Start-ups are all Naked in the Mirror

Posted on Aug 28, 2009 | 27 comments

Start-ups are all Naked in the Mirror

This is part of my ongoing series Startup Lessons

Building companies is hard work.  I started my first company in 1999 in London at the height of the dot com craze.  We also had facilities in Dublin, Ireland where our company was initially founded.

man mirror

We went through the euphoria of massive exposure at the time of our launch due to an article that ran in the Financial Times.  We were unprepared.  Our software wasn’t fully baked.  We hadn’t even thought about having a customer support line or who would staff it.  Our phones rang off the hook.  Our company was completely euphoric.  We drank our own Kool Aid.

We had one of the largest US software companies talk about buying us.  Goldman Sachs (an investor in our company) told us we’d IPO within 18 months for $1 billion so not to take any offers.  My competitors from those days STILL love to talk about how much money we raised in February 2000 (get over it already!).  I acknowledge it was a mistake.

We were hot.  Until we weren’t.

As the economy soured and people grew wary of buying Internet software (we were SaaS as early as 1999 – our buyers were certainly “early adopters”) and life grew more difficult.  Our product releases took longer to ship than we had hoped.  Our customers were generally happy but they were pushing us hard for promised features.  Our business development discussions took longer than planned.  Reporters were no longer interested in talking about B2B eCommerce.  Our sales forecasts were revised downward – many times.

But still we made progress.  We had things to be proud of.  We were working hard and becoming a real company.  We downsized, developed processes and found our groove.  Everything I learned about entrepreneurship I learned in this period.  I think the fondest memories and bonds in life are developed between people who go through shit like this all together and come out survivors.  We developed deep kinship.

Yet there was one thing that was despirting in this time.  Our competitors seemed to be flawless.  We kept reading about their customer wins, their product releases and their biz dev deals.  Buzzsaw (owned by Autodesk) raised $90 million and was making weekly noise in the market.  Our largest US competitors merged and even European customers said that this proved this would be the knock-out blow.  The largest Germany construction firms announced that they were going to launch their own initiative and therefore not use 3rd-party vendors.  Shit.  SHIT!!!

These were stressful times.  My staff kept asking me about these competitor moves and I didn’t have answers.  I could tell some of my best people were losing confidence.  One of my closest friend (our CFO) left the company.  It didn’t add up to me.  How could they being doing so well in these difficult times?   And then it dawned on me.  I figured it out.  And I made a version of this company-wide speech to our employees:

“Look.  I know that you keep reading about how our competitors seem to been going from strength-to-strength in the press.  I know that we’ve made some mistakes.  I know that we haven’t brought in revenue as quickly as we had hoped.  I know it sucks that we had to reduce staff.

But here is the problem.  You’re only reading our competitor’s press releases.  Your reading the good stuff.  And you’re looking at ourselves naked in the mirror.  You see all of our flaws.  And I acknowledge that there are many.  But when you see them they’re wearing their fancy outfits, look stylish and ready to go out on the town.  They’re masking their internal flaws.  And you know that they have many flaws, too.  I’m betting more than we have.

I promise you that inside their offices they’re reading our great press releases, wishing life was as easy for them as it was at our company.  They’re looking at themselves naked in their mirrors, too.  Believe me.  They haven’t hit their revenue targets.  They’ve had staff defections.  They’re working evenings and weekends.

You need to stop comparing our internal issues with their press releases.  Every company has growing pains.  Every competitor is resource constrained.  We’re all scared that the next round of funding won’t come.

So please try to keep your confidence.  We’ve assembled a great team of people that are each expert in what you do.  If we all stay focused on serving our customers and delivering as best we can every day then we’ll be fine.  The minute you lose confidence we’re finished.  Bad morale is the enemy of any company let alone a start up.”

Why did I come to this conclusion?  Because I had started reaching out to competitor CEO’s.  I figured we had much in common with them and we could benefit from a support system.  Our biggest problem was market traction not each other.  It was uncanny how when I spoke openly with them about my concerns how similar their issues were.   Sometimes it is nice to have enemies to motivate you, but it’s also nice to have peers.

