Why Startups Fail

The Top Reasons Why Startups Fail

Many businesses fail for several reasons and startups are not exempted from these. Running a startup is quite challenging and if the founders are not careful, their business could encounter a lot of difficulties along the way that could eventually lead to its failure.

In episode 3 of the Startup Hustle, Matt DeCoursey and Matt Watson talked about some of the top reasons startups fail. They also offered some bits of advice on how startup founders can avoid making mistakes that could lead to their company’s downfall.

Failing to Understand Who Are the Target Users
A major reason that a startup fails is that the company does not know the target users of their brand. Watson cited an example of a company working on a booking system with features customized for salons only. When it was halfway completing the salon booking system, then the company added features for booking a spa, a personal trainer, and so on. As could be concluded, the intended customer of the original booking system designed for a salon may not buy the product because now it’s not customized for them anymore.

Watson said this kind of mistake can be avoided if the startup from the very beginning has already determined who is the target audience of their product. The startup should also maximize its efforts to fully customize their product for the type of customers it is intended for.

Business Relationship Between Co-Founders
Many startups have co-founders and one of the big dynamics that leads to problems at an early stage of a company is the working relationships between the co-founders. DeCoursey said that conflicts between co-founders could arise when one founder may lack the commitment and effort to work hard for the business while the other founder is working so hard to make it a success.

DeCoursey said he has experienced working with co-founders who seem to tail off pretty quick because they realize that running a startup required a lot more work and dedication than they thought. DeCoursey said that under that situation, he ended up doing the lion’s share of the work in the business and that lead to his resentment with those co-founders.

Therefore, it’s very important that when the original founder is going to bring in business partners or co-founders into the startup, they should bring in something very valuable to the business such as a skill set, additional money, a business network of potential clients, and a lot more. A co-founder should also be willing to put in a lot of commitment, effort, and hard work for the business the same way as the other founder is doing the same thing.

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Hiring the Wrong People
Employees who have the right skills, knowledge, and other qualifications are a big contribution to a startup’s success. However, hiring the wrong people can also bring down a company, one of the top reasons startups fail.

DeCoursey said that there are startup founders who hired the wrong people and by the time they realized it, they failed to make tough decisions with regard to those employees. He advised that if a founder is going to hire friends or family members to work at their startup or any business for that matter, the founder better make sure that they don’t put a huge value on their relationship with those friends or families. A tough decision to terminate their employment could strain the founder’s relationships with them.

When the right people are hired by the startup, it’s also important for the company to keep them motivated, engaged and happy so they will stay in the company for a long time. DeCoursey said that the motivating force for employees should come from within the company. One important motivator is for the founder to practice transparency with their employees. The founder can be transparent on topics such as how well is the business doing, and is it getting enough clients and revenues to sustain the business. A founder who is transparent with their employees will make them feel that they are treated as important contributors to the company’s success.

Listen to Episode 3 of the Startup Hustle Podcast – Why Do Startups Fail?

Here is the transcript of Episode 3 of the Startup Hustle Podcast – Why Do Startups Fail?

