Ep. #530 - Why Startups Fail
In this Startup Hustle episode, Matt DeCoursey and Matt Watson continue the “How to Start a Tech Company” podcast series. The Matts discuss the most common reasons for startup failure.
Covered In This Episode
Entrepreneurs need to learn from other entrepreneurs – in particular, why their startups might have failed. By understanding the reasons, they can prepare strategies and plans to increase the chances of having their early-stage startups survive the same pitfalls, or maybe even avoid them altogether.
In the 5th part of the “How to Start a Tech Business” podcast series, the Matts talk about the most common reasons founders have to give up their businesses. From lack of capital, investments, and personnel to failing to find a market niche, founders will learn which things to avoid in order to keep their business alive.
Join the Matts and learn why startups fail in this Startup Hustle episode.
- Why startups fail (0:22)
- Common problems and things to expect and failures in startups (2:14)
- How to manage the timeline of your business (8:47)
- Why you need to be able to explain your business to other people (15:07)
- The importance of having a minimally-lovable product out (18:51)
- Why do people and everything fail (24:50)
- Life can take a lot longer than you think (28:29)
- The importance of product market fit in a startup (34:03)
- The importance of having a strong leadership team (41:06)
- Everyone has to pull their own weight (45:57)
- Freestyle (48:38)
If I go to your website, I need people to figure out what it is you do. Why am I here? Why does it matter to me, like, instantly? And that’s hard. I mean, all that is, is part of your marketing. And honestly, I feel like many of us as founders are too close to our product, and the problem is almost speaking intelligently from a marketing perspective.Matt Watson
If you’re in your startup, especially if your tech business is good if the future of it depends on future rounds of raising capital, it’s even more crucial and more viable for you to get that minimally viable or minimally lovable product out.Matt DeCoursey
I think that when we talk about impactful leadership, part of what’s difficult about it is, okay, the business, a lot of businesses that I’ve seen fail, they failed because the person in charge didn’t, didn’t have the guts to address tough conversations and, and make decisions that sometimes weren’t popular.Matt DeCoursey
When it comes to talent, when you’re an early-stage startup, you can’t necessarily afford the best talent, right? So that’s one of the struggles we have. And as your company starts to grow, there are certain times where you really, really need certain key individuals, and you can’t really afford to be cheap, like, you’ve got to go get the talent that you need, that will help take you to the next level.Matt Watson
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Following is an auto-generated text transcript of this episode. Apologies for any errors!
Matt DeCoursey 0:00
And we’re back. Back for another episode of Startup Hustle. Matt DeCoursey here with Matt Watson. Hi, Matt.
Matt Watson 0:05
Hey, what’s going on?
Matt DeCoursey 0:08
You know, I’m feeling like a failure, man.
Matt Watson 0:12
Well, I know. That’s okay, though.
Matt DeCoursey 0:16
You know that I’m a failure that I’m feeling like a failure.
Matt Watson 0:19
Everybody knows you’re a failure.
Matt DeCoursey 0:22
I will I want to talk about failure today. And you know, we’re here, we’re back for another installment, part five of how to start a tech company. We haven’t even really gotten into the whole starting part yet. But we are trying to lay a solid foundation. We’re going to talk today about why startups fail. There’s a whole lot of reasons. But there’s a few that are just really common. And I think you might have as well your startups always exit for like a zillion dollars. So do we need to bring in another host?
Matt Watson 0:59
Oh, no, I see lots of bad, bad problems all the time. So
Matt DeCoursey 1:03
you see them and others Lel ever in yourself? You know, and speaking of amazing things, places in organizations, this episode of Startup Hustle is brought to you by Silicon Valley Bank. SVB has been supporting innovative founders, companies and investors with targeted financial services and expertise for over 35 years, Matt 35 years. Silicon Valley Bank is built for what’s next you can learn email@example.com? You’ve heard of Silicon Valley Bank, right? Yeah, absolutely. They do like fun, like 50% of companies that hit series A, it’s crazy and proud to have them as a supporter of what we’re doing. Absolutely. Trying to make sure that the startup called Startup Hustle doesn’t fail. So thank you, SVB. Now did this, you know, it’s not, it’s not a secret that the odds are not in your favor. When you start any business, you could call any business to start up. And, you know, we’ve kind of gone through that. Before we get into the I mean, what are you expecting from installment five and more specifically, the why startups fail?
Matt Watson 2:14
Well, I hate to feel like we’re scaring people away with the first four or five episodes of the series here. But we’re talking about, you know, having the right people on the team and common problems and things to expect and failures, one of them. I don’t remember what the statistic is, even companies that raise a series a I mean, it’s a huge percentage of them that fail. And one of the other weird statistics, I don’t remember exactly what it was either. Was it like 99% of all businesses in the United States never do more than like $5 million a year in revenue?
Matt DeCoursey 2:48
A lot of Mongolian. Literally 1 million. Yeah.
Matt Watson 2:52
Yeah. And a lot of that’s because of a lot of small businesses, right? Like, you could be a plumber, or whatever it is, and you’re never going to do $5 million in revenue. But it’s, you put it into perspective, like it’s a huge accomplishment to get to even doing 5 million a year revenue. And, and that’s not like crazy, exciting unicorn startup, you know, rocket ship to the moon kind of kind of growth that’s, you know, run out the middle series, a kind of kind of number for a lot of people. But yeah.
