Seven Startup Lessons that cost me $2 million

As CEO and founder of a company that makes an app that helps people apply to jobs from their mobile phones, I am happy to report that we’ve sucked a lot since launching in 2009. We’ve pivoted four times, a fact the press won’t let me forget. I’ll spare you the details, but it involved multiple layoffs, a founder split, brief homelessness, extended brokenness, multiple bridge rounds, a broken engagement, and other personal and professional obstacles. Along the way, we iterated our way to product-market fit, have solid growth in both users and engagement, and recently raised more funding. But getting here has been brutal.

I don’t want your sympathy or any awards (unless it’s for the Nuclear Cockroach Startup Award…that exists, right?). I just wanted to share a few thoughts, which some of the entrepreneurs I mentor through the NewMe Accelerator and the Code2040 program have found useful.

I love mentoring and sharing these lessons because it can help people avoid a lot of pain. Alas, I am imperfect at applying my own advice. I still fuck up all the time.  Every time I walk out of a mentoring session, I ask myself: what did I just tell her that I am hypocritically not doing?

While these lessons cost my co-founder and me about $2 million, you get them for the low, low price of $0.00. They are based on my experience running a software product company.  If you are inventing the next laser device, microchip, or genetic therapy regime, you might as well print this and make it into a paper airplane…you’ll get more out of it that way. Same goes if you are developing games. I know next to nothing about them.

That said, here we go:

1. Cross-10

What does Cross-10 mean? Cross 10 transactions…make 10 “things” happen. What it means to you depends on your company. Are you starting a marketplace to sell gummy bears? Then Cross-10 means to have 10 different people sell gummy bears to 10 different buyers. Are you starting a tutoring platform? Have 10 different tutors conduct a session with 10 different students. You get the drift…the meaning of Cross-10 will depend on what transactions/interactions you need to cross.  Most companies I come across have an obvious Cross-10, but with some you have to think a bit. Just make sure people are parting with either their time or their money in the process (see Free Beer Problem below).

Most importantly, Cross-10 before writing a single damn line of code. This can be done with:

–       A WordPress page

–       A spreadsheet

–       A phone

–       $100 worth of AdWords

Be the product before you build the product. This will make it so that when you build, you build the right thing, validated from real people doing real things and parting with their real valuable time and/or money.

Only about 1 in 20 people that I ask to Cross-10 actually do it, and I still work with most of them in some capacity to this day, mostly helping them with product and fundraising.

Can’t Cross-10? How do you expect to Cross-1 Million? Trust me, code is probably not the answer. Learning what not to do sucks, but it beats working on the wrong thing for a long time, as I did for varying stretches of time.

2. It’s Better to have 100 People Who Love You than 1 Million People Who Kinda Like You

In late 2011 – early 2012, some social video companies, including SocialCam and Viddy, exploited the early days of Facebook Open Graph to acquire huge amounts of users (and raise absurd amounts of cash) in a short period of time. But after Facebook changed its guidelines, most of these millions of users never came back. It’s because they kinda liked the product, they didn’t love it. There were no evangelists, no people who could not shut-the-F-up about XYZ product. Companies like AirBnB have people who cannot shut up about them. Build one of those.

Focus on users, using your real product, in real environments. In the early days, market research, surveys, and focus groups are code-speak for: “I am scared shitless to actually get out of the building and meet real people who will tell me what they really think about this product that I hold so dear.”

Remember, the whiteboard does not talk back, you can spew whatever bullshit you want onto it and it will agree. I have an equation written on the whiteboard at our offices: 15 minutes watching a real user with your product in their environment = 10 hours talking/planning at the office. This equation saved my company.

Get. Out. Of. The. Building.

This one is 100% “borrowed” from Brian Chesky, CEO of AirBnB, who in turn “borrowed” it from Paul Graham of YC and Steve Blank. I saw Brian talk to Reid Hoffman about this at a talk at the end of 2011. That day changed our company forever.

You can see Brian talk more about ithere, but the bottom line is you need to get out of the building, focus on the user, and build something that works and that users are passionate about.  This sounds obvious (I can see you rolling your eyes), but it matters that you focus on getting passionate users instead of on just getting users.

3. Ugly is Your Friend

Reid Hoffman, founder of LinkedIn, once said, “If you are not embarrassed by the first version of your product, you’ve launched too late.”

Many companies have had first-launch products that had what would in hindsight be considered potentially fatal flaws, ranging from the harmless (bad color/layout choices) to the downright bad (broken features). What matters is they shipped and got early user feedback.

As a recent example, Tinder’s early versions had terrible problems with the messaging system. The product was “ugly” in the sense that one of its most crucial functions was unreliable and broke down a lot. No matter. The product had (and continues to have) an aggressive adoption curve, and the messaging keeps getting better with every version.