Matt DeCoursey:Hello and welcome back to another episode of startup hassle. Matt DeCoursey here with Matt Watson. How are you today, Mr. Watson?
Matt Watson:Doing pretty good. Ready to talk about some more of the hustle?
Matt DeCoursey:I am. What do you want to talk about today?
Matt Watson:Well, I think we should talk about common reasons that startups and businesses fail but there’s one other thing I think when you talk about first.
Matt DeCoursey:Tell me.
Matt Watson:Well, I’m worried about this podcast failing.
Matt DeCoursey:Well, I think we’re going to have to jump in buildings wings on that one.
Matt Watson:Because at the beginning of last episode, you told me we need to … What was that? Rochambeau.
Matt DeCoursey:Rochambeau.
Matt Watson:Rochambeau.
Matt DeCoursey:Paper, scissors, rock to determine who the host was.
Matt Watson:But I googled that and it said that it’s kicks to the groin and the last man standing wins. I don’t think this podcast is going to work if that’s how we’re going to decide who the host is.
Matt DeCoursey:And we’ll do that for the next episode, unless you want to go for it right now.
Matt Watson:I do not want to do that. You can be the host.
Matt DeCoursey:Thank you. So I’m your host, Matt DeCoursey here for another episode of Startup Hustle. Today we’re going to talk about some of the top reasons that businesses fail and our intention here is to try to help you avoid these things. Now, every business is a different story, it’s a different journey, it has different ups and downs and good parts and bad parts. But we’ve taken a little bit of time to try to get in to some of the reasons that businesses fail.
Matt, you to have one from our last that you feel the most adamant about.
Matt Watson:Well, I think we should start with just not starting. If you don’t start, you’re going to fail, that’s pretty self-explanatory. I think one of the reasons that people struggle with getting started is it’s hard for them to visualize how to get from point A to Z. But, it’s like losing weight, it’s really hard to lose 50 pounds just like starting a startup, it’s difficult.
But I think if you can focus on losing one pound or getting from A to B and then carry that momentum on to the next step, I think like most things in life, that’s the key to starting a business.
Matt DeCoursey:I think one of the things that really holds a lot of people back is they tell themselves it’s not the right time, and the right time is a myth, it’s never coming. The right time to start a business could theoretically never come. At some point, you really do have to take that leap of faith or as I like to say, you have to jump and then build wings. Now, with that it doesn’t mean you shouldn’t have a plan, before you jump, you need to make sure you have all the materials to build the wings.
But sometimes that act of jumping and you rapidly picking up speed towards whatever amount of altitude you started out will really light a fire under you to hurry up and get some things done. But I think the right time excuse is prevalent, not only for starting a business but for a lot of different things. So, if that’s what you’re waiting for, it’s probably not right around the corner.
Matt Watson:Did timing ever impact the businesses you’ve started? Is there any reason you started or didn’t start one of your businesses?
Matt DeCoursey:Well, as you know, I started my first business accidentally. With that … No, not really. I might have delayed things for a very short amount of time before I did certain things like I was going to launch a business that didn’t really make sense to launch in the middle of December, I might have waited a little bit, but I haven’t ever really put any plans off long term because it wasn’t the right time.
Matt Watson:You said you started accidentally, what do you mean?
Matt DeCoursey:Well, in my first business, which I talk about in Million Dollar Bedroom, I wasn’t even trying to start that particular business. I’d actually bought some concert tickets and decided I wasn’t going to go and I sold them and then I made a few bucks online, and the light bulp popped up. I was like, “Wow maybe I should do this again.”
Matt Watson:So, you found a problem and you came up with an idea how to solve it?
Matt DeCoursey:I did.
Matt Watson:Actually, my first business was the same way. I wasn’t I wasn’t looking to start a business at all, actually somebody else was. And they came by and said, “Hey, can you help me.” I was like, “Okay, why not. Let’s give it a try.” So, it sounds like both of us just sort of saw an opportunity and went for it. That’s what you got to do.
Matt DeCoursey:Let me ask you a question, when you started that business, were you dedicated to it right away? Did you really jump in, because I did?
Matt Watson:I think I did. Yeah, I think so.
Matt DeCoursey:When I look back on it, I might not have put as much time as I did later, but I definitely became borderline obsessed with it and trying to figure out whether it was something that was good or not. How important do you think the dedication of the founders or the people in businesses at an early stage is for its overall success?
Matt Watson:I think he got to be all in. You got to go all in and it’s not easy. You can definitely iterate on your idea and try and revise it over time and sense of time pondering it. But if you really want to make a go at it, you just got to do it.
Matt DeCoursey:In the past, what were some of the indicators that said, “Hey let’s go,” rather than kind of standing at the side of the pool with maybe not just your foot but now half your leg in?
Matt Watson:I don’t know if I’ve ever stood on the side of the pool, so I don’t know if I may answer for that.
Matt DeCoursey:I usually jump and drag a couple of people with me.
Matt Watson:Sometimes, I jump and drown and I have to kind of figure it out.
Matt DeCoursey:Well, that’s okay too. That’s kind of like jump and building wings. That sudden need to learn how to swim can have a pretty powerful effect on your overall dedication and drive. So we we’ve talked in the first episode of the series, we both admitted that neither one of us are huge planners. But for those that … I think that that’s, in some regards, outside of the norm. I think a plan for a lot of people is important to succeed. But we’ve also acknowledged that that plan is likely to change and change a lot. How much emphasis do you put on the planning part as opposed to the execution of the plan when it comes to you business’ likelihood of success?