Matt DeCoursey 3:22
So you know, I think you have a good point now, and with the first few episodes here, and for those listening, like, we don’t want to be Debbie Downer. It’s really not not our intent. And we don’t want to scare you away. We are really like, well, we’re getting kind of old, Matt, we’ve been around the block a couple times, we’ve started multiple companies, we’ve been involved with a lot our company, Full Scale, services, a lot of them and we just we really think that, that there’s so much more to learn from well, if you learn from people success. The problem with that is that it’s often a blueprint that isn’t reusable, like there are certain parts of it that are and that are repeatable. And I do believe that most success is repeatable. But you’re not going to take the same blueprint and do the exact same thing that you did, or I did or someone else did, because they already did it in most cases. Now, when we talk about the failure, and a lot of that stuff that we’ve gotten into in the first part of the series is, you know, these are like we personally believe in the mission of this, this podcast is if we can prevent you from falling down the money pet even wants. Mission accomplished. Would you agree?
Matt Watson 4:36
Matt DeCoursey 4:37
If we can help just a little bit. Yeah. Yeah. So and by the way, knowing many of these things ourselves, we still continue to do this. So yeah. And so to the people that are on our new web series, Startup Hustle TV, like we talk all about it, it’s hard, but just know that but when it goes well it’s some of the sweetest music you’ll ever hear. So Uh, you know, let’s talk about some of these some of the reasons that startups fail. And, you know, we’ve had on this in the past, and you know what the first thing on our list is, you know, launching the wrong product or service.
Matt Watson 5:13
Now, this is a perfect time because I have a great business idea for you. I wonder run by? Let me hear it. Okay. So you know how when the trash truck starts in the day, it’s empty, and it comes in picks up trash? Why don’t they drop? Why don’t they fill the trash truck full of like Amazon Prime deliveries, and they deliver Amazon Prime and pick up your trash at the same time. So they’re unloading the truck and reloading the truck. I think it’s a brilliant idea. What do you think?
Matt DeCoursey 5:43
No, no, I don’t want my package just showing up smelling like trash and whatever. And you know, it just and then, you know, I have, I don’t think that’s probably the most fuel-efficient vehicle, but you talk about, I mean, that would be the wrong product or service and sinking a bunch of money into that could be rough. Now, I think in the context of the way that this is written. And, you know, the way our research team looks at this, and the stats that are out there is a bad product market fit is not something that all the hustle in the world is gonna get you past. No, it’s not. I mean, if you if you have things that people don’t want, they don’t need or you overestimate what the monetary value is in the marketplace. It’s, I mean, it usually doesn’t go well.
Matt Watson 6:33
I can tell you right now, launching a business two years from now that sells face masks would be the dumbest idea in the entire world.
Matt DeCoursey 6:39
Sure. I mean, that’s, yeah. And on the flip side of that two years ago, someone would have told you that mass producing that stuff, they’re like, you’re just going like supply and demand, supply and demand. So I mean, these things, you know, get a crystal ball, and you get to figure it out. However, you know, if you’re building a, we’ve talked about this, so many times, does your business your idea, your service or anything that doesn’t solve a problem? And if the answer is no, then it’s, it’s going to be tough.
Matt Watson 7:13
Well, and, and that’s the other problem is, even if it does solve a problem, if you’re going into a market that is has a lot of competitors, and barriers to entry, and all that kind of stuff, you’ve got to solve the problem, like 10 times better. You can’t be like, Oh, I have a better a better mousetrap. You don’t have to put you know, peanut butter on it. You just open it up, and it’s ready to go. But it costs 10 times more, it’s like, Nope, I’m good with my peanut butter, dude. You know, like
Matt DeCoursey 7:45
all right, so next on the list is honestly, in my opinion, the one that stands out the most to me. And that’s the poor estimation of capital needed. And, you know, we’ve talked about this because finding the resources to start a business to grow a business or to hockey stick a business is challenging. And I, you know, you don’t know what you don’t know until the moment you realize you don’t know it. And there are so when you start a new business, there’s just so many little one time expenses, and just little goofy things that you got to do and do here and do whatever. And you need to have padding in your planning and your capital estimation that accounts for not getting it right on the first time. Maybe, maybe you do, maybe you don’t. But the thing is, is if you only get one shot, and you have to hit the bullseye, that’s, that’s a tough proposition. Because hitting the bull’s eye on your first try is not the easiest thing to do.
Matt Watson 8:47
Well, the other things that go along with this is time just not estimating the amount of time it’s going to get thing to get things accomplished. But then it’s managing the timeline, right? You’re like, we got to get this done, because we bought a Superbowl ad. Well, if you don’t get it done, the Superbowl ad is, right, hey, you’re screwed, right? Like, the timing and project management of it. And all of that is important, you know, the execution of it. But a lot of times, it could be time, you know, in the early days, you know, capital is important too, but it’s just time like I don’t have time to do all the things that need to be done. I don’t have employees, I don’t have help. Like, you know, just all of those things all work together when you’re really small company and it’s you know, a team of one or two or three trying to do things they all work against you.
Matt DeCoursey 9:34
In the in the timeline thing is remarkably unpredictable, because you just never know what’s going to happen. You know, like, there’s people that open restaurants a couple of months before COVID Hit Yeah, or, or a movie theater or who knows. And you know, you just like it’s you I mean, you just don’t know what is gonna get thrown in your path. The thing that you can count on is that something is gonna get thrown in your path. And it’s often like so I million my book million dollar bedroom I talked about knowing your path to revenue, which is really difficult. We talked about that in episode one at Startup Hustle TV as well, because like, well, it took when we started Giga book, it took two and a half years to put $1 in the bank. Now, I had it it was it was running alongside and other business that was able to support it. But that’s not always an option.
