Dear Founder,
Well, if you’ve opened this letter, things are not going well.
I’m sorry that things are off-kilter; it’s never easy. We back brilliant founders all the time, and unfortunately, through a combination of flawed execution, poor market timing, or unanticipated exogenous factors, many seed-stage companies just never get off the ground.
At this point, the most important thing is to figure out what you’re going to do about it.
I recently met with an entrepreneur who’s been working on—and investing his own money in—an idea he’s passionate about. He’s been at it for more than 12 months and the business is not yet fundable by outside investors. The problem? It’s a consumer product in a noisy space and it still doesn’t have much traction. This worries me profoundly and it’s clear that he needs to make a change. I reminded him of the obvious: his time and his savings are very important assets. I asked him to think about how he was investing these resources and to come up with the concrete steps that would lead him to success in a short period of time.
If you’re in a similar situation, these are some of the realities for you to ponder as you decide how to proceed:
- You never get the time you’re spending back. Are you spending your precious time on something that will produce world impact or deliver multi-generational wealth? If not, you may want to tweak things so that you are.
- Are you spending every dollar wisely and with impact?This is another incredible resource and you need to know that you are handling it well.
- How is your team holding up? Are they fired up, and ready to go out swinging? Silicon Valley is filled with temptation for talented employees, so it’s crucial to know how committed your people are.
Given those truths, should you keep on trucking? All entrepreneurs hit hard times and tough choices, but many have survived precisely because they stayed with the same idea. Ben Silbermann made incremental changes to improve Pinterest, but he kept the vision and didn’t pivot from the idea of a social bulletin board. Marc Benioff evolved Salesforce by bringing popular consumer trends to the enterprise, but never pivoted away from his idea of making software easier, more accessible and more democratic for businesses. Before you completely change course, there could be other correctional steps to take such as tweaking a product, increasing marketing activities or ramping up sales spend. Salesforce certainly made all of these modifications.
Should you think about a pivot? Some great entrepreneurs have executed a ‘‘big pivot,’’ changing everything about the product. Instagram, which started as Burbn, a mobile social check-in app with game features, saw that the photo-sharing feature was where the majority of its user engagement came from and pivoted to deliver on that before launch. When we invested in Meteor, it was only a few weeks after they had pivoted from building a travel guide for iPad (they realized that they were again re-creating front-end syncing technology that they had already built twice before). When we backed GOAT, it was after GrubWithUs founders Eddy and Daishin had spent three years leanly trying to make social dining work, stepped back, re-evaluated, and decided to use their team to create a marketplace dedicated to selling high-end sneakers.
Despite the successes, pivots are not always the obvious next step or a guaranteed route to success. I would only suggest pivoting if you have a great team and a great idea to chase. Remember, you’re now deciding to use investor money and the team’s time on something that was not the original premise for the company.
Is it time to shut it down? Sometimes there are no more steps you can take and the most responsible solution is to call it quits because you’re burning cash and time (your investors’ and your own), and there’s little hope left that you can make something magical happen. In this case, you’ll want to return as much cash as possible and find your next thing.
What’s your next move? It’s time to take a hard look at everything. The answers to these questions should give you some clarity and be able to guide you on which of the following is the right next move. In this situation, you should ask yourself:
- How long do you have to live? How much cash do you have to continue pursuing your dream? Can you raise more money based on the traction you have?
- Is there traction at all? Are you building something that people like? How certain are you that this will be a winnable market? Are you early? Late? Is your timing off?
- Can you do something that has much more relevance? Have you developed any new insights that demonstrate that you should be chasing something else, ideally something you and your team have seen is a clear need? If you can, is your team the right one to execute on this idea?
- How do you want to treat those who have invested in you when you’re unsure of where you want to go? Are you able to provide a return to shareholders rather than just burn through the cash?
- Most importantly, what are you prepared to take on? A pivot means starting all over again—fundraising, recruiting, hyping what you’ve built. If that prospect doesn’t fire you up, it may be time to look elsewhere.
I’m sorry that you’re in this situation and at this crossroads. Dig deep, and decide whether you need to make some modifications, execute a pivot, or shut things down. Amazon founder and CEO Jeff Bezos calls this “investigate everything” process the ‘‘regret-minimization framework,’’ and he encourages his teams to explore all the plausible possibilities—spending extra time to determine if the idea is worth it, rather than have regrets about giving up too early or not diving deep enough.
And don’t forget, there are plenty of people who have been through this before. Ask trusted investors, other founders, and family or friends to put their “friend” hats on. What would they do in your shoes? Reflect, make up your mind, and get going.
All the best,
Maynard