Matt Watson:Well, I think the plan is to solve a specific problem. For your first business, it was like, I had extra concert tickets and I want to sell them. Or for your new business it’s, I want to help people book appointments. How you solve that problem could change. You get into it and you figure it maneuvers a little bit, exactly how you solve the problem changes. But I think the the problem you’re trying to solve shouldn’t change. You’re iterating and building and planning towards the same problem more likely than not.
Matt DeCoursey:What about just the discovery of new problems that need to be solved along the way? Because I think sometimes that can be good and really bad because it’s easy to start chasing some of those problems and get yourself away from solving the very first thing that you set out to do.
Matt Watson:Some entrepreneurs suffer from entrepreneurial ADHD where they want to solve-
Matt DeCoursey:Shiny things what? Wait. Again
Matt Watson:Squirrel.
Matt DeCoursey:Whoa. Yeah. I have entrepreneurial ADHD. I think you do too.
Matt Watson:But and that’s a problem, right?
Matt DeCoursey:Sometimes
Matt Watson:I guess as your organization grows, you have a bigger team and you can do more things. But it’s also good to have somebody to take all those ideas and help you filter them down and figure out which ones are the best. I read a great book recently called Rocket Fuel that was all about that that concept, I really recommend. But when you’re first starting, you got to be kind of the dog on a bone and you just got to keep going and going and going. And maybe you end up solving a slightly different problem than you originally set out to and that’s fine. But you just got to keep hustling.
Matt DeCoursey:I think one of the things with Gigabook where I made some errors early on was wanting to add too many features that didn’t necessarily directly lead to someone wanting to sign up for the service or someone that was in a free trial wanting to stay. They were goofy little things that I felt strongly about. But looking back at them, I don’t think they brought anything to our overall subscriber base and had I eliminated some of that noise that was around me, we probably couldn’t … well, not probably, we would have been a lot better at accomplishing the primary mission and solving the initial problem.
In some regards, I look back at some of those things I say, “Wow, they evolved into something cool and then so many of them didn’t.”
Matt Watson:Well, I think you bring up a really good point there on why a startup or a product can fail is you got to understand who your target user is, who the customer is. If for example, you’re making a booking system, and your booking system is only designed for salons, then, the features would need to be very specific to that and you would want to continually optimize for that. But if you start working on how to do online booking for a salon and you get halfway through it and next thing you’re trying to like booking for a spa and a dog walker and all these other things, then all of a sudden the person that was going to buy it for the salon may not buy it anymore because now it’s not designed for them.
But you may find that the solution is more customizable and being used for all different use case. So you got to kind of figure out who your target audience is and optimize around that. Because if you try and optimize around everybody, you’ve optimized for nobody.
Matt DeCoursey:So your current business, Stackify, which is in the business of helping developers identify and prevent problems. Well, there’s an infinite amount of things that you may be able to detect. How do you determine which of those are important and meet the specific needs of the market you’re trying to service?
Matt Watson:For us it’s focusing on specific programming languages, specific types of software. So for example, we don’t support mobile applications. But yeah, for us, it’s focusing on specific cloud providers and programming languages and different frameworks and potentially there is infinite work. Like, we don’t support a lot of older technologies, most of our stuff is newer technology. It’s hard to pick sometimes, but you got to focus somewhere.
Matt DeCoursey:So a lot of times people can identify or misidentify, if that is even a word, the market that they’re aiming for in general. And that can lead to in my … Yeah, I think that also leads to a lot of bad spending, especially when it comes to marketing. And we talked about this a little bit in our last episode that originally, I looked at 25 million small businesses. “Hey, this is who we can reach,” and all of a sudden, they realize that was more of a problem than anything else.
What do you think you do if you start to realize your idea is not as great as you thought it was?
Matt Watson:Well, one thing I always say is to fail fast, right? You don’t spend too much time energy and money chasing something that’s just not going to work.
Matt DeCoursey:And let’s define that a step further, fail fast is, you’re better off failing in a month and moving past that whole thing than taking nine months to figure it out. So and you’ll hear this a lot, that’s a really popular buzz phrase right now, especially with people in the VC community and lots of startups and it’s for that reason. So you’ll hear a lot of businesses getting X amount of funding and they’ll burn through a lot of that really quickly, it’s because they’re better off eliminating as many things that don’t work on their way to finding that one that does, now they can pour gas on it.
Also, that has to do with adoption by the people in your marketplace and you’re just better off to narrow down the scope of whatever it is that you’re trying to do as quickly as possible.
Matt Watson:So when it comes to starting your business., a lot of start ups have co-founders And one of the big dynamics that leads to problems at an early stage company are the co-founders; their relations, their skill sets, all of those things. Did you ever have any big problems with other founders or co-founders?
Matt DeCoursey:Well, I haven’t had a ton of co-founders but I’ve had issues with personnel and having the wrong people on board, which is, in many ways, the same thing. Now, I don’t know if you know this, do you know that they have couples therapy for business partners now?
Matt Watson:DO they do that for podcast partners?
Matt DeCoursey:Maybe. Do you feel like we need to call in someone?
Matt Watson:Well, if we’re going to do that whole Rochambeau thing, we might need that.