Spare me the Steve Jobs argument. If you were anything like Steve Jobs, you would not be reading a blog post by an idiot who pivoted four times.

4. My Opinion Does Not Matter!

Founder: “Pablo, I have XYZ startup idea, what do you think of it”

Me: “Am I your target user?”

Founder: “Um, no….but you have been doing this for a while [thanks for reminding me, Founder], and I want to know what you think.”

Me: “If I am not your user, it does not matter one bit what I think! Go Cross-10, let’s look at that data, and we can talk.”

That’s it for that one.

5. The Free Beer Problem

This one afflicts a lot of early founders, including me, a charter member of the Free Beer Society, now thankfully mostly re-habbed.

Pablo: “Have you launched yet?”

Founder: “Oh, no, I am a perfectionist, and our team of elite code Jedi Ninjas has been working on this for the last three months. The product should be ready in four short weeks.”

Pablo [Pulling non-existent hair]: “WTF? How do you know you are building the right thing? Ship! Get that damn thing out there so you can start the real learning.”

Founder: “Oh, Pablo, you don’t understand. We have 1,000 (10k, 100k, does not matter) users who have signed up for our waitlist who are ready to use the product as soon as it is available.”

Pablo: “Oooooooohhhhh….so you went to the ballpark for a Giants game, stood outside and held a huge “Free Beer” sign up in the air. And you got aaaaaallll these people (whom you described your magical solution to, and whose signup cost them zero time or money) to sign up for your free beer list. What are they going to do tomorrow when you show up with your bucket of warm water with floating barley, half-fermented yeast, and rotting hops?”

People don’t always know what they want (or what they do vs. what they say they will do), and the way you describe your product will most certainly sound magical.

Until you have real users using your real product and parting with their real time or money, no Free Beer lists, please.

A secondary form of Free Beer is what I call Partnership Smarmership. In my experience, you cannot partner your way into traction.

If people are not using your product on a smaller scale, they will not use on at a larger one. At the very least get 100 people to love you first. Another huge disadvantage of trying to partner early, is that it will suck your time and your soul. When you are early, your partner will have all the leverage, and you will find yourself bending over backwards and spending time chasing a dream that ends up not happening, or flopping if it does happen (I did it three times with time spans of 3 to 12 months each).

The beauty of building organic traction and a user-centered product is that people will start coming to you! In the last two months, we have had more partners approach us eagerly than the cumulative number we approached in three years combined.

6. Too-Much-Shititis (TMS)

Ahhhh, Too-Much-Shititis…the largest unspoken-of epidemic in Startuplandia.

There are infinite ways to take one little thing that works really well and add things around it. eBay. Google. PayPal. Twitter. Facebook. Square.

There are zero ways to do eight things mediocrely and excel at any one of them.

I hear it all the time: “I am going to build this amazing end-to-end experience that takes X, connects you to Y, and gets you money from Z. Our platform also enables X to communicate with A, B, and C in real time while doing your dishes and teaching you Mandarin Chinese”

My response: if you do ONE of those things you just said and get it to work and grow, it will be the hardest damn thing you have ever done in your life, period.

Focus. Try things, measure them, and nail them. Then ask yourself what sucks. Then go iterate again on that one thing. Actively fight TMS.

The ability to add more things later is what I call a “high-quality problem.”

7. Five Words to a Five-Year-Old

If you can’t describe your company in five words to a five-year-old, you don’t yet understand what you are doing. I know because I have been there!

“We are a multi-platform peer-to-peer sharing community to blah blah blah…” Bullshit…my inner 5 year-old just got dizzy, fell asleep, or both in a row.

The “smarter” and more lingo-ey you have to sound to explain your company, the less you understand it.  This goes for vendors, too. Companies who try to sell me stuff and cannot explain to me what they are trying to sell as if I were a five-year old generally find themselves in short conversations with me.

By the way, it’s OK if you don’t have this down yet! Once you do, it will be because you will have done a lot of the stuff above, Cross-10, shipped ugly, got 100 people to love you, and are focusing like a TMS-free madman (or woman). Once you do all that, your brain will be fried and you’ll feel like a five year-old anyway. Trust me. This exercise will come naturally.

The number one skill in starting a company is getting knocked down 10 times and getting up 11. Just don’t hit your head against the exact same spot, shift a bit and try again.

To quote Ben Horowitz: Don’t Punk Out.

About the Author – Pablo Fuentes

Pablo Fuentes is CEO and founder of Proven. I am passionate about increasing the number of minority and women entrepreneurs in Silicon Valley.

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