No, this blog post is not about metaphysical near-death experiences, but I bet the title caught your eye. (As an aside, I read the book Life After Life as a teenager, and thought it was pretty interesting. Since reading that book, though, I’ve seen many efforts to commercialize near-death experiences that I think are bogus. I firmly believe in the immortality of all human souls, and I believe that some near-death experiences are genuine, but that is not the topic of my blog post today.)
What I want to say is that many successful startup companies go through a near-death experience before they figure out how to make their business model work.
I’ve seen this over and over again, both in companies that I have founded, as well as in companies that I have advised or just observed.
I know many startups fail, so I suppose it makes sense that many other startups nearly fail, before becoming successful, but it does surprise me a bit to know of very, very few startup companies that don’t have a brush with death. You’d think that with all the business schools and case studies and entrepreneurial blogs and all the expert advice that is easily accessible to founding teams that many entrepreneurs could conceive of a business idea, write a plan, build a team, raise some capital, find customers and execute on the business plan without serious setbacks.
But that almost never happens. Implementing ideas is not easy. Recruiting the right people to a startup company is extremely difficult. Version 1 products have flaws. Internal systems can break. Competition can be extremely intense. Reaching the right customers can be difficult. Sales cycles can be way longer than planned. Getting attention in the marketplace can be expensive. So many things can go wrong, and usually do. Even when you’ve done startups before.
Paul Graham, who runs Y Combinator, which may turn out to be the most successful incubator of all time, publishes the most excellent essays for entrepreneurs. Founders should read all of his work. But more importantly, they should study the businesses that have come out of Y Combinator and try to understand how they can build products so inexpensively and attract customers so quickly and have exit options so soon. Y Combinator’s track record is amazing.
Y Combinator businesses may appear to be pursuing technology for technology’s sake, sometimes without a clear business model, but like Google, if you first set out to build an incredible world-changing product and succeed, you will almost always find a business model to support it.
I laugh at the commentators who speculate about Twitter’s future. People think the sky is falling because Twitter doesn’t generate revenue, doesn’t have a business model.
As a Twitter addict I know that such comments are completely absurd. There is no doubt at all that Twitter, like LinkedIn before it, will find a sustainable revenue model. Both companies will be worth billions. LinkedIn has forever changed business networking. It is ridiculous for people to try to do business without relying on LinkedIn. So while LinkedIn focused initially on attracting millions of avid users, eventually they got around to monetizing the very valuable audience. Google did the same thing before it. And Twitter will do the same thing after permanently changing the world of communication.
Another conclusion I make when considering Y Combinator is that Guy Kawasaki was right in Art of the Start when he talked about early stage company valuations. Guy said you add $500,000 for every engineer in your company and subtract $250,000 for every MBA. Pretty funny, but often rather true.
Y Combinator funds technologists. A lot of entrepreneurs are “business” people without the ability to develop their own technology. (In my first startup I was the product developer–now I’ve shifted to a management/executive role, and it is therefore more expensive for me to build a company now than it was in the early days. I need a “team” to build products now.)
Certainly a company needs management and sales and marketing and support eventually. But I think one reason that so many companies go through near-death experiences is that they hire their team in the wrong order. First you have to nail the product. Then you scale the team to be able to sell and support the product.
My favorite near-death experience of all time is the story of Enhance Interactive (formerly Ah-ha), a pay-per-click search engine that held a company meeting sometime back in 2000 or so, to let all the employees know that the business was shutting down. The company was out of money and while it has some customer traction and some revenue, there was no more funding runway–so the doors had to close. At the end of the meeting one of the employees said, “Can we go back to work now?” The CEO was taken back and said, “Don’t you realize what this meeting was about? We are shutting the company down.” The employee said, no, I’ve got some customers to service, and went back to work. Apparently so too did another dozen or two employees, who basically worked for almost nothing until the company turned the corner. A few years later the company was sold for tens of millions of dollars.
I won’t go into the details right now, and it wasn’t anything as dramatic as what Enhance Interactive experienced, but FamilyLink.com (corporate site) had its own very intense near-death experience in the past few weeks. Amid the global economic meltdown, a bank loan was called, and we scrambled for weeks to find a way to pay it off. A few options emerged, some less attractive than others, and then finally, a couple of days after Christmas, we were completely delivered from our financial pressures. We have now finalized our Series B funding which will be announced shortly.
Amazingly, at about the same time, we turned profitable. Just six months ago we were losing nearly $300,000 per month. But through a combination of very painful cost reductions and the growth in our subcription, advertising, and product revenue streams, we literally turned the corner the week after Christmas, and hope to never turn back.
It won’t be easy, since the economy is in rough shape and there are all kinds of execution risks still ahead of us. But there is literally a night-and-day difference between where we were last year and where we are today. Our team spirit is excellent. We’re hiring lots more people for our call center. And we are carefully recruiting top technologists who can help us improve our current web properties and build new ones as well. We’re also looking for a Chief Genealogy Officer who will help guide all our efforts to bring the world’s genealogy records to internet users worldwide.
We still plan to launch FamilyLink.com, GenSeek.com, and WorldHistory.com in the coming weeks/months. Each one has the potentia to revolutionize a market. We put up our corporate web site late last week, so that people can see everything the company does and not just define us by any single web site or application.
I have said many times before that FamilyLink.com is most likely my last company. This recent near-death experience confirms that for me. There is probably no way I can go through something like this again. I’m too old for this kind of intensity. I had serious insomnia for weeks and wasn’t able to sleep for more than 2 or 3 hours at a time. I missed out on most of the holidays with my family.
I am sleeping better now, thank you very much, but this near-death experience probably took a few years off my life, and I’m not eager to repeat it any time soon.
If you are a blogger and have written about your startup’s near death experience, please comment and link to it. (Maybe someday I’ll collect a couple dozen of these stories and have them published.)