Matt DeCoursey:We might need a different kind of therapy. Now, with that, I say to people a lot, you can get rid of your wife faster than you can get rid of your business partner. Meaning it’s easier to do.
Matt Watson:Or husband.
Matt DeCoursey:Yeah, or husband. I should say your partner, your life partner. Now, with that, the reason is once you vest someone into your business and someone who owns a part of it, you don’t have any control over what they’re going to do with it in most cases. And there might even be extreme actions that need to occur to get people to do things. What are some of the things that you do to safeguard yourself if you’re going to include someone in your business on an ownership or equitable level?
Matt Watson:So I think there’s a couple of things there. One thing you can do is make the founders earn their stock by vesting it.
Matt DeCoursey:That’s what I do.
Matt Watson:So maybe it’s 50/50 going in, but you earn it over five years or whatever it is. So, worst case scenario, if one of has to exit the business then some of that gets return back to the company or the other founders. My first business I had a co-founder and I want to say it was about four or five years i, we had some issues with my original co-founder and we had to part ways with him. And it actually turned pretty ugly. And he sued us and got a court injunction against us and then there was a few months where we were sitting around trying to figure out what we were going to do if we were going to do anything.
Those horror stories exist of problems with founders. And actually when you talk about vesting all those things, probably the biggest mistake we made is in my first company, we set it up so that it required a supermajority, so that every one of the founders and the shareholders had to agree to do anything. And as you can imagine, that’s a really terrible idea.
Matt DeCoursey:Especially as you grow and if you add more people to that whole need to do it. We actually, what we do is I’ll vest someone in over a short amount of time but with that, I also put other goals and metrics in that might accelerate that process. Like, if we grow fast enough to achieve X amount of revenue in X amount of time, well then we’ve done our job. So everyone deserves to possibly have that accelerated.
And another thing that I personally feel important of is, I’ll accelerate vesting if for some reason we have an acquisition event. Like it’s not necessarily fair to the other people that helped us get to the point where we were about to be acquired and they wouldn’t be able to get their full%age or share because I chose to sell it out from underneath them before that.
So if for example more than 50% of your shares change hands in the year, that might accelerate someone’s ownership of whatever. Now, with that, there are some potential tax implications, so if you’re in that situation, check with your accountant or your attorney about it because cashing people’s shares out in less than one or two year periods can actually make them short term capital gains as opposed to long and put your business partners or other people into a weird tax situation.
Matt Watson:I think one of the other key things we want to talk about is, having a co-founder, I think, can be extremely helpful, but they need to be co-founders that brings something to the table, bring a skill set to the business that you don’t have. For example, Mr. Decoursey, do you think you could sell anything?
Matt DeCoursey:Eventually.
Matt Watson:I think I could build any kit. So you think the two of us together could probably … We could probably be successful.
Matt DeCoursey:Yeah, we should start a business someday.
Matt Watson:Now, if we both could sell anything …
Matt DeCoursey:Well, then we’d have a problem if we were trying to build software.
Matt Watson:We’d be in trouble.
Matt DeCoursey:One of the things that I have a difficult time with or have had difficult times with others when it comes to doing joint ventures is, I’m willing to work really hard. I’ll work 120 hours. If we’re on top of the gold, I will keep digging untill we not only find it, but get it out of the ground. And in the past, that’s been one of the things that has irritated me, has been the lack of commitment or the lack of effort from some people that I’ve gotten in. I’ve had a lot of people want to do these joint ventures on different things and then they realize it’s going to be a lot more work and dedication than they thought.
And they seem to tail off pretty quick and I end up doing the lion’s share of the work. That leads to resentment. And then we just kind of want to quit. I’m very reactionary. If you work really hard, I’m going to work even harder because I like to push that pace. But I think that’s something that you should be considering if you’re bringing on partners or other people or at least consider. You never know, someone’s going to do a good job until they show up to do it.
Matt Watson:You mentioned the amount of work and effort it takes to build a business and a startup, but how do you balance that with your personal life?
Matt DeCoursey:Well, I wrote a book about that too. But with that, you have to be aware of it. I personally break things down in to your personal, professional and physical life. People ask me all the time, they say, “Well, what’s a good balance to that?” It’s different for everybody. It’s up to you to determine that. But the more it’s grossly lopsided, the more that the other factors that aren’t getting … the other categories and aren’t getting the attention in your life are going to come back and bite you.
So you spend 90% of your time working 5% on your personal life and 5% on your physical life, you’re going to get sick or your wife’s going to leave you. And good luck spending 90% of your time working while you’re going through a divorce or something like that.
Matt Watson:So, you’re saying the physical part of it is important because … Well, let me ask you this, people talk about the freshman 15, is that like a startup 15?
Matt DeCoursey:Yeah.
Matt Watson:Is that my problem?
Matt DeCoursey:Yeah. That’s definitely why we’re both a little fat.
Matt Watson:More physical, alright. I’m going to the gym.
Matt DeCoursey:Check mark. You also have to train for the Rochambeau conto.
Matt Watson:Yes, that’s correct.
Matt DeCoursey:To really do some squats. We’re talking about the whole issue of a co-founder or partners, what can be equally devastating is your selection of the wrong people to participate and we’re talking just like a general employee level. And I want to kind attach a subcategory onto this because with that, I think a lot of people hire the wrong people and they realize immediately that they’ve done it and they fail at making tough decisions.