Matt Watson 10:21
Yep. Yep. And, and sometimes capital is not a problem. It’s like, hey, we have the capital. But, you know, we’re, we’re doing market testing to validate our product and all that. And then you find out, like, there’s problems with it, or the manufacturing messed up. And then you got to you change how it was manufactured and reorder it and say, Oh, now we’re several weeks behind until we get a new shipment. And just all those things take way more time than you ever think they will.
Matt DeCoursey 10:47
And that plays into the next item in the list is the poor estimation of capital, or excuse me, the poor use of existing capital and resources. So resources are also people. And that’s another thing like if you’re in your capital estimation requires a perfect game being pitched, that’s problematic. Because if that if your business relies on people and getting the right ones in, I think that’s one of the hardest things out of new business is getting the right people because that your your cast or your lineup and your team, they evolve over time. And, and another thing too, is in because this series is more about tech than other things. Well, it’s a super competitive market in North America for anybody that writes code and builds tech and stuff like that. So and that’s something that when you and I first started getting to know each other was really frustrating you because it stack, FYI, you had people that were bouncing. And then you had one guy go work at Amazon and other one go work at Cerner. And you know, these are the things that you you can’t control what other people do in many cases.
Matt Watson 11:58
Yeah, and you talked about hiring the wrong people. The The other problem you have is, you might hire a salesperson, when you’re a startup, and that person is really great. And then you need to hire a couple more, promoting that first person to be this the manager, the salespeople could be the absolute, like death of your company, because they’re not a manager, right, like, that’s the other problem we have with startups is that the earliest people you hire doesn’t necessarily mean they’re the perfect for you long term either. They may be great at one thing. And that doesn’t mean they’re meant to be the manager, you know, an executive of your company either. And you may outgrow them, like they were great at that stage. And as we got to be a bigger company, they just weren’t a good fit anymore.
Matt DeCoursey 12:40
And that’s advice that we’ve given a lot in the past when you bring on your initial team or people is look for the Swiss Army knife, not for the sword. And the analogy with that is, you know, starting a new business and growing one, it’s a battle. So if you’re on the front lines, yeah, well, you want a sword. But that’s like a specialist. That’s like someone that does one thing. And they’re they’re great at only that. The thing is, is if you don’t have a big team, it’s so now take that same analogy. It’s so after the battle, and now we’re back in camp and I need to open a can of beans, I don’t want to be doing that with a sword. I want the different tools and all the different stuff that’s there. So when it comes to adding people early, and some of the advice we give people at Full Scale, when they just have a budget for one developer is to find someone that is toolsy. Meaning like they can do a lot of different things. And they can fill a lot of different roles. And they can solve a lot of different problems because especially when it comes to tech companies. Oh man, I mean, if there’s I mean, Jay Z says there’s 99 problems. I think there’s like 999 problems that often occur with software and tech, because there’s just a lot of bugs and things that work out. I mean, you’ve actually built a business around solving those problems.
Matt Watson 13:57
Yeah, absolutely. Yeah. Yeah, I agree with you people that are can wear a lot of hats are super valuable.
Matt DeCoursey 14:05
So poor marketing. You know, it’s it’s very challenging to Alright, so we’ve, we’ve, you and I, we’ve seen a lot of business plans and heard a lot of pitches and even given them ourselves. And the inaccuracy in estimating how much it costs to acquire a customer is real like and until you get out there and some people, they they kind of dip their they they dip their toe in the pool. And they say, Oh, well, we tested it and only it’s only going to cost us $40 $40 You know, for our customer acquisition cost, but they tested it on such a small sample size, that when they have to go past five or 10 or it scales up all the sudden like that number doesn’t hold and that begins to play into the inefficient use of capital the poor Her estimation of capital, and then the lack of capital.
Matt Watson 15:07
Well, and then the problem starts even before that, for me is just being able to explain what it is you do. Like, you know, I have a good friend here in Kansas City. When I first met him, I asked him like, hey, what do you do? It’s like, oh, we have this startup, and we build this thing and do this thing. And like 10 minutes later in the conversation, I still couldn’t understand what the hell it was, he did. Like, he didn’t have the elevator pitch, right down, right, like, and, and honestly, it can be really tough. If you’re the founder, and you’re like, hey, we do this really cool thing. But sometimes you have a really hard time just explaining it to other people. And until you can get good at explaining it to other people, you’re definitely not gonna be good at marketing it, you know, true?
Matt DeCoursey 15:46
Well, and I think from a leadership perspective, as well, like you, like you mentioned, you’re talking about being the founder, like, you should have a very clear and concise goal. And set a priority isn’t like really be able to clarify and, and move people, Hey, this is what we do. Like at Full Scale, we help you build development teams. I mean, that’s, that’s, that’s it. And we’re not the elevator door hasn’t even closed yet. So you know, some of that always simplify, and Matt, you know, that I mentor, some young entrepreneurs, and that’s now begun. That is now the first thing that I focus on with with any of them is like being able to say what you do and like 10 seconds or less, and, and that’s really important, too, because especially when you’re talking to other people, and because their eyes glaze over, like you just described, you’re like, you’re sitting there, you’re three minutes, and you’re gone. I’m like, what do you do?
