WHEN YOU’RE AFRAID YOU MIGHT BE A “TWEENER”

Dear Founder,

If you’re reading this letter, you’re probably struggling with your business strategy or execution.

At the risk of stating the obvious, here are two points to consider:

1.  If things are really going well, and you’re working on an investable business that’s succeeding, it’s very easy to decide to double down.

2.  If your business is really doing poorly, and you don’t see any signs of improvement you also have an easy decision: shut down, treat people well, and return as much cash as possible to shareholders.

Now for the nuance, and the more common situation I see: the tweener scenario. You’re neither a breakout nor a complete failure. It’s pretty easy to tell whether or not you’re a breakout. It’s not a matter of simply achieving any given metric, but rather that momentum is building and it’s impossible to ignore. If you have a consumer-facing company, you can easily see if you’ve struck a nerve. If you have an enterprise company, people want to join your team, employees are thrilled, partners are talking about your technology, customers are huge fans, sales are outpacing the bandwidth of your team, investors are begging to give you money, infrastructure is melting. You know when you have it, and if you don’t feel this (or feel it slightly), it means that you are not breaking out.

Okay … so what is happening? Your situation might be more that you have some customers, but the pipeline or the product is not robust enough to sustain rapid growth. You may be able to raise funds, but not be at preferable terms or with great investors.

Ask yourself the following questions:

• Do you get cold reach outs from the press, from investors, and from potential employees?

• Do your customers send notes about how much your product matters to them?

• Do people talk about you on social media?

• Are you honestly fulfilling a need better than anyone else?

If you say “NO” to the above, sadly you’re in tweener territory.

Now, what are your answers to the following questions?

• Do you still have to explain why your product matters?

• Do you find that huge success is always one release away?

If you answer “YES” to the above, you’re in the danger zone.

In today’s world, product-market fit happens faster than ever. When we invest, companies are often one to two years from actual product-market fit. And that’s totally fine and normal. Yet if you are past that point, it might be worth asking your trusted investors if you look like a breakout. It could be an uncomfortable question, but they manage a portfolio of businesses, and they probably already have an opinion on the subject. And every quarter that passes where your business looks the same as it did three months before, is a quarter where breakout potential seems markedly lower.

Maybe you think being a tweener is okay. Maybe you think you can wait it out. You can’t. The CEO of a tweener company needs to act with an incredible sense of urgency.

• You need to put strong plans in place to get back on track to become a breakout.

• You need to take a deep look at the current state of things and future projections with the board and management team to assess how viable the strategy is and how bright the future looks. If some aspect of your business is working, consider betting the farm there. Often startups try to do too much and offer a “complete” solution, and that can slow their release schedule, make adopting their technology more onerous, and worst of all, dilute the quality of everything they offer.

• You may need to take significant actions (e.g., painful layoffs, redo of product, pivot, etc.) to ensure you have the cash needed to achieve the turnaround.

As an investor, I’m hopeful that all of my companies will be breakouts. But I know they won’t all be. That’s okay, because a couple breakouts make up for a lot of tweeners or failures. Yet as the CEO, you’re spending all of your energy and time on this one idea. You need to ensure that it’s going to return well for your employees, investors, and yourself.

If you are not convinced that you have a great chance of becoming a breakout, you should think seriously about M&A or returning cash to investors. I’ve watched companies burn through every penny without a plan or hope, and I’ve watched companies make a tough decision to return some money to shareholders and move on to something they more strongly believe in.

Expect this assessment to be one of the hardest you’ve ever faced. By now, you’ve invested years of human capital, money, and reputation into this business, and it can be a serious shot to the ego to admit it isn’t working. Founders we back tend to be universally smart and driven, and many of them will never have faced something that feels so much like failure. But it isn’t. Real failure is throwing even more time and capital at a business that isn’t working, and ruining your chances to raise again down the line. Take the learnings, take the loss, take a vacation, and move on.

This is a long game. All of us want to be working on things that matter. I wish the same for you.

All the best,

Maynard

P.S. Please see the Appendix to this letter on the following page, which includes more clues as to whether you are in tweener-land.