Matt Watson:Hold on a second, does that usually involve hiring family?
Matt DeCoursey:That’s a great point. Don’t do that.
Matt Watson:Because that makes it really hard.
Matt DeCoursey:Yes.
Matt Watson:I can say, in my last company, my first employee was my dad.
Matt DeCoursey:And he still works there.
Matt Watson:He still works there. He’s been awesome. A shout out to Mr. Dave Watson. My sister, I hired one of my sisters. I have three sisters named Stacy, by the way. Maybe one day we’ll all explain that because it’s so tediuos.
Matt DeCoursey:Even more confusing than a podcast with two Matts.
Matt Watson:Yeah, absolutely. But at some point time, it wasn’t working out. I had to fire my sister and it’s tough.
Matt DeCoursey:Did that cause friction or problems?
Matt Watson:I don’t know. Maybe that’s why she won’t talk to me anymore, I’m not sure. But that’s a completely different podcast.
Matt DeCoursey:On the flip side of that. My wife worked with me for almost eight years and we were an amazing team.
Matt Watson:My wife worked for me wwith me for about eight hours and then that that was it.
Matt DeCoursey:That’s usually the case. The same reasons that your co-founders or employees can not work well for you, the same reason that hiring your friends and family, that if you’re going to hire your friends and your family to work at your startup or any business for that matter, you better make sure you don’t put a huge value on that relationship because it’s going to strain it. And Jill and I were like that for quite a while, like at certain times, but we were both getting what we wanted out of life and that made us feel a little better about it.
So honestly, I don’t think my first business would have been as successful without her. So how do you realize that you’ve got the wrong people on board and what do you do to change it?
Matt Watson:It’s a tough conversation and I think the first thing you have to realize is the whole concept of wrong people is something that continues to happen. So when you’ve got two employees or 10 employees or 20 or 200 or 2000, that’s an evolving process. So for example, the person to be in charge of sales, when you’ve got three employees might be really good at hustling and getting sales and getting it done.
But when you get 30, they might be terrible at managing other people. There might be a good sales person but not a good sales manager. And so, the first thing you have to do is realize as your company grows that the roles that people are in is going to have to change. Just because they were a good sales person or a good developer or whatever, that doesn’t mean that they’re also going to be an executive in the company. It may be beyond their means and everybody has to realize that.
Matt DeCoursey:I worked for a company once that have this really bad habit of taking their top salesperson at a location and turning them into the store manager, and they couldn’t figure out why their sales were going flat or not growing at that point. And the reason was, you’re taking your top earners off the floor and making them shuffle paperwork and stuff like that. So, sometimes the wrong people, you can create problems with the right people. For me, I think one of the things that means the most to me at this point is having an employee that cares, like legitimately cares.
And not only about the business, but about our clients and their coworkers and they’re considerate. And these are the people that take a few minutes at the end of the day, rather than darting out the door at 5:00. They say, “Hey, is there something I can help you with? Is there something I can help you with?” They’re willing to do just that little couple of percent more at the times … I had an assistant once that would oftentimes check emails and do different stuff later at night. And she was doing that to try to help me out because she knew that I had probably not quit working all the way up until that time. And I really appreciated that.
It wasn’t something I ever asked her to do. If I have to make tough choices, I make them fast. I think that there’s a lot of opinion out there but if you realize you have … In my past experience, people that are good are good right away. They’re never your worst person. And then you’re like, “Wow, it’s been a year and I can’t believe that you’ve turned into my top employee.” They’re usually good right away. I doesn’t mean they’re the best, but you can definitely tell. Now, some people are really harsh about this and I’ll tell you the first time you think about making a change, you should go ahead and do it because on some level in your mind you’ve already made it up.
You’re having such high levels of doubt about this particular teammate that you’re thinking about making the change. It’s that that your gut is telling you you need to do something, but for other reasons …. We have a lot of reasons that we don’t do these things out. They have a family or they we just brought them on or whatever. But the fact is, is you have finite resources in your business. And if that person isn’t meeting those needs and you’re not committed to them in the long term, what was the phrase you used before?
Matt Watson:You need to free up their future.
Matt DeCoursey:It’s so true. And I think of like a folder with a sailboat on it and an exit package and some lady telling me that …
Matt Watson:You’re going to be awesome at something, it’s just not this. And your life is going to be fantastic and you’re going to be happy but just not here.
Matt DeCoursey:And I’ll go for that.
Matt Watson:Let me ask you something, you’re talking about having the right people on the team and the wrong people. But when you get the right people in the team, how do you keep them motivated and keep them engaged and happy? Because I think that’s one of the challenges we have and especially as an entrepreneur, sometimes we endure a lot of stress; things are good, things are bad, it’s a rollercoaster and I feel like a good portion of our job, if we’re good at it, is also being a cheerleader and a motivator for the rest of the team.
Matt DeCoursey:The problem with … I’ve had a lot of people ask me over the years how to motivate my team or my employees. Motivation is something that has to come with that. You can motivate someone on a very short term like … Bobby Knight, basketball coach. But I hear it’s been a while. Some of our younger listeners might not even know who he is. One of his basketball camps he would do this experiment where he would have the Jets run the deals, they go free throw line, half court line, back whatever those drills are called.
