I just read a remarkable article about the rise and fall of a startup in San Francisco called Everpix. They developed a web-based photo organizing and archiving application. As is the trend, they used a freemium model for the service they offered:
The service seamlessly found and uploaded photos from your desktop and from online services, then organized them using algorithms to highlight the best ones.
As is also the trend, the company was filled with young and talented entrepreneurs. The more complicated explanation about why Everpix failed is understandable:
The founders acknowledge they made mistakes along the way. They spent too much time on the product and not enough time on growth and distribution. The first pitch deck they put together for investors was mediocre. They began marketing too late. They failed to effectively position themselves against giants like Apple and Google, who offer fairly robust — and mostly free — Everpix alternatives. And while the product wasn't particularly difficult to use, it did have a learning curve and required a commitment to entrust an unknown startup with your life's memories — a hard sell that Everpix never got around to making much easier.
At the micro level, that makes a lot of sense. But there is a larger macro effect going on here that they (and the author of the article) touch on without even realizing it:
“You look at all the problems that we’ve had, and it’s still nothing,” he said. “I have more respect for someone who starts a restaurant and puts their life savings into it than what I’ve done. We’re still lucky. We’re in an environment that has a pretty good safety net, in Silicon Valley.”
The main problem in my opinion was not that they didn't execute business strategy correctly – at most that is just a symptom. The real problem is that they operated with a "pretty good safety net".
Working Without a Net
The major problem that many companies fall into when receiving angel or venture funding is that they aren't challenged every moment of every day to do what it takes to survive. If you look at it from a Maslow's hierarchy of needs perspective, the moment the pressure of survival is removed from a fledgling entrepreneurial effort the focus will tend to drift towards longer-term and less relevant aspects of starting a business.
This shift of focus is a death sentence for many companies because at this early stage they still have no inherent ability to survive without the funding – just like a new born infant. If critical care is not taken to make the company self-sustaining at an early stage it will likely not be when the money runs out.
I'm not saying that everybody should be bootstrapping every entrepreneurial effort. Many times, funding enables strategic maneuvers and is the fuel that feeds a "fire" with growth – and with good maneuvering and good growth often comes more stability and longevity.
But if bootstrapping is a viable option, my belief is that the majority of the time, the company that emerges will be a lot stronger and healthier.
So, get rid of unnecessary safety nets around your entrepreneurial efforts and focus on the details of basic survival. Pay close attention to the life blood of your company – its profitabilty – early and often and make sure it is on a trajectory that will make your company self-sustaining as quickly as possible.
As the saying goes "live each day as if it were your last".