A Founder Fail Story

This is from a Quora thread about founders with seed funding make.

Josh Fechter was gracious enough to share his own personal story about his mobile job finding app.

https://www.quora.com/What-are-the-common-mistakes-that-seed-funded-startup-founders-make

 

HOW WE RECKLESSLY BLEW $500,000 IN FIVE MONTHS

We had a Reddit post about our launch go viral resulting in over 10,000 users for our mobile app.

The idea: A mobile application that makes applying for a job as easy as a swipe.

People need to find and land jobs faster. That’s a huge pain point.

With our app, everyone who needs a job will get hired because it will be easy for them to apply.

Soon after our “aha” moment, two of the co-founders landed $500,000 in funding.

Look at our user numbers!

We worked at Google and in management consulting, so we know what we’re doing.

A month into startup life.

Why aren’t users coming back to our app?

Why won’t recruiters use our app?

We’d done zero customer development.

After many phone calls and surveys, we realized recruiters and founders willing to pay for a job platform want the job application process to be difficult.

Why?

It weeds out low-quality candidates.

Swiping right for your dream job is ideal for a candidate, but a nightmare for a hiring manager. You’d receive thousands of applicants in minutes.

How do we fix this?

What if we showed candidates only relevant jobs based on their uploaded profile details?

That’d work.

Nope.

Candidates continued to swipe right without thinking twice.

What if we reduced the numbers of candidates we have? We’ll only have engineers on the platform. They hate applying for jobs, so they’ll be more selective. Plus, recruiters will pay to get in touch with engineers.

Now, we had to act as recruiters and message every engineer to use our platform to get in touch with recruiters.

It made zero sense.

We failed five months after launching the company.

The next three years, I heard of many other founders getting investor money for the same idea.

All their companies failed, too.

That’s what happens when you use vanity metrics to get funding, especially when your users came from a viral Reddit post.

That’s what happens when you do zero customer development before building a product.

That’s what happens when you have no domain expertise in your startup’s industry.

The secret element of a startup’s success happens before you write your first line of code. It’s becoming an expert in your startup’s industry, understanding your prospect’s pain points, and getting pre-sales to validate your product.

Once you take these three steps, bootstrap your startup as long as you can. When you have traction and want to scale faster, then get funding.

In the meantime, try not to get distracted by all the shiny objects.

Startup Funding Talk

I’ll be speaking along with some VCs about startup funding this Saturday here in Los Angeles. Should be a good event.

www.n3xtcon.com

Some Questions Investors Will Ask You

It was a typical afternoon in Hollywood. Lunch with Rob Schneider at Xiomara restaurant on Melrose. We were meeting with his inventor, who claimed to have created a revolutionary machine to extract hydrogen from water – electrolysis. He said that he put in X amount of energy, and the machine generated 100X as output. I replied “Well, I’m just a French major, but doesn’t that run afoul of one of the laws of thermodynamics?”

He looked at me with a stunned expression. “No. Because the machine does it really fast.”

Now, I think I’ll write up this whole story in another article as it’s just friggin’ hilarious, but for now, the point I want to make is that I asked this inventor a patently obvious question, and not only did he not have a well-polished answer, he was clearly surprised to get the question itself. I was pretty sure he’d have said something like “It’s just so dang cute when liberal arts majors dip their toes in the science pool.” The meeting nosedived at that point.

Don’t let any question, much less obvious ones, catch you flat-footed when you’re grilled in a conference room on Sand Hill Road.

Yes, all investors are different, and you can’t predict what they will or won’t do. That said, there are some pretty common questions that you should be prepared to answer when you sit down with them. Or with key potential hires or Board members, for that matter.

Origin
Why did you start this company?
How long have you been in business?
Are you doing what you originally set out to do or have you pivoted?

Credibility
Who are your competitors? How are you different?
What are your biggest risks?

I put these two together because they are the two areas where many entrepreneurs lose all credibility. (These and “Top Down” as we discuss in another article.) Too often, an entrepreneur will say something like “Well, what we have is so unique that we don’t have any competitors.” EVERYONE has a competitor. You’re just not thinking broadly enough. Let’s say you make a bluetooth LED light shower cap radio. Yes, there may not be an exact match coming out of Guangzhou. In this case, you’re selling a solution to a problem that may not exist. Who are your competitors? Bath items, novelties, electronic items, gifts. Pretty large field indeed.

And don’t pooh pooh your risk factors. Investors aren’t going to think “Wow, cool, no risks!” just because you say that. Rather, one big risk will jump out at them – you. List all the risks, candidly, you know damn well what they are. You can also list mitigation factors, but go easy on them. The more candid you are, the more confident you appear, and you also start to create the feeling for the investor that they’re already in the tent.

Financial
What are your three / five year projections?
When is your breakeven?
What’s your burn rate?
What’s your business model?

Have these all prepared, clear to understand, and be ready to discuss / defend them.

Investors
What round is this?
How much are you raising?
Who invested in prior rounds?
Who else have you talked to?
Use of proceeds
What’s your exit strategy?

I’ll just highlight how much you’re raising and if you’re talking to other investors. Ask for a precise amount, e.g. $500,000. Don’t give a range: $300,000 – $500,000. Haven’t you determined what the optimal amount is? Are you not confident that you can raise what you need?

And openly disclose who else you’re talking to. Investors are herd creatures, they go where others go. You want to seem like you have too many suitors, not too few.

Company
Management team
Intellectual property / Barriers to entry

A bad team will drive a good idea into the ground. A good team will breathe air into a crappy idea. I can’t overemphasize the importance of a killer management team.

You’ll often be asked about your intellectual property portfolio, so be ready for it. But for my money, the only real barrier to entry for your competitors is your continual innovation. So after you rattle off that O’Melveny & Myers is doing your patent work for stock, follow it up with a nod to how you’re looking well past that already in your skunk works secret lab.

Oh sure, you’ll be asked more questions, and follow ons, but these are some of the most common, so be ready for them.

And no matter what question you’re asked, act as if you have been waiting for them to ask that very question. Smile. Then figure out what to say, but your very first reaction will also matter.

And if you don’t understand the question, perhaps it’s some complicated performance metric, or you don’t have the answer – be open about that too. Say “I’m sorry, I have no idea what the DAU-IRR-CLV-MPV-ROI Return Ratio is. But I promise that I will learn what it is, apply it to our company, and have an in depth analysis in your e-mail inbox by 6:15 am tomorrow morning.” Be honest that you don’t know, and in so doing, at least gain a little credibility. Investors don’t expect you to know everything already, that’s what they’re their for, but they do want you to figure out what you need to know, today. And I just like giving a precise time like that as it makes them wonder why that specific time, which gets you in their head, and it sets up a dynamic of a promise being kept.

Here’s an idea that I haven’t tried. What about an “Investor Pitch Meeting FAQ” sheet. Not your one page summary. But a more expansive document that raises the questions you expect, with your answers. That could be kind of fun. If you do it, let us know how it works!