And so he’d have two kids run it and it would just be dead silent in the gym and then the same kids come back out run it 10 minutes later, and he screamed at them the whole time and really scared the crap out of them and they were faster. But the thing is, is that wears off. So I think in the end, if you want to keep … people have that motivation and that motivating force has to come from within. And I think if there’s some internal driving factor.
People want to work on things that they’re interested in.
Matt Watson:You know what they want? They want to win.
Matt DeCoursey:Well, yeah. But at the same time …
Matt Watson:They want to win. That guy will run up and down the court all day long if they’re winning.
Matt DeCoursey:Some will and some won’t. And so for the most part they will, and that brings up a good point; I like to celebrate victories. Do you have anything that you guys have done to celebrate wins or victories in the past?
Matt Watson:It’s funny you mentioned that One of the things … It depends on your employees and who they are. But a lot of people that you hire for your startup may be taking an excess from great jobs and taking a risk on you, maybe they want to work for a smaller company and all that. But at the end of day, they’re they’re taking a risk. And one of the reasons they show up to work every day and stay motivated is the winning. They want to win and they want to see the company win and they want to know how the winning ….
Matt DeCoursey:Doesn’t it mean you have to tell them how you’re doing that?
Matt Watson:Yeah. My point is, I think there’s a certain amount of transparency that helps. And some people are a little guarded about financials, all those things and whatever. But at the end of the day, people want to know, “Are we winning or losing? Is our startup winning? Are we doing the right thing? Are we getting customers? Are we growing?” And I think that’s one of the best things you can share with your team.
If it’s the celebrating new customers, if it’s showing revenue, whatever you feel comfortable with. And so, to your point, we have a little bit of a tradition that we’ve built here at Stackify, where if we sign uped at more than three customers in a day, the whole team did a shot of Fireball, which is cinnamon whiskey for those of you who are not familiar.
Matt DeCoursey:Because what could go wrong?
Matt Watson:Because what could go wrong. And honestly we had to change it from three a day because it started happening too often. So, that is evolved a little bit. And then, last week they were making Margaritas instead. But we also have beer kegs. We like to drink a little bit around here.
Matt DeCoursey:That’s an interesting thing because I see a lot of businesses competing to see who can have the most kind of things like this, and I sometimes look at some of the … your business is established and I find that to be a lot more acceptable than something that’s in month one and they’re really concerned about, “We need an extra ping pong table in here, and we need to be able to do this and we need to be able to do that.” It’s difficult to determine how are we going to bridge the gap between having fun at work and getting things done.
One of the things that I try to do is, I always tell people, and I tell them this before I hire them, I say, “I’ll be the first person to tell you that you did a great job, but I’ll probably also be the first person to kick you in the ass, if I really feel that you need it. If you can’t handle that, please don’t accept the job here if we offer you.”
Matt Watson:And that’s really important at a startup. It is that level of transparency and, as I mentioned, as an entrepreneur, it’s so hard from day to day. I’ve done this for a long time, 14 years. And there are still days I wake up and I’m like, “Why in the hell am I doing this?” And back to the winning or losing. The winning or losing is not only important to our employees, and our team, the co-founders or everybody else, keeping them going, but it’s important for us. We feel a lot better as the CEO, founder or whatever, when we win.
Matt DeCoursey:But I feel better about the fact that I might not be making money hand over fist, but we’re making progress, and to me that’s a win. Are we doing better than we were doing yesterday?
Matt Watson:Can you see the light at the end of the tunnel or are you making progress? It’s all about winning in those incremental steps.
Matt DeCoursey:Have you ever had anything in the early stage of a business that you just thought was absolute gold and turned out to really be fool’s gold like? Perhaps a big company flashing their wallet at you and making you think that your relationship with them was going to take you straight to ringing the bell at the NASDAQ?
Matt Watson:We absolutely had that. So my first business, one of the largest companies in our industry, we worked out a deal with them, where they were going to resell our software. And we absolutely thought we were going to be a thousand there’s, millionaires, I don’t know. But we thought we hit it out of the park. And we sat around for several months, waiting for them to go make us millionaires. And they literally did nothing but waste our time.
Matt DeCoursey:We had a similar situation like that and I won’t name who, but it was a company that approached us about wanting to integrate Gigabook in their onboarding process. And I asked them, I said, “What would make this tick for you? What metrics really make this happen?” And here we are two maybe even three months later, and we have been delivering that, but I wasn’t able to get them to sign up and I never did get them to sign up. And I wasn’t sure, and I still don’t know to this point, I could have just been involved in a very expensive science experiment.
Matt Watson:Well, I’ve seen some more problems and I think that brings us up another topic maybe we should mention. A lot of startups when they first build their product, if it is a software product, is they figure out, if they should have a free or a freemium version of their software. I think a lot of them go into it kind of haphazardly and not knowing what the ultimate strategy is, and why they’re doing a free version. Have you ever had free versions of your software experience of that?
