My board are criticising my strategy

My startup’s been going for 3+ years and we’ve raised over $3m. This year’s sales are about the same as last year, so we’re not growing much.We’re a commission-based business with an industry-standard take rate — but after discounts, promos, costs and card processing, our actual margin on each transaction is tiny.

We have a big team and six months of runway, and my investors are pressing me to take radical action. I’m a skilled fundraiser and I think we’ll be fine if we can show 50% year-on-year growth via spending more on ads.

They’re pressing me to make more radical changes. Who is right?

Sad to say, your board is right.
When you raise from angels, you’re mostly selling the dream of what your company might be in five years’ time, plus your own talent and persistence. If you convince seed-stage investors of those things, you can usually raise money.
Raising at Series A is different. Investors want evidence of three things: real, money-through-the-door sales; month-on-month growth in those sales; and strong unit economics proving that you make plenty of margin on each transaction. If you can deliver all three, you’ll find it easy to raise. If you can deliver two, you may succeed. If you can deliver only one, your only chance of raising more money will be either because you’re skilful and magnetic enough to distract their attention, or because you find investors who are aren’t smart enough to see the weaknesses of your business.
Remember that in most startups, whose backers have portfolios of dozens of investments, the cash they’ve put into your business is much less material to your investors than the time you’ve put into it is material to you. If they’re expert investors and they’re worried that your business isn’t going in the right direction, take their warnings seriously.
Radical action now — whether it’s firing half your team and going back to the product drawing-board, or making radical changes to how you market and sell the product, or changing your pricing or your target market — will undoubtedly be painful. But it’s much less painful than being two months away from your cash-out date and looking for a face-saving ‘acquihire’.
Admitting that things aren’t going well and that you need help has another benefit, too. Investors are much more keen to back people who can learn from their mistakes. Proving that you’re coachable will preserve your relationship with your existing backers. It may not save this startup, but it will save your reputation for the next one.

What to do when funding takes longer than expected to come

Waiting for funding
Waiting for funding

We are currently looking to raise. We have some serious leads but discussions are taking longer than we thought and a Tier1 visa investment has been delayed by Brexit, so we’re running out of cash. Is it wiser to get rid of people until cash comes in or to borrow money from personal contacts, or … ? I’ve tried asking our existing angel investors to top up their investment but none of them has been responsive so far. Should we be fully transparent with the potential investors to make them accelerate the process or is there a risk to lose them or to get a bad deal?

This is a common problem among startups where things are going OK, but not so well that investors feel fear of missing out. The lesson for other startup founders reading this is to plan your fundraising right from the start; do a reality check on your investors; and verify much earlier on as to how the fundraising is progressing versus how the cash pile is shrinking.
But you don’t have that luxury: you are where you are.
Broadly, I’ve seen two approaches work well. One is to get a loan — either from an existing investor, maybe in the form of a convertible where they get to invest in the round at a discount in return for supporting the company now, or from a venture debt provider or other specialist lender. Note that a reasonable timeline for outside lenders is a couple of months, and unfortunately you don’t have that luxury.
The other approach is to use fear rather than greed. You go to one or more of your existing investors, explain how well things are going with the business itself and how promising your future is, but warn them that they’re going to lose all their investment in the next thirty days unless they’re able to bridge the company by providing a loan until you can close the new investment. Give them evidence to substantiate what you’re saying, such as a term sheet and email correspondence from the investor whose money is contingent on getting a government approval. It’s also helpful to explain why this delay was unforeseen, to prove it wasn’t your screw-up. If it was your screw-up, then take responsibility honestly for not having planned ahead, and tell them that you’re going to learn an important lesson from this.
As for firing employees, it would certainly make sense to take action on anyone who’s underperforming and whom you should probably have let go anyway. Asking for salary sacrifices is less wise. A few key people who are super-enthusiastic about the company might be willing to delay some of their salary for a month, but be warned that it’s a perilous step to ask your employees for loans, which is in effect what you’re doing. The relationship is rarely the same again, even if they say yes.

I’m a confident, mid-career founder. Investors think I need investment less urgently than a young entrepreneur

I’m a founder in her fifties with lively presentation skills and a colourful, solid professional background including some excellent brands.
When it comes to fundraising for my online (hugely scaleable) start-up, I sense an (unfounded) expectation that I have unlimited amounts of my own money to invest, and/or contacts to tap very easily for funding.
Potential investors of a similar age/stage/experience seem to recognise that I have a red-hot game-changing idea, that I’m in for the long haul, have made outstanding boot-strapping progress and have broad management experience as well as good leadership qualities, yet I’m not getting the “Wow, let me put some rocket fuel into the tanks and help get this baby stratospheric!”