Matt Watson 16:43
Well, I’m gonna do it. And this also relates to your website and everything else, right? Like, if I go to your website, I need people to figure out what it is you do, why am I here? Why does it matter to me like, instantly? And, and that’s hard. I mean, all that is, is part of your marketing. And honestly, I feel like a lot of us as founders are too close to our product and the problem, to almost speak intelligently in a marketing perspective, because it’s like, we need a third party person that can be like, oh, yeah, that’s what you do. You just need to explain it like this. We’re a lot of times we just overcomplicate it all or we’re focused on the features of it, and not really the benefits of why people really want the thing. And it’s always a struggle. I’ve always struggled with this, too.
Matt DeCoursey 17:26
Yeah, well, I think that the benefits thing is something you’ve heard me say about a million times, and I hear you repeat it now. But it’s true man, like people, people buy the benefits of what your product service or solution do for them. And it’s not the features, and everyone becomes feature centric. And especially in tech, they’re like this feature that feature and if the features you’re building, especially early don’t help you bring people in, keep them in or get them to pay you building the wrong stuff. And I think that’s really easy to do. And I think we should probably add that to the list, especially with tech centric stuff. It’s not getting that MVP out fast enough.
Matt Watson 18:10
As one of my favorite examples, you know, Mario is not buying mushrooms. Mario wants to become super Mario. And it’s how you present it, right? It’s how you pitch it
Matt DeCoursey 18:20
like that? I haven’t. I’ve yet to hear you say that. But you know, and that’s true. It’s funny. When it comes to poor marketing as well, like our research team quoted me. So I am going to do I read my own quote, where I apparently said too many startups only focus on what they are building, not who they’re building it for. And what problems are they helping them solve? Matt DeCoursey
Matt Watson 18:44
quoted by some guy
Matt DeCoursey 18:48
quoted by Matt, so yeah. But yeah, so you know, with some of that, and I think we should talk about this for a second too, because I’ve made this mistake myself in the past, like, we should have had Giga book out a year before we did. And we got so hung up on it doing everything that we were lying. I’ve talked about this in the past to like, almost like that shopkeeper that doesn’t open the store because he’s too busy cleaning it. And, and, you know, I mean, eight, nine years ago, we well, the world of startups is in full force, but you weren’t hearing I hadn’t heard someone say fail fast or really pushing the concept of the MVP. And we had a guest, and I’ve started, I’ve addressed I’ve used this acronym as well, the MLP a minimally lovable product, like what’s the minimal stuff you can put out there that people will love? And we talked about this recently, because Calendly, who is on some levels, I mean, as a competitor of Giga buck, won that battle. I mean, they just raised money to $3 billion valuation, but all they focused on was one simple little thing. And we were caught over in the weeds going, Oh, we should do this. And we should do that and blah, blah, blah. And we built things. We built things before we even launched. And then when we launched it, we realized no one even cared or even used it. Now let’s time that was money that was energy, it was everything that we could have, I would have loved to have saved.
Matt Watson 20:19
Well, I think there are two or three things that are to unpack one of them is just the failure to launch, right? Like, you’re the mad scientist in the lab, you just want to keep writing code and you keep improving the product, but you never actually sell anything, right? Like that. And as a software developer, that’s easy to do. The other thing you mentioned is that the MVP is it’s that focus on what is the minimum viable product, what is the minimum thing we need to go validate that this product exists? Like, those are both huge points that a lot of people fail because they just either don’t launch or they don’t focus on, you know, what’s the minimum they need to launch? Both?
Matt DeCoursey 20:57
You know, another thing to is to consider, and this is a little bit of a pivot from that last statement is you need to if you if you’re in your startup, especially your tech business is good, if the future of it depends on future rounds of raising capital, it’s even more crucial and more viable for you to get that minimally viable, or minimally lovable product out. So you can really show tangible user and real people feedback and data. Because, you know, we’ve seen it before with people’s platforms that wanted us or Full Scale to invest where you’re like, how long have you been building this? Or like two years? Like, are you gonna launch this thing or what you know, it’s like, you don’t want to put money if people don’t want to put money into that. Because the further you get down that timeline, and you don’t have validation, you don’t have revenue, you don’t have an increase user account, it starts to look weird.
Matt Watson 21:56
But hold on, it’s easier to raise money before then. Because once you once you ship a product and it sucks, you can’t raise money anymore.
Matt DeCoursey 22:07
Chicken and egg, chicken and egg. Wait. So wait. So you’re right. We don’t want to generate revenue. We don’t want customers doesn’t we’re gonna prove that doesn’t work. And we’re gonna prove no one gives a shit about this. And that’s true. I think that’s like Ross Hanuman from the Silicon Valley Bank Show. Like, no, we don’t want revenue. We don’t want users Oh,
Matt Watson 22:32
Matt DeCoursey 22:34
watching that show. Again, I love I love how it highlights the absurdity. Now look, you know, five years ago, like the whole environment for capital and fundraising, and all that was dramatically different than it is now and a COVID slash seem to be like moving past a pandemic environment like it went, went and it’s been a year now, you know, we’re here, it’s almost been a year. And I the landscape changed and, and as 2020 progressed, I said, Man, I think things are going to dramatically change because here’s the thing a business eventually has to show a profit has to generate revenue, you can’t just be in the business of fundraising, and a lot of people are and it really blows my mind how much cash some people can fly and burn through on the way to not generating any revenue. So it’s like, well, yeah, alright, so recently, and I’m not saying that this is a bad thing. But so clubhouse, the clubhouse app, which is an audio only social media platform, everyone’s talking about it, everyone loves it, and they’re going to raise money at a billion dollar valuation is what I’m hearing. And I’m looking at, I’m like, How does, how are they ever going to monetize this? And I’m sure they’ll figure it out. And other people help them figure it out. But you look at something like that. Now, look, I did more research. There’s only nine people that work at that company. Smart. It’s lean. And here’s two, it’s only available on iOS. And I was reminded of that when I sent you an invite, and then realize you couldn’t accept it because you are an Android user. Yep. But But Case in point, this, they appear to be the textbook example of running lean and getting real good at one thing, which is the iOS version, it is what it is. They clearly have hype. They clearly have users they need if they raise money at a at a B.
