'Make Something Investors Want' Kills Startups
Startups are experiments – a bet on a particular vision of the future, predicated on unconventional insight. The initial vision is rarely perfect, and requires iterative development guided by user feedback. Yet, if that feedback mechanism is flawed – if it's optimized for delivering value to investors rather than delivering value to actual users – the startup's trajectory inevitably veers off course.
The early stages of a startup are the purest – angel investors and accelerators place a bet on a vision and a team, and know that finding product-market fit takes time. However, once a startup moves past the seed stage, the nature of its investors often changes. At this point, many startups find themselves surrounded by financial investors whose primary, if not sole, concern is to generate returns on their investment.
Revenue is, of course, an important metric. But it's a noisy one. It tells you that something is working but not necessarily what or why. Each of my failed startups generated revenue by diverging from their initial vision by tailoring their products to a small, non-scalable market. Revenue became an exercise in local optimization – a way to make numbers look good for the next funding round, even if it meant sacrificing the long-term global optimization of unicorn-sized growth.
A big part of a startup CEO's job is to raise money. This is where the drift starts. As an early startup's growth inevitably falters, the CEO’s attention starts to diverge from building something special to something common. While this may succeed in raising another round of funding, it does so often at bad terms and at the expense of the startup's soul.
The irony here is that by trying to make something investors want, startups usually make something that no one wants in the long run. The product becomes too diluted or too niche, unable to sustain the growth that excited investors in the first place. The startup becomes a zombie – alive at a distance, but dead on the inside. Eventually, the company's morale and runway converge to zero.
The most successful startups are those that maintain a delicate balance between their vision and the pragmatic needs of business. They raise money from investors who buy into their vision and are patient enough to let the startup iterate toward product-market fit. They focus on revenue as a means, not an end, and never lose sight of their mission to make something that people want. Straying from this path may yield short-term gains, but it rarely ends well for anyone without a board position.