Does this perception exist, perhaps unwittingly, among investors? Is there such as thing as coming across as too un-needy?

I think there are two separate parts to this: how much investors expect you to invest from your own pocket, and how much they expect you to bring in from your own contacts.
You can deal with the first by being frank with your investors about what your assets are, and what your income is. When you have significant responsibilities, liabilities or dependants, serious investors won’t expect you to stump up money you don’t have or go hungry in order to do the startup. If you’ve had a calm and non-confrontational conversation with your potential investors, and that’s what they are indeed asking for, then you have the wrong investors. I’ve written an article on qualifying your investors, and this may help.
On the second issue, it’s a reasonable piece of due diligence for investors to ask whether you’ve been able to persuade anybody you know personally from your prior career to put money into your startup. That depends partly on your prior job history: the more you’ve had colleagues, managers, clients or suppliers who are personally rich, the more opportunities you have to persuade those people to express their belief in you by making an investment in your startup. If there are lots of those people, but none of them will give you a dime, then that’s a useful (but sadly negative) data point for other investors who don’t know so much about your prior history.
Both cases are an instance of the general point: investors are trying to make their best forecast of how effective you’ll be as a CEO. People who have known you a long time have an advantage in this, and people who just met you have good reason for observing their behaviour in coming to their own decision.

I hate my job as a startup CEO, and I want to quit and do something else

I want to quit and do something else. Yet I’m afraid I’ll let down the company, as there’s no obvious successor and I’m the only founder. Plus, it’ll be harder to keep raising. The last round happened only because I convinced investors I’m super-committed. Yet I hate my job, I don’t want to be a CEO, I’m fed up with constant stress, plus I want a career in a different field. It’d be easier if the company was failing but this bloody thing keeps growing up and to the right year-on-year, which doesn’t help.

Realistically, if everything goes to plan, we’ll be ready to sell in about 2–3 years for a good amount of money. But when I think about doing that, and then about a possible earnout, I want to vomit. Is this how I want to spend my thirties? In front of a laptop, with something new being fucked up every day, as Brad Feld says?

I’ve thought for more than a week about this question, and concluded it’s too hard for a short answer. So I’ve written this Medium article as a first attempt.

How do I explain product-market fit to my team?

We are a well-funded venture but don’t have product-market fit yet. Our sole focus should be on changing that. Yet everyone in the team is obsessed with everything else: more dev, marketing, sales, PR. It’s hard convincing them to wait and not spend time or money on these things, but rather focus on adjusting the product until it fits. Also I feel we’re often slower than we should, planning and perfecting things like a big corporate, except we won’t have enough coverage to fail too often like a big corporate. Death is too imminent in our world, and I often feel I’m the only one who feels this (I have a cofounder). Yet I find it hard to find the balance between complete autocracy and a healthy dose of self-doubt super-hard to do.

Hats off to you for bravely recognising that, like other startups that haven’t yet found product-market fit, you’re what Ben Horowitz would call default-dead rather than default-alive. Your analysis is spot on: if your customers don’t like your product much, then your team are wrong in wanting to start scaling up. It can feel even more lonely if your VCs aren’t sufficiently insightful to see the problem, and they’re unduly impressed by new initiatives and increases in top-line sales with poor unit economics.
You’re right that acting like a dictator isn’t the best way out of this. Another approach to consider might be to take it step by step.
  1. Pull together the data from customer behaviour that helps clarify whether you have PMF.
  2. Organise a session where you and your team analyse it to get to a conclusion — your hunch is then confirmed.
  3. Put together a mini-spreadsheet showing costs, revenues and month-end cash if you (a) spend heavily on marketing to acquire leads that don’t convert well and customers that churn fast, or (b) scale back your marketing, sales and PR and focus your efforts on getting the product right.
  4. Then get the team together and show them the evidence your runway is longer if you choose (b).
Remember that it’s way more fun, and makes you feel more successful, to have a growing team and to be hosing money around. But your way, though harder, is the right one.

How do I onboard customers and retail partners to my MVP without cash?

