When Things Screw Up, Tear It Down

Startups at seed stage execute on a hypothesis.  They either think they see a problem they are solving and fill the gap, or they create a new market that didn’t exist before.  No matter what they do, they often struggle to find product market fit.  Struggling to find the right product-market fit and/or poor execution by the management team are the two major reasons startups fail.

Albert Einstein said the definition of insanity is doing something over and over again and expecting a different result.

But, that reaction is human.  Humans do irrational things.  It’s very hard to give up something that you have worked on, even when you are proven wrong.  Confirmation bias is strong. Treating things as sunk costs can be tremendously difficult.  It goes against your internal nature that has been pre-programmed.  Tversky and Kahneman did a lot of research on this.  They even found highly educated very intelligent statisticians who knew what they were being tested on exhibited irrationality.

The good startups pull the plug on things that aren’t working very quickly.  Many of the startups I have invested in started with one sort of business model, but they certainly aren’t executing on what we discussed years ago.  They have learned and changed.  Sometimes it’s been very painful to the management team and company.  Founders and team members left the company.

However, if they didn’t pivot and tear it down, they wouldn’t be in business today.  It’s much better to be in business than out of business.  Even if you have a down round or flat round of financing, everyone still has a shot at a payday.

When you tear it down, don’t look back.  Focus on what you pivoted to.  Execute.

Added

By the way the GOP could learn those lessons too.  The repeal and replace is lipstick on a pig.  Brian Wesbury’s tweets summed it up well.  I turned it into a Twitter Moment.

  • awaldstein

    The biggest issue is that you are working with no data most often.

    It is not always a logical choice and usually it is funding, nothing else that is the change agent.