3 things that kill pre-product market fit startups

June 12, 2018View on twitter

0/ There are only 3 things that kill pre-product market fit companies. These are self-evident, but founders tend to forget them. To not die you need to: 1. Find product market fit. 2. Resolve co-founder conflicts. 3. Don't run out of money. Everything else is noise.

1a/ Find product/market fit. This is obvious but many founders spend time on unnecessary areas (constant speaking events, over-hiring the team, constant fundraising, chasing fake signals from their customer etc.).

1b/ Fake customer signals include: Customers who won't actually pay for your product. Saying "this is really interesting" is different from cutting a check. Don't get fooled or self-delude.

1c/ High churn growth. If you grow fast but keep churning you will die. Recurrence is key unless you are monetizing via a secondary mechanism (e.g. data).

1d/ The best signal of product/market fit and differentiation or moat is the ability to raise prices repeatedly without loosing customers.

2a/ The second primary way startups die is co-founder blow ups. If you and your co-founder are constantly fighting, the company will slowly but surely blow up.

2b/ One of the only advantages of a startup versus an incumbent is speed. When you fight your cofounder everything takes longer then it should and decisions don't get made.

2c/ If you and your co-founder can not work together well, one or more of you should leave. The longer you wait, the longer the company will waste time and burn.

2d/ You can work with your investors or board to decide which founder should leave and how that person should exit. If no one leaves, the company will freeze in place and die or exit prematurely.

3a/ The third way companies die is they run out of money. Don't run out of money. :)

3b/ While this should be self evident companies wait too long to cut costs, raise prices, or start charging for services. Is no one is willing to pay you for your product, you are in the wrong business. The exception is consumer apps or related where you monetize later.

3c/ Things to focus on include margin, customer churn, and organic adoption. If you have a high margin, negative churn business and a good acquisition funnel, you will do great 99% of the time. The 1% is due to competitive pressure.