Here are my take aways from that experience:

1. Be careful about believe everybody else’s good press and drawing any judgment on your own internal performance.  Judge yourself against your own expectations for yourself and your customer feedback.

compass2. Let your compass be based on your customers.  Get feedback, find out whether they are happy and serve them well.  Over communicate with them.  Don’t obsess with product releases of competitors or biz dev deals.  In the scheme of things they come and go.  Google announced Google Wave and people are worried about the impact on your business?  Don’t.  Product announcements come and go.  You need to understand the impact of your competitor developments and learn from them.  Just don’t obsess with it.  And don’t let it be your compass.

3. Remember to communicate with your team frequently and openly.  Point out the naked mirror syndrome.  It is the elephant in the room anyways.  Believe me they’ll all have Google Alerts out on the competition and will read their announcements with interest.  If you don’t address it they’re minds are shaped by competitor PR.

4. Be careful about not over expressing your deepest concerns to your team.  You need to be open but not instill panic.  It’s OK to talk about fund raising challenges or customer losses.  You should.  But most people aren’t wired to deal with the nerve racking daily grind of life as a CEO.  If you shared every deep seated fear (that I know you have) and over hyped every victory (that never pays off as much as you had hoped) you’ll have people on your roller coaster ride.  Remember that most people aren’t wired this way.

5. Don’t underestimate the impact of good PR on your competitors.  You need to be sure that you’re constantly communicating with the market.  Having a conversation.  Getting your company news out.  Believe me your competitors are watching.  Reading.  Good PR can help slow down your competitors initiatives as they naively try to follow you.  No news from you strengthens their internal morale.

6. Reach out to the competitors.  Get to know them.  Be open and many will be open back.   Realize as a start-up you have much more in common with them in driving the industry adoption.  I think it’s best to have friendly competition the way you’d hope to in sports.  Compete to win – don’t get me wrong.  But in a gentlemanly way.  If you feel the need to have an “arch enemy” to motivate the team (as some CEO’s feel the need) then make it just one firm and befriend everyone else.  Reach out to the founders, not the staff.  Keep your conversations confidential.  I wouldn’t even disclose to the team that you’re having them.  They then start to think sinister thoughts.

7. Your strategic initiatives are unlikely to deliver knock-out blows – Just as most people overplay their competitors strengths, they also tend to overplay their own.  No matter was killer next feature set we were releasing that we thought would completely change the game in our market it was uncanny how every major competitor I had was (in retrospect) working on the exact same set of features at the same time.  They had all the same customer feedback and had they all had smart people around the table.  I believe winning is about constantly executing, year-in, year-out.  Not about some knock-out feature set, biz dev deals , pricing drops or market positioning.

8. Don’t overset expectations for your employees on the way in. I learned this the hard way.  Imagine calculating what 0.25% of your company is going to be worth when you go public 18 months after inception.  I know it sounds silly to those that weren’t around in the late 90’s.  But when that doesn’t pan out then people look to the door.  After a while I starting telling people on the way in, “join because you’re passionate about what we do.  Join because you’ll make a good not great salary.  Join because as we succeed so will you.  Join because every year we’ve improved your CV to have an even better job in the future.  And, oh, by the way.  We do hand out stock options.  If they’re worth something some day that would be gravy.  But if you’re joining for just that reason it would be better to work somewhere else.”

  • Rajat

    Brilliant article- forwarded to a couple other CEOs. This advice is invaluable, especially in the midst of the roller coaster 😉

  • Rajat

    Also I wish other ex-CEOs wrote more of these ‘war stories’. There’s only so many times I can read ‘Founders at Work’

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  • camille

    sage Suster!

  • marksuster

    thanks, Rajat. appreciate it. I remember the roller coaster well.

  • marksuster

    Oh, well. Better for me that they don’t 😉

  • marksuster

    thanks, Camille. I know we’re do to see each other / speak soon.