I bootstrapped a marketplace app twice. The first time we managed to get to an iOS & Android alpha product but never got to test it with real customers and real sellers. I made startup mistakes like hiring people, offices and more too early. The second time, two years later,  I started again from scratch and we’re able to launch. But no more cash to continue with onboarding customers, partners & cover all service & operational costs. How can I find advice or mentors that went through something similar and solved it without fundraising?


If startups are about learning from your mistakes, things are looking really promising. First time around you didn’t get the MVP built; this time you did, and the issue is growing it.
Your issue may not be advice and mentors. Most products don’t fit the market first time around: they need to be tweaked and improved in the light of customer feedback before they take off. If you want to start a business, it’s not enough to budget just the raw build costs for the initial product. You also need to plan for the time and work required for making changes over time, and for reaching out to customers (and, if it’s a marketplace, sellers).
A few companies have built marketplaces with zero fundraising. One group of them create a service that’s so new or so terrific that the initial users — sometimes the people who come because of the Techcrunch bump, where you get written about on launch, and get a little spurt of traffic — tell all their friends, and it starts to grow virally. The other group climb the mountain step by step, and they do it without funding because they’re a committed founding team willing to work for nothing for a few months and they include a software engineer among their numbers.
If you can’t pursue any of these three routes, I’m not sure advice or mentorship can help you. But if someone has a better idea, I’m sure they’ll add it as a comment. 

How do I raise funding from investors who don’t believe in the market we’re targeting?

We’re a pre-revenue startup trying to raise funding. We’re launching a product to address an existing market, but investors believe our market no longer exists, despite our target customers telling us they want our product and they would use it. They are even signing up pre-launch. How do I tell investors, who rightly feel they know quite a bit to have reached their position, that they are wrong, or perhaps more that our feedback from users says the market does exist and they would use the app?
We have later stage investors in our industry interested, but the earlier stage investors are not interested.

What you’re seeing is an instance of a general problem: how do you prove that customers will buy your product when you don’t yet have a single one?

You’re right that many investors think they know more than entrepreneurs about this — and to some extent, they’re right, because they’ve often made optimistic investments in dozens of companies whose products they believed in pre-launch, but which turned out to be complete fails afterwards. Investors feel their grizzled cynicism is more likely to be right than your starry-eyed optimism.

Which is a clue to how you counter that. The more evidence you can provide that customers won’t just want your product, but will also buy it and will buy it at the price you propose, the more chance you have of raising money.

I’ve judged a number of startup competitions at business schools where the teams that pitch all included in their presentations a survey or piece of research they did asking potential customers whether they’d buy the product and how much they’d pay. They often seem to do this on the advice of business-school professors. But like many VCs, I view this kind of research as worth almost nothing, since consumers are notoriously bad at predicting their own future preferences. Recall the line wrongly attributed to Henry Ford: that if he’d asked people what kind of car they wanted, they’d have said a faster horse. (See The Mom Test for a better way to find out consumer preferences.)

Since predicting what people will buy is notoriously hard, even for veterans, here are some good ways to bolster your case before you’ve even built your product:

  1. Use the freebie promotions available everywhere to get $100 of free advertising on Google, Facebook and other platforms.
  2. Create campaigns to advertise the product you haven’t yet built.
  3. Build landing pages to point the ads to, and payment funnels to take people’s cash.
  4. Carefully measure the clickthroughs and conversion rates, and report them to your investors.
  5. Immediately refund all the customers who buy, explaining that the product isn’t ready yet, and politely ask their permission to alert them when it is.

PS: Beware of late-stage investors who say they’re interested but you’re too early. That’s usually French for no, with the twist that VCs know there’s option value in having you come back in six months or a year (who knows, your crazy idea just might catch on), and so most of them think they gain nothing by telling you frankly if they think it’s not going to work.

Why would the world need a CEO helpline?

To most people on the planet, the idea of a helpline for CEOs may seem weird. After all, aren’t people who run startups likely to make a ton of money? And aren’t they bad people anyway?

Well, maybe. But there are two good reasons why the world might need a place where CEOs can ask questions anonymously and get answers. One is that it’s good if people running businesses who are facing moral choices get input that makes them more likely to do the right thing than the wrong thing.

And the other reason? Lots of startups (though definitely not all) are good for the world. They provide useful goods or services to people that weren’t available before, and that are cheaper or better than alternatives. If good startups can be more successful, that helps all of us.