Matt Watson 24:34
Yep, Instagram, comma, right. Other
Matt DeCoursey 24:42
Instagram is often known as the cheapest acquisition in the history of acquisitions, and it was still what a billion dollars.
Matt Watson 24:50
I think it was to something Yeah.
Matt DeCoursey 24:52
Okay, so next on the list, and this is just kind of a general thing in life. This isn’t just why startups fail. Just why people and everything fails, no follow through.
Matt Watson 25:07
I don’t know how to follow up that a comment.
Matt DeCoursey 25:11
So you need to follow up on everything you do. And in the context of this is like there’s a lot of there’s a lot of opportunities and things that come up. And people often sit and wait for the response and all of it to come to them.
Matt Watson 25:28
Yep. You send him an email and you just wait for somebody to respond. And if they don’t respond to you.
Matt DeCoursey 25:36
You want to know, if you really asked me why I’ve been quote, successful. And I think that’s a relative term asked me on Sundays, if I’m successful, you get a different answer. And I’m, it’s persistent. I’m persistent. But that’s important, man, like, the people that okay, if you want, I posted this on my personal Facebook the other day, and by the way, if you’re on Facebook, come check out the Startup Hustle, Facebook chat. They got a couple 1000 people in there. You’re in there. I’m in there. We talked about a lot of stuff today, I posted a video montage of viewed performance. Oh, that was good. Matt is good. And the user in the the viewers seem to like it. But make sure I posted? I don’t know. Oh, yeah. Yeah. Have you? Yeah, have you pole vaulting? Do you still have those short? No, so. But, you know, I made a post on Facebook the other day, and I normally don’t try to give like overreaching advice or whatever. But if you want help from people make it easy for them to help you as well. Like, you know, it’s it’s, it’s, and that’s a follow through thing. And then I see this lot and it breaks my heart because I see a lot of people squander opportunities because they just don’t seem how to follow through or follow up or, or just kind of like, do it. Yep, just do it. I mean, is that alright, so under now, we operate this show off of a setlist. And this has a whole lot of things that are on here and including the reminder for me to let you know that this episode of Startup Hustle is brought to you by Silicon Valley Bank, go to sbb.com and learn all about them. They’ve been supporting innovative founders, companies and investors with targeted financial services and expertise for over 35 years, like a big shout out. And by the way, some people from Silicon Valley Bank are going to join me on another series that related to funding. And I’m looking forward to that, because because those folks know what’s up. Now. The reason I brought that up is so we have imaginary reasons. Alright, so the real the one umbrella reason that startups fail is clearly they run out of cash. Okay, so that’s that, like, that’s why it’s an imaginary reason. Of course, they ran out of cash, they eventually have it. But, you know, the real question is why, and one of my favorite startup founders in Kansas City, and participants in our chat group, Eric Foster, made that comment when we asked in the group and said, you know, but what’s the why? Why did you run out of cash? And those were some of the reasons that we’re just talking about, but you got to really get now why, why have you run out of cash in the past?
Matt Watson 28:29
Back to some of the things we mentioned earlier, you know, things taking a lot longer, a lot more time than you think, right? You hire software developers, you think you’re gonna build a product and sell it, and then, like, another six months goes by, and then another six months goes by and then another six months goes by, like, you just keep burning money. You know, it’s easy to do.
Matt DeCoursey 28:49
Yeah, so, before I give you some of my reasons, will you hold my beer? Sure. No, but yeah, I think there’s, you know, there’s one thing that that you have to consider. Okay, so people often view the startup founder, especially in tech as the youngster, which by the way is statistically isn’t true. But look, your life will often dictate how your business works. And, and things happen that you don’t ask for like COVID or illness or you know, and I lost my mother in November and like that took me out of the game for a week and dealing with family matters and doing a lot of stuff and, and here’s the thing is, is that’s one thing you can’t really account for in a business plan. And if you I think one of the wise is not being honest with yourself, in some regards, because you talk about hey, I’m just gonna burn more cash. I’m gonna burn more cash and like, So Matt, you and I have both at one point in our life gone through it Divorce. Yep. How How? How focused? Were you on business amidst all that? Because I wasn’t.
Matt Watson 30:08
I mean, you know, in some ways, the business was a just a way to keep distracted away from the divorce, I guess, in some sense, but, but yeah, I mean, if nothing else, it definitely affects your mood and productivity as well. Like it just you’re down, you’re, you know, not feeling 100%. So for sure, I get
Matt DeCoursey 30:26
it, and it becomes a problem. And it can also do things like frees up your money, create other things, it can put added expense and just a whole lot of stuff. So you know, the why of why you run out of cash is obviously the reasons that we just mentioned, but sometimes the why is just because life got in the way. And it the further you get away from focus, the further you have to travel back to become focused, and it’s tough, man, it’s just tough to maintain that that perfect, straight line. Because what do we know about plans? Matt?
Matt Watson 31:05
They’re always wrong. Correct.
