If The Little Engine Did It, So Can I?
If The Little Engine Did It, So Can I?
Maybe not.
The other week I was talking to a founder.
I knew things weren’t going well. “How are things?”
We were at the point where I knew I would get an honest answer, rather than the rote “killing it,” response.
“I don’t know what to do next.” he sighed.
For the first time, his eyes didn’t meet mine. The bags under his eyes had bags, and you could tell that every time he closed his mount, he clenched his teeth over and over again.
“Tell me where you are,” I asked.
“Every time I walk into the office, my heart breaks a little bit more. I know everything we could be doing; should be doing; but I just can’t stop our fall. Every day my heart breaks, and now I think I am finally broken.”
When we start companies, we never start with the thought of what would happen if everything went badly. We as founders are unhealthy optimists that assume failure happens … just to someone else.
But if the truth is that 90% of all startups fail, then it’s usually not someone else.
Think about that.
We work hard and come up with an idea. We spent time exploring the market. We convince a few folks to work with us and get to building.
We join an accelerator, or maybe raise some money. We take a breath.
Then freak out.
And while there are plenty of articles about all the mistakes you can make as a founder, everything you do comes down to a single binary test.
“Should I quit today?” Yes or No
Why so negative?
We are unhealthy optimists. We will convince ourselves that we can do anything. That we can overcome any obstacle. That failure is what happens to other people, no matter how many “failure is ok” posts we read.
So ask yourself, every day, if that day is your last day. And if it is, then accept it and move on it.
When I give founders this advice, they often tell me that their investors tell them to fight on. Tell them stories of companies that pulled it out in the last minute and the founders went on to be millionaires. Tell them that its the founders job to go down with the ship.
90% of companies fail. Of the 10%, some were saved at the last minute, but the number is tiny (I’d guess less than 1/2 of 1%). And yes, you can’t just walk away. It’s not fair to your team or your investors.
But it doesn’t mean you have to smile and eat the shit sandwich.
There are two specific tactics that I have learned.
When you raise money, take your founding team and write down some measurable timeboxed goals. Numbers you think will show enough traction to raise your next round or get to profitability.
If you clearly are not going to hit your goals then re-evaluate the goals.
maybe they were unrealistic;
maybe you have an artificial ceiling in your business plan;
maybe you don’t have the team to execute;
maybe you should pivot;
maybe you should quit.
2. When you have six months left in the bank, go out and try to raise money from external investors. If things are going decently well, then your current investors will reup (other than angels that are one and done.)
These should be investors that you have continued to build a relationship with, not random reach outs.
If after a month, you are having no luck, go back to your internal investors and broach the idea of selling the company.
If there is no interest from external investors, your ability to get to a Series A is minimal.
If you don’t have the traction to excite external investors, you didn’t pivot quickly enough;
If external investors are showing no interest, then see point 1.
While it may be enticing to raise a bridge or “just” take another note, each of these continue to dilute founder ownership, and you may get to a point where you have to recap or you just don’t own enough to be interesting.
Plus, if you haven’t made it by this point, and missed all the goals you laid out, what is going to change?