Happy New Year to all! 🎉 Despite the challenges of navigating the past six months while my wife undergoes chemotherapy, last year brought numerous blessings. 🙏 As we approach the last treatment cycle, we eagerly anticipate resuming our journey. Whether through our for-profit venture fund, Nina's Apothetique Holistic, or our nonprofit cancer research initiative at USF, our shared mission is to make a positive impact. 💪 The future holds promise, and we are excitedly looking forward to what it brings. Instead of listing all the cool things we have been doing, old and new, I'll take this moment to share a common theme from last year as our adventures working with amazing founders brought up a familiar topic - Fear. 🚀 #NewBeginnings #ImpactfulJourney #Gratitude #CancerResearch #Entrepreneurship #risingaboveadversity
Navigating the Growth Adventure: Vol. 1
Embarking on the entrepreneurial journey as a founder, witnessing the meteoric rise of a groundbreaking product or service is like stepping into an exhilarating 'made for Hollywood' success story, complete with annual growth rates that initially soar and triple. However, it's not unusual to encounter a subtle deceleration in critical metrics after the initial year or two, often linked to seasonal patterns or other variables.
In one quarter, the once-rapid growth trajectory might shift from an impressive 200% to a more moderate 100%, eventually settling for a yearly expansion of 50%. This status falls short of rapid anticipation by the dynamic startup ecosystem and your stakeholders' demands.
Our experiences at 25V last year uncovered a multitude of such narratives, with numerous companies’ conversations with founders and their PMs seeking our expertise to scrutinize their business models. In our analyses, we identified common challenges among these enterprises. Some diligently incorporated new features into their roadmap; others forged strategic agreements with channel partners or amplified their marketing expenditure. Simultaneously, certain businesses were deeply engaged in activities such as conventions, trade shows, and press releases.
While each of these strategies has its merits, it becomes evident that, when faced with slowing growth, adhering to the adage of 'just throw money at the problem' is an oversimplification. Instead, a nuanced and strategic approach is required to address the underlying issues and reignite the growth engine.
Many companies we engaged with consistently sought external channels for growth instead of delving into internal assessments to uncover root causes. There was a reluctance to reach out to their user bases with critical questions like:
Why are users leaving?
Why are they staying?
What features are they loving?
Some companies require more data and the ability to establish a baseline for meaningful business comparisons retrospectively, making the situation more complex.
Despite introducing new features, engaging new partners, and garnering recent press, these technology companies discovered that the slowdown persisted, eventually reaching a point where growth became stagnant. What initially began as a gradual simmer with a well-constructed roadmap and an ambitious vision transformed into a crisis.
Late-night calls and emergency 'all hands' meetings became the norm as analytics dashboards were scrutinized repeatedly to identify the root cause, prompting a new strategy. Surprisingly, over 80% of the two dozen companies we collaborated with last year faced similar challenges.
In 2023, various industries, including proptech and fintech, encountered a challenging year, witnessing the harsh realities of layoffs, furloughs, down rounds, or complete shutdowns in the worst cases. WeWork, a shared office space giant, went bankrupt after raising $22 billion. Vice, a once $5 billion Digital Media Company, faced bankruptcy despite raising $1.6 billion. Zume, a pizza-making robot startup, closed its doors after raising $425 million. Smile, once valued at $9 billion, a direct-to-consumer dentist, recently closed after raising $695 million.
Q3 of 2023 had the highest number of shutdowns since 2019
An example close to home, Smile, who shared office space in our building in San Mateo, cleared out within a week of their impending closure, underscoring the severity of the situation.
Delving into the reasons behind these closures, many factors come to light. However, I believe that, fundamentally, all their challenges can be traced back to a single, pivotal detail.
Despite spending time with our clients, I sought to draw insights from my experiences in real estate technology over the last 23 years. In 2020, as a guest speaker for a data analytics class at the University of San Francisco's School of Management, I shared my experiences, particularly the common problem in many startups – the fear of the truth. This fear encompasses apprehension about reviews, usage metrics, and what they might reveal for the business. It's a pattern I've witnessed throughout my career and observed unfolding in the private company domain.
From my talk, I recall fielding questions from the students, mostly comprised of computer science majors, about why this fear existed and why there was so much resistance to uncovering the reasons behind company problems. I explained that this reluctance often stems from a flaw in startup philosophy. Despite some success, such as exponential growth, sustaining this metric can lead to other issues, necessitating stakeholders to dig deeper.
What we have found to help begin the shift is to focus on these three essential things:
Evaluating Stagnation: A Focus on Retention Metrics
Deep dive into retention metrics to understand why users are sticking around or leaving. Identifying patterns and making informed decisions based on user behavior is crucial.
Admission of Death: If Your Product Sucks, Kill It
Sometimes, it's okay to let go. If a product is not meeting expectations, consider pivoting or discontinuing it. Embrace change for the sake of growth.
Avoid Building Features: Don't Build, Listen to your Customer
Instead of continuously adding features, take the time to listen to your customers. Understand their needs, preferences, and pain points. Building what your customers genuinely want ensures a more successful product.
Emphasizing embracing the truth is fundamental in pursuing product-market fit (PMF). Fearlessly seeking the truth is the key to unlocking the pathway to P.M.F., as it unveils valuable insights critical for refining and aligning our products with market demands.
By achieving PMF., companies can navigate the crucial transition across the chasm. It's imperative to view the truth not as a threat but as a guiding light, illuminating the way toward a successful product-market fit. By acknowledging and addressing the realities uncovered by the truth, we pave the way for sustainable growth, ensuring that our products resonate effectively with the ever-evolving needs of the market.
The most valuable counsel I ever got when venturing into the startup scene was simple: talk less, listen more. This principle holds even more true today, especially when pinpointing the root cause of your startup's sluggish growth.
Ultimately, the pervasive influence of fear stands out as a predominant factor contributing to the failure of startups, surpassing even challenges related to insufficient resources or market setbacks.
To be continued…
P.S. Stay with me on this journey.
Maximilian Diez is a general partner at Twenty Five Ventures, investing in early-stage consumer products startups with a keen focus on marketplace and platforms. He serves on the Board as a Trustee and contributes to the Endowment Committee at the University of San Francisco. He managed his first million-dollar portfolio at the remarkably young age of 19.
He shares insights on user growth, product development, and vertical integration through his writings and contributions to the entrepreneurial community. He has been invited to speak in front of thousands of industry leaders, captivating audiences from New York to Las Vegas and even as far as Athens, Greece.
He is a devoted husband to Nina and a superhero dad to their two kids. They reside in the San Francisco Bay Area.
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If nothing else, thanks for reading.