Matt DeCoursey 31:07
So, okay, they really are. I think that my going forward, any business plan or thing that I write is just going to be like, you know, how, you know, normally, when you create a pitch deck, you have these things at the bottom, these disclaimers that like these, these projections are just given for illustrative purposes. And we can’t guarantee any amount of return or whatever, I just want to put an asterisk at the bottom that just says this is wrong.
Matt Watson 31:37
It’s guaranteed to be wrong, this is
Matt DeCoursey 31:39
guaranteed to be wrong. So good luck. Do you think that’s a good? Is that a good is that good messaging. There’s probably someone out there, they would actually invest in that because they would look at that and go, Oh, these guys get it.
Matt Watson 31:56
What I always say it’s like predicting when a pregnant lady is going to have a baby, like, forget it. Well, you
Matt DeCoursey 32:01
can’t do that because our creative director had a baby on the 26th Right on time because it was scheduled and both my kids came the We predicted that that doesn’t mean they couldn’t have come sooner. So also found out that my wife was born three weeks late, so she was almost a 10 month pregnancy. I didn’t know that we’ve been together for 10 years. I just found that out. Yeah, you never know when the band is going to be done bacon but dude, that’s that’s the bit that’s Case in point to the life thing you know, and like, and and you got to stop and smell the roses to man because it you know, I wrote a book about this dude, and it’ll swallow you up. If you’re all business, if you’re all personnel, if you’re all physical, whatever. If you’re just if you’re a one trick pony, those other categories are going to come back and claim some balance, and it’s different for everyone. Alright, so we, you know, we’d be remiss and not heating our own. Okay, so we just mentioned a bunch of problems. Let’s talk about a couple solutions. Because once again, we’re not trying to like be Debbie Downer. But before we get into the meat and potatoes, like, we want you to know what you’re getting into. And, and I’m not saying don’t do it, because I’m on multiple businesses at this point. I knew I’ve known what I was getting myself into every time I’ve done it. And the first on the list we’ve I’ve and we’re revisiting this, like the right product-market fit is key. If kids if you don’t have buyers that know now it doesn’t really matter. But Matt, how do you like other than solving a problem? Like what are synth? Like? How do you know? Like, how do you know know that you have the right product-market fit? And you can actually sell it? Because you might Okay, Matt. So I have this idea. I want to create a place where you can buy anything you want. And they’ll deliver it to you in a day or two after you buy it right to your front porch. I think there’s a huge market for that. I think people will be all over it. What’s the problem with that?
Matt Watson 34:03
They already have competition.
Matt DeCoursey 34:06
The big like the one of the biggest companies in the world already owns the market on that. And
Matt Watson 34:10
yeah, Walmart and Target and everybody else are in on it too.
Matt DeCoursey 34:14
Right. So probably me Matt DeCoursey. Living my humble existence in Kansas is probably not the best person to try to take on those giants.
Matt Watson 34:27
No, probably not. And I think an even simpler example of the product market fit was back to the the what we mentioned earlier was like face masks, right like, you know, yeah, making face masks a couple of years ago like there really wasn’t product market fit for that. Like people don’t really want to buy this thing. Where now there is there’s there’s big product market fit for it. Product Market Fit, you know, really can be creating a simple product that you sell to a very niche people and it’s just trying to figure out which niche do you go sell to Um, you can use Full Scale as an example, right? Like, we built a product and we figured out who needs the product who needs the services. And then over time, we figured out who doesn’t like these people are not a good fit. These people are a good fit, right? And, you know, if you continue to try and sell your product over and over and over and nobody wants to buy it, you’re you’re missing product market fit somewhere, people, people should be excited for the the problem you solve the value you provide. And if not, you’re just not quite, you just don’t quite have product market fit yet.
Matt DeCoursey 35:32
Yeah, so I got some input from our live chat here. From the live stream insert from someone we know is that clump, CEO and founder of Sally automotive and talking says eating a quick lunch and listening to these guys. So hopefully, you can keep your lunch down, even though you’re listening to the other map. But yeah, he says, How about startups charging, even for MVP and beta? If you charge early versus give it for free? They might, you know, you’re guaranteeing that they’re skin in the game. And I think that that’s something that they did, because you know, he and his co founder came out and visited us in Kansas City. And you know, and they were very, very efficient and intelligent founders that were monetizing, and charging for their profit right away or for their products. By the way, I want to let you know that another Facebook user has wanted you to know that annoying is in the eye of the beholder, Matt. Yeah, and they all and another and maybe the same one said the reason that startups could fail could be a lack of gold accessories. That’s true. That’s true. Yes. Not enough gold shoes. Not enough gold shoes. But yeah, how do you feel? I mean, charging early, I think that that’s fair.
Matt Watson 36:49
Well, and I can tell you from a lot of experience, the customers that use things for free, are the worst users. And same thing, ones that pay hardly no money, they’re just not invested in it. And they’re just cheapskates, and just not the right kind of people. And, you know, don’t don’t feel bad about charging money for what you do. And a lot of times, you see companies that they just don’t charge enough, like, they just, they don’t charge enough money. And that’s one of the reasons they’re not successful. And, you know, provide value and charge for it, you know, get rewarded for your services, a lot of people just, they just don’t get their pricing model the right way. And they’re not maybe competent enough in what they’re doing. And the services they provide. They just don’t charge enough money.
