I was ready to put my entrepreneurial hat to rest. I had spent years building what I thought was shaping up to be a fashion e-commerce giant for the Indian marketplace. We’d raised pre-Series A funding of $4 million, led additional rounds and saw four years of solid growth.
Yet, at the end of these four years, we swallowed the pill and shut down the startup for reasons I will soon explain.
Something unexpected and positive, however, was born from this experience. I launched another startup and bootstrapped it, because I had a strong crutch this time — the lessons from my first failed venture. Today, Squadhelp — my second business — is the world’s largest naming platform.
Here are the lessons I’ve learned that I believe can help any entrepreneur succeed:
Delay fundraising until you have a strong initial offering that has shown some level of success in creating happy customers with profitable marketing.
Early-stage funding can lend a false sense of security
With solid early-stage funding at Fashionara, my first venture, our leadership and marketing team became overconfident. Our mindset was that the funding was our golden ticket. With a strong team and money in the bank, we had what we needed. But the reality was just the opposite.
We stopped paying attention to cost per acquisition, and instead concentrated on increasing our month-over-month acquisition numbers. Once these numbers were strong, we focused less on essential startup success factors, especially creating differentiated experiences for new customers, which could have set us apart from our competition and increased customer loyalty.
On the other hand, bootstrapping my second startup has forced me to be laser-focused. For example, our development team handles critical tasks such as creating differentiation and ensuring customer satisfaction. And, we regularly review our marketing efforts to ensure that our spending goes into channels and strategies that bring customers in sustainably.
We also scale spending when we achieve strong return on ad spend (ROAS) and reduce or eliminate spending that is not driving customers at the right cost. We even have marketing strategies that we only use when the market is strong. Conversely, when our business slows seasonally or due to economic factors, we can cut back on marketing spending to keep our finances healthy.
I would advise any startup to delay fundraising until you have a strong initial offering that has shown some level of success in creating happy customers with profitable marketing, and you can strongly believe that more capital would allow you to scale in specific, pre-defined areas.
Let customer satisfaction define your product roadmap
I’ve learned that customer feedback should significantly influence your business plan. At my second startup, we have daily meetings to go over feedback from our customers. We then prioritize and implement changes to our product, customer service and even our marketing weekly based on this feedback.
One of our early product successes has come about due to this practice. We had decided early on that we must pay more attention to any upset customers, even if there weren’t many. Any customer who was dissatisfied with their crowdsourcing experience was given a one-on-one consultation with a senior member of our branding team. This proved highly effective for helping struggling projects succeed. More than 80% of these meetings ended with positive feedback.
It didn’t stop there. The consultants who took these calls noticed four major concerns among most customers. Armed with this knowledge, we updated our crowdsourcing UI and created a simple email series to proactively address these items. By doing this, we reduced our instances of dissatisfied crowdsourcing customers by more than 70%.
The approach at my first startup, however, was completely different. Month-over-month growth had become the critical sign of success, whereas at my second company, market innovation and happy customers were our key milestones. We knew we were on the right path when leading enterprises switched to us instead of continuing with noted branding agencies they had used for years.
I strongly recommend all founders listen to customer feedback and let it play a crucial role in shaping their customer service and driving the product roadmap.
Choose speed over perfection
At my first venture, we wanted everything to be perfect. We hired one of New York’s finest creative agencies, built our own product delivery team, and spent time and resources setting up an epic fashion studio. These investments undoubtedly delivered results, but they also slowed us down.
Instead, a lean marketing team with multiple freelance or crowdsourced designers could have tested and iterated a large number of ads in the time our agency produced two or three options. Using resources that were already in place for product delivery would have saved considerable time and effort, and we could have built our team gradually. We could have focused our efforts on a few core and highly unique products while filling out our lines using faster and easier methods, such as offering trending products at great prices.
Speed involves phasing projects into smaller stages and iterating rapidly based on feedback. The adage, “Go big or go home,” can be devastating for a startup. Instead, make your mantra: “Start today and keep at it.”
In other words, you don’t need perfection as much as you need speed. Focus on offering as many meaningful features or getting as much customer feedback as possible. If you’re trying out something new, you don’t need to wait until it is fully fine-tuned. Today, we invite our users to participate in new beta features weekly. After their initial response, we know whether to further work on it or simply chuck it.
Pivot when you must and keep it agile
A dynamic business model is a critical component of speedy execution. As an entrepreneur, things will inevitably turn out differently than you had originally expected. While you can usually take steps to adjust your strategy, in more extreme situations, a fundamental pivot of the core business model may be necessary.
At my previous startup, we were seeing early warning signs that customer acquisition costs were too high, and many customers weren’t returning for a repeat purchase unless offered a coupon or discount.
Unsustainable customer acquisition costs and few repeat customers were clear indicators of a fundamental flaw in the business. Let me be clear: I’m recommending you look for signs like these at your startup, too.
We should have recognized the need to pivot the core business model to create more buzz, word-of-mouth, value and customer loyalty. Yet, we stayed committed to our original vision and continued to scale the business.
Remember, pivoting is not failure. Rather, it should be seen as an opportunity to turn the product or service into something more beneficial for both the customers and the business. It shows remarkable foresight, and can, in fact, be the springboard to resounding success.
I’m not saying that a struggling startup should immediately change its five-year vision and abandon what it has built for something new. A pivot can, and often should, be agile. New directions can be tested fairly rapidly in beta, using real feedback and success stats to determine their viability.
I wasn’t in the boardroom when Netflix decided to start streaming, but I’d imagine they committed to testing streaming, and initially, hoped it would become a small but successful part of their business. The full transition from mail to streaming happened gradually and in an agile manner.
My current startup, Squadhelp, started as a crowdsourcing platform for naming. When we needed to pivot, we did not do so completely, but we expanded. We tested the concept of a brandable domain marketplace — instead of crowdsourcing custom names, a customer could shop for domain names with logos in an e-commerce experience. We expected this to be a small opportunity, as it was simply a value-add for our freelance community at the time.
Early on, we thought it would be great to have 5,000 names in our brandable marketplace and expected this segment to be 20% of our overall revenue. However, this side of our business grew rapidly. We now have well over 150,000 names in the marketplace.
Here’s the takeaway for pivots: Keep testing! Not only do you need to test features and concepts based on customer response, you should also think big and try new models and approaches that could change the trajectory of your business.
Final words
It wasn’t easy to close the shutters on a business I really believed in. But I knew I could start again if I was willing to learn from my mistakes and apply those lessons smartly.
You can learn from them, too: Keep costs low, value each new customer’s experience, focus on generating value for customers to enhance loyalty, adapt without hesitation, prioritize speed over perfection and don’t forget to celebrate failures!