Monday, July 04, 2016

Death of a rising star, how promising startups fail to live up to their promise

I have formally resigned from the company I started 7 years back. I am now just a shareholder, ready to move on”. The email arrived on a Sunday evening surprising me, the sender was the Founder of a purported unicorn in a not so crowded space which had also led to funding offers from some of the well-known names in the industry. We had not connected for some time and thus I wondered what happened; was the exit a happy one or strained ? Curiosity had to wait for the meeting to happen.

He had challenged conventional wisdom going back to the foundations from which all the currently available solutions were born in that category; taking an alternate path, his team had created a new way of solving the problem and also addressing the constraints that most industry solutions faced. It took some effort to find the first paying customer who also became referenceable. Step by step he built the business with a motley team that kept going despite ups and downs in the industry and the economy.

The Intellectual Property they built was granted patents bringing joy and high expectations. Funding came with a promise to help scale up and scale out the business; it was before the startup hype hit the roof where investors offered money for any idea that connected mass of consumers, with a hope to achieve 10X growth or 100X return. In comparison his journey was slow and steady, sales cycles being long when selling to enterprises; in the market of consumer scale up hares, the tortoise failed to get its due.

Losing patience, the moneybags started challenging the ability to execute and meet expectations; discussion, debate, and some antacids later, experts were implanted to take stock of the situation and recommend changes required to achieve the true potential. The new team conducted an assessment promising to help realize and unlock value. They also suggested changes to key portfolios which were grudgingly accepted by the founders. The reorganized gung-ho team set about to conquer the world.

Founding team members aligned to the new, hoping to see their passion child grow and make a mark globally. After all if the new strategy were to work it will multiply their success and thus was worth the calculated gamble. Quick wins and good news came early with expressions of interest from potential large customers wanting to evaluate and explore. The team redoubled their efforts charged by the positive momentum they felt; the sweet ring of cash registers appeared to be beckoning the business.

Many moons later the potential failed to convert, the costs rising with the additional management overhead; product development was reprioritized based on anticipated global business leaving the local market hanging. With money slowly running out, the promise of a better tomorrow started losing interest it sheen, survival mattered on the ability of the new leaders to live up to their lofty goals; blaming the lack of success on the products inability to meet requirements, they attempted to shift the blame.

The company disintegrated with infighting between the promoters who were now divided into two camps and the capitalists who wanted to take over the company at a significantly diluted valuation. Employees started leaving with uncertainty over the future of the once lauded company which had won recognition from many quarters. They still had an edge over competition who were unable to replicate the offering with the same level of engineering; customers continued to use the solution oblivious of the battle within.

I was exhausted hearing about the journey; he was fresher than I remember him being in a long time with the travails behind him and ready for a new start. He was bubbling with excitement on the new venture of which he apprised me with the same enthusiasm that I had seen at the beginning of his earlier venture. This time around he was vehement in his decision on not raising money from the sharks (reminded me of a popular TV show), he showed no angst at the loss of value and control of his passion child of 7 years !

The story repeats itself many times over with startups who have been finding it difficult to sustain their easily copied innovations or their inability to scale to promises made at the time of funding. Forced mergers and shutdowns have been the norm; technology led disruptions continue but sustaining the euphoria requires razor sharp focus on the strategy and direction. Squabbling only serves to defocus the team and diminished value for everyone; competition is few steps behind in most cases, they catch up quickly.

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