Matt DeCoursey 37:33
Yeah, and and that I’m just so always up in the air, like the freemium thing, like, I get it. And then at the same time, like, and we talked about this before, like, my wife’s been using the Duolingo app, and I read about them being a unicorn company, and only 3% of their users pay. Like, and, you know, I mean, that’s fine. But man, that’s just, I mean, that seems like a lot of work. Now, some companies can get away with that. And I believe that that could also quickly become an albatross that would drag you down. When you ever you have a free product at stack if I like I mean, what’s the like? Talk about that for a second? Is that been good? Has it been bad? Like, what’s the up and down? Well,
Matt Watson 38:14
so Stephanie has a free product called prefix, but we don’t really provide support for it, and people download it on their, on their workstation and use it and it’s a pretty easy thing to use. But you know, our flagship product, it sacrifi, you know, we had a lot of customers that pay less than $100 a month for it. And a lot of them are the biggest pains in the asses, and they want support and ask a lot of questions. And like, we can’t even make money on these accounts. Like, like, if I got to answer a support question for these people. Forget it, that’s not a profitable account anymore. And you know, the having a lot of accounts that don’t pay a lot of money, if your product is it needs a lot of support and has overhead and stuff, forget it, you can’t do it. Now, if they pay you 10 bucks a month, and you’ll never ever get to talk to them, then that’s fine. But if you’ve got
Matt DeCoursey 39:01
to I went through, I went through that a Giga Buck man, because you know, at first it was eight bucks a user and I just had to like really, really hustle to build what we ended up calling Smart Start, which is an intelligent onboarding system that put people in the platform fully set up to use it or not at all, like you can’t bypass it. And because the reason was is for eight bucks a month we I mean, I can’t even afford to answer your email now on many levels. And so yeah, we had to really kind of figure that out and get behind that and do something now. I felt like that was in the the that plays into the next item in the list on on how to avoid failure, which is some impactful leadership because I had to be a leader and say, Look, this is the way we got to do this. I know it’s not the way we have been. But that made a big impact because honestly after we did that first off, our support inquiries dropped 90% The day that we turn Add that on. Wow. And it’s crazy, right? Because no one because everyone is asking the same questions, how do I get set up? How do I do this? And we had built something that was so customizable, that it had that huge strength. But it also had a huge weakness because you had to help people customize it, they didn’t inherently know how to do it. So that made a big impact and has led to years years of Giga book as a platform being largely self sufficient. So we spent a lot of time listening for the echo. And when I say listening for the echo, that’s like, Okay, if you’re getting the same question and anything you do in life over and over and over again, that’s the echo said, There’s might be a better way to answer it. And the more you’re stubborn about it, and the more you refuse to not answer it, or say that it’s not a problem. Well, thenI think just it’s gonna get louder and louder and louder. What’s the echo it stack? If I like? What’s one of the things in the past that you heard repeatedly that you’re fine, like, we got to just fix this, because people are never going to stop asking.
Matt Watson 41:06
Just for certain product features, people ask for our product to do you know, specific things, and you got to listen to your customers and build what they want. So, but I think the other thing to mention here about leadership is when you’re a startup, and you’re a small company, you’ve got to have somebody on the team, that’s a strong leader. I mean, you can’t have a whole bunch of people that just sit around the room and look at each other and figure out, like, how are we going to dig ourselves out of this hole? How are we going to solve our problems? Like somebody’s got to step up and be the leader? And take charge and forge ahead? So
Matt DeCoursey 41:35
but and that’s next on our list is talented people.
Matt Watson 41:39
That’s definitely part of it. You got to have talent.
Matt DeCoursey 41:42
You usually don’t put the championship ring on. Without talent. Absolutely. And now talent is tricky. Because you Matt, you know, I’m fascinated with high performers, like everyone from rock stars, to painters, to entrepreneurs, and most of them have talent, but then they work on it, they are constantly fine-tuning it almost to an obsessive level. And you know, that when it comes to talented people, Look, they’re good. I’ve just learned that employees are huge. The great ones, they’re great right away. And that’s a big thing, man. And it’s tough to admit that. And I think that when we talk about impactful leadership, part of what’s difficult about it is, okay, the business, a lot of businesses that I’ve seen fail, they failed, because the person in charge didn’t, didn’t have the guts to address tough conversations and, and make decisions that sometimes weren’t popular.
Matt Watson 42:55
Matt DeCoursey 42:57
I mean, it’s simple, like, if you gotta make a change, the faster you make it, the better.
Matt Watson 43:04
Well, and when it comes to talent, when you’re an early stage startup, you can’t necessarily afford the best talent, right? So that’s one of the struggles we have. And as your company starts to grow, there are certain times where you really, really need certain key individuals, and you can’t really afford to be cheap, like, you’ve got to go get the talent that you need, that will help take you to the next level. And one of the big moments in VinSolutions history. My old company was we hired a guy named Shawn to come in and be in charge of sales. And he just knew what the hell he was doing. He had connections, you know, in the industry, and he had been doing it for years. And he just helped light the fire on the on the on the rocket fuel. He was just that guy. Now, that doesn’t mean we didn’t have a bunch of the people that weren’t good. That didn’t help contribute. But just like he was just one of the spark plugs that really helped like the thing. And sometimes you need those people.