Matt DeCoursey:I wanted to do that in 2015, I wanted to make it free for the entire year, and I let the people around me actually talk me out of it because they were saying, “We need revenue, we want to show growth, blah, blah, blah.” I think it’s one of the biggest strategic errors I made, because we didn’t really end up picking up many if any users that year because we had so many problems. But having people come in and spend more time using it because they weren’t driven out by the need to pay, would have probably given us a heck of a lot more insight and data about what we really needed to be focusing on.
Matt Watson:Well, one thing from my experience is that users that pay the least and pay nothing are the biggest pain in the rear.
Matt DeCoursey:Yeah, no comment there.
Matt Watson:I think the reason why … What are you trying to say?
Matt DeCoursey:Nothing.
Matt Watson:All right. Gigabook is awesome.
Matt DeCoursey:That wasn’t my point.
Matt Watson:Okay. They don’t have any skin in the game, they’re not paying for this. It’s the ones that pay for it that try and maximize a usage out of it and get the most out of it. It’s the ones that aren’t paying anything that can just be the biggest nightmare of all.
Matt DeCoursey:Do you know what I believe to be the best four letter word in all of sales other than sold? It’s next.
Matt Watson:Next.
Matt DeCoursey:Sometimes you just have to move on to the next guy. And I’ve talked to you about this, not in the recording studio about it, but I’ve in many ways fired some of our users before. We had one particular user that was putting out 95% of our [Spart 00:34:43] ticket to one on point, and that was significant and I just learnt to tell this lady, I said, “I just don’t have the resources and the manpower or even interest in … ” There were never problems, it was user error and someone just being confused or just not even trying. And every time they had a question about anything we were getting ticket, and we want to react to that stuff, but you end up chasing your tail on a lot stuff.
Matt Watson:I think free can work though, I think it depends on the business, [inaudible 00:35:14] is actually a good example of this. We have a free product, but it’s a different product. Our flagship product that we sell is not free in any way shape or form, but we built a free tool that we built specifically to be free that was a regenerator. And so, we get hundreds or a thousand plus people a month that will download that free tool and we built it as originally, it was built for that.
And there are other companies that do this sort of stuff, like HubSpot is real famous for how good they are inbound and sales marketing. And they have cool like free website, grader tools and stuff like that, and the whole reason they built those things is just to get people to use them and build awareness, and all that about their paid products. But they’re not giving away their pay products, they built these other things that are free. Didn’t you do something like that for Gigabook?
Matt DeCoursey:I did actually, but it’s much like you’re saying, it’s a completely different product. I actually acquired another platform, that had a bunch of web developer tools in them and they were the things that you can usually find for free, if you go and look. But this particular platform had bundled them all into one spot and have some really cool stuff in there, but they’re having a hard time generating some meaningful revenue. I personally feel that the web developer is a huge friend to our business because they have clients that want booking enacted to their site. And so, if we can do something … And it didn’t cost me a lot to buy that platform. We have two or three people a day sign up for it and-
Matt Watson:It’s a lead generator?
Matt DeCoursey:It is, it is. And I’ve noticed since we put it on there, that I have more people sending in comments to us and say, “I’m a developer, and I’m installing this for a client.” But with that, I didn’t necessarily have to do that, but I felt like if I can do something to make these people’s lives a little easier, at least we hope they’ll think of us when it comes down to it. And I don’t know how many do it.
Matt Watson:Well, and I think some of the people listening to this will probably think, “Well, isn’t the free version of my software a lead generator for the paid version of my software?” What we’re talking about is, they were different tools, it wasn’t our paid product. And for some people, maybe that’s right, I think it all depends. You’ve got to understand your users, you’ve got to understand, I can give him this thing here for free, and I can entice them to pay and what percentage to do. You get to figure all the mechanics out of that thing. You also have to make sure that if you’re providing something for free, that it doesn’t have an enormous amount of cost.
Matt DeCoursey:That’s where I was going with that, because some of the stuff that would be associated like for example, would be very difficult for me to give you a free booking platform that sends text messages, because I had to pay for it.
Matt Watson:Well, think about something like Uber, how many free rides have they given away?
Matt DeCoursey:A lot.
Matt Watson:They’re paying people to drive people around town for free. It takes a serious amount of money to buy a market like that. And so, if you’ve got all the money in the world, I guess go for it.
Matt DeCoursey:And I think their approach with that is getting people to understand and adopt something that seems foreign and they do have a little more capitalization than they have.
Matt Watson:They’re comfortable with losing like billions of dollars a year.
Matt DeCoursey:Let me ask you a question, if I’m a big company and I call Stackify, will you build me something and then let me decide if I want to buy it afterward?
Matt Watson:Probably not. No.
Matt DeCoursey:I won’t ever do that.
Matt Watson:I’ll do anything they want, if they buy the company. Is that the same thing?
Matt DeCoursey:Yes. And everyone listening take note, that you can do whatever you want with Matt Watson’s company, if you’re willing to buy it.
Matt Watson:Yeah. It’s what I used to say all the time.
Matt DeCoursey:What we’re mentioning here, I feel very serious about because, especially early, it’s easy to get hypnotized by the size of a company that is courting you. And there’s a few things that you probably need to know is, I’ve never once in the last 10 years seen a deal come together quickly with a big, big company.
Matt Watson:Talking as a customer or acquirer?
