterwards would divide the victims into three categories:
- Those who are likely to live, regardless of what care they receive;
- Those who are likely to die, regardless of what care they receive;
- Those for whom immediate care might make a positive difference in outcome.
The term ‘post-mortem’ is Latin for after death, and originally referred to a medical examination of a corpse to determine the cause of death. The term has, more colloquially come to refer to any ‘after the fact’ analysis and discussion of a recently completed process or event, to see what lessons we can learn from it.
Such analyses are have been going on for a long time. Five thousand years ago Egyptian doctors recorded wounds, treatments and results to build up a body of knowledge about what did and did not work. Military strategists have long studied every battle so that they could learn lessons without having to suffer defeats.
The post-mortem is focused on understanding what we did wrong and historically (and perhaps psychologically), failure has proven to be one of our best teachers. ‘Failure’ has become an integral part of the startup vocabulary, where we have the mantra ‘fail fast’ as a way of learning and making quick changes to find product/market fit.
Indeed ‘fail early, fail often’ has become something of a startup badge of honour that makes it sound like it’s a good thing, but I struggle with the fascination with failure being the source of lessons to be learned. Pause for a moment, what did you really learn? You learned what didn’t work. So, ‘we all learn from our mistakes’ – you’d like to think that we won’t make the same mistake twice, but as Jason Fried said, You might know what didn’t work, but you still don’t know what will work. That’s not much of a lesson.
Making mistakes isn’t part of a scalable startup model. So if we accept that learning from failure is overrated, how can we turn the ‘it’s good to fail’ philosophy on its head into a new way of thinking, that the most valuable experience to take your startup to the next level is learning from the stuff you got right? Isn’t this just about taking what you’ve done that others don’t have, and creating further advantage from it?
So, what are the triage priorities? Here are some thoughts.
Triage 1: Start for purpose, don’t start for money If you set out simply to make headlines motivated by success equating to money, you’re setting yourself up for failure. As Michelangelo says, our biggest tragedy is that we set low goals and achieve them. Now is the time to focus on purpose, not revenue.
Triage 2: Define what success looks like If success is defined as a big raise, going public or being acquired, it is a skewed measure of success. How about sustainable growth, loving your work, and making a dent in your universe? You may need to reset your North Star.
Triage 3: Don’t assume, find a need Just because your mum, your best friend, and your dog think that your idea and business model is cool, doesn’t mean that you have a valid business. Move quickly to get a MVP to test on real potential customers. Get worthwhile feedback, tweak your product and model as needed, and repeat this process until you find what truly works. Now is the time to experiment, not being maudlin about failure.
Triage 4: Nail it, then scale it Via your MVP, find your formula for solving the problem, figure out your ‘secret sauce’ and scale, but don’t scale until you find your formula first. You need to ensure you have product-market fit, and that there is a sizeable market to sustain your business model. Asking questions to define the problem comes before you build your full product. Use this time for more customer discovery than you’ve ever done before.
Triage 5: Take control of your emotions A startup founder’s feelings are contagious, so you need to be in control of your emotions, or your team will see through you. Being down-in-the-dumps and muttering the F-word isn’t going to help anyone. Mental toughness is needed now. Lead with confidence and calmness, avoid getting too elated or too despondent on the highs and lows.
Triage 6: Know when to value speed vs. stability Developing great tech, content and a team simultaneously takes time. You try to make each deep and stable, but also need to be agile and pivot. Keeping all aspects of your startup aligned for growth is a real challenge – but keep shooting for the horizon. Noah built an ark – what are you going to build?
Triage 7: Control and calculate your user acquisition costs Many startups initially conceive of marketing as a creative exercise. That’s partly true, but the best marketing is controlled and calculated. If you know how much it costs to acquire a user and you control the process. Now’s the time to double down on marketing strategy, reducing your marketing plan from fuzzy guesswork to a clean formula.
Triage 8: Don’t move slow. Move fast. Moving at a snail’s pace and waiting for the next blow to your business can be detrimental, losing advantage in terms of getting customers first. Be sure to move fast, but not so fast that you lose attention to detail. Find a pace that you can work within that allows you to make smart decisions while also moving your business forward. That’s a better F-word – forward.
There are entrepreneurs who fail first time, learn and then succeed second time round, but people generalise from anecdotal success-after-failure stories. There is a lot of startup folklore and myth out there. Failure is an opportunity to try again, a signpost alerting you to the fact that you need to change your business model.
We all want to try, stumble, fall, get back up, try again, and learn as we go. But don’t enjoy the scratched knees. Appreciate where you are at each point. Everything is a learning experience, good and bad, there’s something to be learned. But all learning isn’t equal. I’ve found that if you’re going to spend your time pondering the past, focus on the wins not the losses. The lessons learned from doing well give you a better chance at continuing your success.
Keep your self-belief and keep your eyes open, you will inevitably see opportunities when the dark clouds clear. Keep walking with your head held high, reaching for the sky and not walking with your gaze on your feet and seeing only puddles. I forget where I recently read this anecdote, but a young boy was looking to get a job. Everywhere he went, he heard they weren’t hiring, so he decided to set a new goal: for each company he visited, he would either get a job or sell them a “Not hiring” sign which he would make.
For me, keep pushing forward and having a triage mindset to encounter the wounds experienced in your startup life. Failure is not an option, be relentless, be limitless, but not simply doing the same thing as last time. If what you’re doing now is not a viable solution in this new world and in a different economy, then find something that is. Failure is an experiment that had an outcome, just one you didn’t want. Don’t develop a fetish for failure.