Matt DeCoursey 43:59
Well, I think it’s really important early, because it’s easy to want to be cheap. And I mean, honestly, usually get what you pay for it. And it’s tough. It’s tough, because you have one person that makes x and another person that makes y x is 30%. More. So what’s the why of it. Now, it’s pretty simple. And you know that I’ve used the same example when it comes to comparing like offshore developers to local or really anyone so someone that makes $100 an hour, as opposed to someone that makes $50 an hour, the $100 an hour person needs to be twice as fast, twice as good or do it by something two times more just to be on the same level. yet. So there’s that opposing side of things too. Sometimes you can find extreme value that still is like it’s that it’s value. But when it comes to overall certain talent, charisma, personality, leadership, I don’t know man. There’s a lot of intangibles. There are Things You can’t teach or train someone to do. Like, if I’m so fascinated with likeability, like you can’t train someone or teach them to be likable, like most of the time, you’re likable, you’re not. Yep. And be likable is way different than being interesting. You know, and, and, you know, a likeable person can tell you that your baby’s ugly, and you’ll thank them for the feedback. You know, it’s like it, you can’t train that so. And so there’s certain things of leadership and sometimes just general maturity, that I don’t know, there’s a lot of personality style things that come in, and that contributes to the next item on our list and creating a great workplace culture, which I think is grossly misunderstood. That doesn’t mean how many bowling alleys and other bullshit Can you have at the business, it’s about having people that want to work around each other that believe in your vision and know that you believe in them and their success
Matt Watson 45:57
and have a positive attitude and contribute, you know, to the team. The biggest thing in a startup is there’s no room to have anybody on the team that doesn’t pull their weight. I mean, they they definitely bring everybody down, and everybody knows it, and, or having people that are very negative, and you know, you gotta have gotta have the right culture and everybody rowing together. And if somebody’s not rowing, you can tell.
Matt DeCoursey 46:21
Well, and then the problem is, as well, if the rowing analogy, if one side’s rowing harder than the other, then you just throw in circles. Yep. Yeah. And, and, you know, that’s, that’s another issue too. And, and, you know, Matt, you have, we have a video on our YouTube channel talking about, you know, being the, the, you know, why you call it the Startup Hustle, and you say, look, as the what he says, You’re the chief cook, and bottle washer. Yep. So the thing is, is if you’re towing these people around in your boat, you have to go, so you’re gonna have to row both sides, you’re gonna have to do this, you’re gonna have to do that taking on water. Now you’re trying to bail water while rowing. And you know, and fishing, and usually, what you’ll find is everyone else is putting a life preserver on and jumping for safety, and you’re going what, and you don’t even notice it, but, you know, the more crap you have to follow, you have to clean up as you follow behind people, the last year doing what you need to do, so, okay, so we’ve said, you know, we have some other episodes in the in the feed, and that relate to the subject and other forms of success. And if you do find success, and you make it to Series A, once you go to svb.com. Prior to doing that, don’t wait until you’ve already raised the round. Because SVB Man, these guys think different, Matt, you know, I’ve talked to, as we created this, this partnership with them, and they’re helping, you know, they’re a big supporter of the startup community. But, you know, we’ve had a lot of discussion about banks, these these folks think differently. And, you know, like, they get tech and software and the fact that you might like that the value of your company is tangible to them, as opposed to the bank that’s around the corner. That’s like, Yeah, but you don’t own any like, tools or trucks or buildings. And I think that that’s really important to establish good financial and banking partners. svb.com Go check them out. Now, it’s time for the founders freestyle, Matt, and what did you what what, what did what’s out of today? What’s, what’s the thing for you what really hit?
Matt Watson 48:38
One of the one of the things we talked about a lot is, you know, solving a real problem. And I think for especially software development businesses, is focusing on that minimum viable product and getting a product out there and getting feedback and then iterating on it. I would be the first to admit that, as a software developer, it’s easy to like, hide in my dark basement somewhere and write code all day, and not go talk to people not to try and sell something. And so if you’re a entrepreneur out there that wants to build a software product, you’ve you’ve definitely got to strike the balance and you got to get out there and sell something. You got to ship something.
Matt DeCoursey 49:16
Sales cures sales, brother sales cures else now. I mean, other than the advice of don’t start your own TV show, I got to come up with something here right now. Speaking of which, you watch Startup Hustle TV, you are on it, right? I did, I saw that. So we’ve created another product to try to help entrepreneurs by showing the story and the things that entrepreneurs go through through the lens of an entrepreneur Check. Check out our YouTube channel. I’m happy I love what we build. It’s fun. It’s funny, and it’s real. You know, Matt, I think for me, I think the thing that that always sticks out as I’m going back to kind of my OG advice for million dollar bedroom and that’s that, that you know, Really try to understand your path to revenue. You’ve been through it, I’ve been through it like and, you know, the, I think that I just talked to, I’ve seen a lot of a lot of plans and a lot of things, then, you know, like six months after, after launching a product that they haven’t created a line of code for or have signed up a single user for, they’re suddenly at a 10% market share. And I mean, once again, not trying to be Debbie downer, that’s probably not realistic, and it’s probably not going to happen. So if that’s a pivotal, if that if that has to happen for you to be successful, or for you to raise capital, wants you to revise the plan a little bit, because it’s probably going to take twice as long and probably three times as long and cost two to three times more. We’re not just making that up folks. Like it’s just real because I’ve been through it. And it’s and, you know, we’re talking about how to start a tech company. Yes, ma’am. Does anyone know how long it takes to build software? For anyone? Forever? I mean, about it. It’s, it’s, it’s, it’s an exact two weeks. It takes two weeks, right? By the way, wanting it done and being able to get it done within a timeframe are two completely different realities. And if you’re a non tech founder, I want you to I want you to be cautious about as well because just because you want it done in three months, doesn’t mean it’s gonna happen in three months. So what are you doing to plan and provision man? You know, all this now I’m gonna go start a startup. All right, good luck, but did need some money.
Matt Watson 51:39
Is that cool? Nope. All right.
Matt DeCoursey 51:42
I’m gonna end the show now. So you can give me your account and routing numbers. See you next time. See you.