Editor’s Note: Each week Maynard Webb, former CEO of LiveOps and the former COO of eBay, will offer candid, practical, and sometimes surprising advice to entrepreneurs and founders. To submit a question, write to Webb at email@example.com.
Q. We are 12 weeks into launching our startup. We sell bespoke luxury clothing online at affordable prices. We have received a ton of press, have made small but meaningful pivots, and we are out pitching investors. I’d give anything to be a fly on the wall and understand how investors view success and what they see as the early doomsday writing on the wall.
–Founder of a fashion tech company
Investors see hundreds of ideas for every idea they fund. But even with that necessary discretionary lens, they know that every idea they fund will not be a home run. Venture is a “hits”-driven business where one big investment that goes public can make up for a lot of companies that don’t do as well. The returns are often way out of proportion–ridiculously good for the amazing ones, making up for the investments that weren’t nearly as good.
That’s the business I’m in, but for you it’s different. Your startup is the only business you’re in. You need to ensure that it’s going to return well for your employees, investors, and yourself. This is your only option. Therefore, you have to strive to be a breakout and optimize for outperformance.
It’s clear that you have something special if you are getting so much press. Your ideas are resonating–now you need to turn that into transactions on your site. Press is good, but transactions are better.
What are investors looking for at this point? We are looking for things that we love and things that give us belief in the founder and the idea. Investors are making a bet at a nascent stage early on, so it’s all about traction:
- How much traffic is there on the site?
- How many people use the product?
- How long are they engaged on the site?
- How often do they come back?
- Are your customers happy?
- How fast are you growing?
- Is that growth viral?
- What is the opportunity? (What’s the market size? What’s the plan to scale? Are you able to go into adjacent categories? Geographies?)
Remember, you are only 12 weeks in–that’s too soon to know whether this will be a success. It’s too early to call doomsday. But it’s possible you might not have the right product yet. And that’s something you will have to watch for and tweak accordingly.
More often than sweeping success or dismal doomsday, we see a “tweener” scenario–you’re neither a breakout nor a complete failure. It’s pretty easy to tell whether or not you’re a breakout. It’s not a matter of simply achieving X metric, but rather that momentum is building. You can easily see whether or not it’s going viral, if customers are huge fans, if sales are outpacing the bandwidth of your team, if investors are begging to give you money, if infrastructure is melting. If you don’t feel this (or feel it slightly), it means that you are not yet breaking out.
Ask yourself the following questions:
- Do you get cold reach-outs from the press, from investors, from potential employees?
- Do your customers send notes about how much your product matters to them? Do people talk about you on social media?
- Are you honestly fulfilling a need better than anyone else?
If so, congrats, and keep pushing to greatness!
If you say “no” to any of these, sadly you’re potentially in tweener territory.
Maybe you think being a tweener is okay. Maybe you think you can wait it out. You can’t. You need to act with an incredible sense of urgency.
- You need to put strong plans in place to get back on track to become a breakout.
- You need to take a deep look at the current state of things and future projections to assess how viable the strategy is and how bright the future looks. If some aspect of your business *is* working, consider betting the farm there.
- You may need to take significant actions (painful layoffs, redo of product, pivot, etc.) to ensure you have the cash needed to achieve the turnaround.
Expect this assessment to be one of the hardest you’ve ever faced. By now, you’ve invested your human capital, money, and reputation into this business, and it can be a serious shot to the ego to admit it isn’t working. The founders we back tend to be universally smart and driven, and many of them will never have faced something that feels so much like failure. But real failure is throwing even more time and capital at a business that isn’t working, and ruining your chances to raise again down the line. Take the learnings, take the loss, take a vacation, and move on.
You are only 12 weeks in. You need more time to see patterns and know where you are. This is a long game. It’s my hope you are solidly heading toward breakout success! If not, hopefully this response gives you some advice on what to do to get to breakout success.