Matt DeCoursey:I’m talking about providing services or doing business with other companies, the bigger they are the slower they move. They typically need more people to decide about it, they’ve got a longer approval process and they’re usually busy doing 10,000 other things. So, don’t be surprised or shocked or think they’re not interested when they schedule a call with you in two and a half weeks from today.
Matt Watson:Now, this brings up a really good topic though, that if you’re starting a new company, you’ve got to understand who your target customers are. And one of the reasons you could fail is, if you’re only targeting those super large enterprises that move that slow.
Matt DeCoursey:It makes the path to revenue a lot longer for sure.
Matt Watson:It makes it really difficult and sometimes you’re better off if you focus on smaller companies that can move quickly.
Matt DeCoursey:The way I like to look at it is I’m going for the big accounts and the accounts that have a lot of users in it. And I look at it, if I’m doing that in a proper way and marketing that well, then these smaller accounts that trickle in as a result of that are a byproduct of what I’m doing on a larger scale. I think it’s a lot harder, I equate selling to fishing. And if you want to get a whale in the boat, well, you have to have a net or whatever it is that’s capable of bringing in a big fish.
If you go out in a little tiny rowboat, you have one of those little nets that your kids catch butterflies with, any and most fish are going to swim through that. Now with that, if you bring the big fish home you can feed the village for the whole winter, but if that’s also what should go out for and you don’t get anything at all, well, there you go, you know how that story goes too.
Matt Watson:So, the lesson learned there is the net has to have small enough netting that you still bring home the minnows, Is what you’re saying?
Matt DeCoursey:Maybe not the minnows, but more like those fish that are at least the size of my hands. I think that we can blurb today but with a few words about, what can happen when you stick with some things a little too long? And we just kind of handled on that with the approach to selling certain sales processes or things that have a longer life cycle. But what about just everything in general, how do you know when to bail on something or to shift or pivot to something different?
Matt Watson:Well, there’s a couple of things there I can think of. The earlier example I gave of, we thought we had this big partnership that was going to make us millionaires, like how long do you stick with that? That’s one side of this. The other side of it is, Man, there’s a lot of different types to it.
Matt DeCoursey:For me, if what I’m doing or what I’m chasing isn’t going to directly correlate with my business building process, then it’s a red flag. And some of the things too is, and you were talking about these larger accounts. You have to establish some rules and some boundaries in a way, I don’t know if that’s necessary where like you want to put that, “Here’s the rules and boundaries for dealing with me.”
But with that, I do mean that you have to be strict within your business. And one of the things when I look back at our relationship with a large company that never ended up with us doing business with them is, I was two months into this process and I realized, “Wow, I haven’t really even talked about what this is going to cost them.” So, if they’re not asking questions like that along the way, those aren’t buying, those aren’t buying signals.
Interested buyers do have objections with what you’re selling and they do ask questions, “Well, what’s this going to cost? How does this scale? How are you going to be able to support this? How quickly can we turn this around?” If you’re dealing with situations or are having relationships with people that aren’t asking buying questions, it might not happen in the first meeting or two. But if you’re way down that road and you’re not getting some of that stuff, you need to either try to get it or consider the fact that you might be chasing your tail a little bit.
Matt Watson:When I think of this topic, I think largely of different forms of sales channels, like the partnership but other sales channels as well. So, you use Adwords for example, or Facebook or any kind of marketing or sales channel. It’s always the balance of, do you spend too much time and energy trying to perfect something that is not providing a value? Or you have some good success stories with Adwords, where it’s like you had to spend a lot of time into it, like you could have done it for a couple of weeks and said, “Yes or no,” and bailed, but sometimes that persistence, you’re able to make it work. And you’ve done a good job of optimizing it from my understanding. But it’s really hard to find the balance of how long to stick something out and keep trying gnawing on the bone versus jumping on something else.
Matt DeCoursey:And remember, the longer you stick with it, if it has a relatively high expense, the more you need the results to benefit you to even break even or build something. I think one of the things that’s important to mention that you brought up was, Am I spending a whole lot of time perfecting something that’s never going to have a high ceiling? Even if I do get this right and I’m the best at it, where am I at?
Matt Watson:So if you perfect, you can add three new accounts a month, that’s it.
Matt DeCoursey:Maybe. And for me, it was more about improving the overall performance, spending double on something then you’re going to be able to afford is not … If you go in your view of the casino and you play blackjack and you lose six out of ten hands, well, you’re on your way to going broke if you’re going to keep that up. These things can eventually kind of gnaw you and you need to pay attention to them.
If you feel like you’re not making adequate progress in whatever it is that you’re chasing, always take a minute and try to evaluate when and where you can get better. I think it’s probably a good time for us to wrap up. You want to come back and do this with me again another time?
Matt Watson:As long as I don’t lose this Rochambeau thing.
Matt DeCoursey:Everyone should know I’m a lot bigger and taller than Matt Watson, so I will probably be favored. But he’s kind of nasty.
Matt Watson:I’m quicker.
Matt DeCoursey:Yeah. Tenacious, is younger than me too.
Matt Watson:But I yield, you win.
Matt DeCoursey:There we go. I will be back as your host for episode four. Mr. Watson, thanks for another enjoyable podcast.
Matt Watson:Thank you.
Matt DeCoursey:See you guys next time.

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