Startups behaving after Demo Day like someone going off a strict diet

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: lawrence@krubner.com

Interesting:

Don’t go through the motions.

At Y Combinator, we sometimes see startups behaving after Demo Day like someone going off a strict diet. During YC they’re virtuous: they work hard on their product, focus on users, and avoid distractions. They’re also checking in with us regularly. But after they raise money, some founders go on a sort of bender. They rent a fancy office, hire too many people, spend too long shipping the next version, waste lots of time schmoozing and going to events, etc.

Why do they do this? Probably because they want to seem cool. They see other startups with fancy offices and lots of people and grand plans. They want to seem as impressive, so they do the same thing.

Do they know they’re competing in the wrong race, and that the right race is not office space or number of employees, but revenue growth? Do they know that all these distractions will actually make it harder to compete in the right race? I think they’re mostly in denial about both of these facts. The money they’ve raised goes to their heads, like a 20-year-old musician who suddenly makes a lot of money.

I’ve seen many startups shift from doing more with less to doing less with more once they’ve raised funding. It’s easy to think money can buy your way out of problems. Don’t like sales and calling users? Hire a salesperson. No one’s using your product? It must be because people don’t know about it. Hire an expensive PR firm to get the word out. Those are both not merely lazy, but the wrong thing for a startup to do.

When you don’t have enough money, circumstances force you to be virtuous. Once you’ve raised a lot, you have to force yourself to be virtuous.

The even worse danger is that you stop holding yourself accountable. You kind of have to stop holding yourself accountable when you start doing the wrong things, because otherwise alarms would be going off all the time. You stop measuring and you stop checking in with investors.

Then, you’re doubly screwed: you’re not only doing the wrong things but you’ve also turned off the alarms that warn when you’re doing the wrong things. Why do founders do this? I suspect because in the back of their minds, they know they’re screwing up, and they want to hide it in hopes that things will get better. But denial is not going to save you. If you have to err in one direction, err in the direction of worrying that you’re failing when you’re not.

(Incidentally, when I try to think of YC founders who always worried they were failing, you know who comes to mind? Brian Chesky. So it shouldn’t feel like its a sign of failure to worry that you are failing.)

Don’t for a second be in denial if things are going badly or growth is flat. If you’re vigilant about diagnosing problems like these, you’ll be more likely to nip them in the bud. The sooner you acknowledge that growth is flat, for example, the more time you’ll have left to fix it.

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