  • Ravi K

    Brilliant article. Right on the money, very valuable advice. People should read this atleast once a month to set things in perspective. Following the advice here will keep any startup moving forward positively.

  • David Smuts

    Hey Mark, This insight you’ve posted has real value- it comes from real world experience – practice versus theory always has a higher intrinsic value in my book. It’s not often where I don’t have something to add or say – but in this instance I can’t add much more to a very valuable story, you’re spot on. Nuff said.

    take care, David

  • marksuster

    Thanks, Ravi. I wish I had known all this when I started my first company. Back then there were very few resources for entreprenerus. thanks for the comments.

  • marksuster

    Thanks, David. I’m not a big believer in too much business “theory,” which is why I’m going to do a post soon on why I think most entrepreneurs shouldn’t get MBAs. It’s a version of a one-on-one talk that I give at least once / month. I appreciate the feedback.

  • David Smuts

    Hi Mark, In my view MBA’s are good for upskilling Managers to better lead the established companies they are currently with or are looking to join. The expertise required of a Business Manager for a start up however is not gained from an MBA. The skillsets and knowledge requirements are different. And MBAs can actually hinder rather than help in this instance. It’s one of my missions and calls to action (among so many others) that in fact what both entreprenuers and our economies need is a sort of apprenticeship in Entreprenuership (giving credits to an MBA) which is solely focused on providing the necessary skillsets as well as mentorship for the start up Business Manager. One day of course, I’ll do something about that, until then I have a business to run!

  • Raj

    I would go as far as to say to entrepreneurs need very little formal education. Everything I’ve needed to know for starting companies, I’ve had to learn through reading or mentors or trial/error. Only one of my mentors was a prof.

    In fact, sometimes I regret all the hours I spent in the classroom learning things I’d never apply, just so I can get a grade that few would actually care about. What if I used that time actually building things that might help people?

  • Stephen Jackson

    Excellent and awesome article. I posted the link for my staff to read as well as small business owners whom I coach

  • Satish

    Excellent article. Right on the money. I have lived through the exact set of scenarios you described (went through the highs of 1999-2000, buzz from competitors, worried employees etc) before we exited in 2007. One additional point i wanted to add to your takeaway is “Vaporware from large public companies take atleast 3-5 years to fructify, dont panick”. That said customers do tend to panick in such scenarios.

    Fantastic article – today we live in times that remind us of the bubble aftermath, your experience from difficult times is more relevant than ever

  • Clark Benson

    good read – and most importantly a point that i haven’t heard reiterated countless times

  • Mark Suster

    thank you, Satish. I agree with you addition. Big companies always announce “initiatives” and take forever to deliver. But it does scare customers. So for startups you need to figure out how to market and sell against this vaporware. Thanks for your comments!

  • Mark Suster

    thanks, Clark. I think if you talk to people from the late 90’s most of us will tell a similar story. Maybe not publicly, but I hear it from nearly everybody from that era.

  • Leo Borj

    Thanks Mark for telling us the key lessons about your enterprise. It is a time consuming task we appreciate.

  • Chris B

    Hey Mark, I just stumbled upon this and enjoyed reading it with the benefit of insider knowledge – we all thought those share options were going to make us rich! But going through all the tough times together was (in hindsight) a great business experience, everyone who flourished in that time has gone on to build on those experiences and achieve further success.

    I guess it’s only when the going gets tough that you really find out who’s there for the long haul?


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  • Mark Suster

    Hey Chris! Totally. Thanks for the feedback. I think we all learned from our experiences and became much better people for it. That’s what people who go to work at start ups need to focus on more than the quick buck. Hope you’re well.

  • Alex Kelleher

    Mark, great post, so true, we’re all conditioned to believe everything we read about our competitors – much like we believe most of what’s in the papers, give or take. The power of the written word… Those of us who’ve been through the ups and downs with our own businesses should write more about it, great that you’re doing that. Bottom line, like you said, is staying solid on delivering something of benefit to customers, the competitive noise will come and go.

  • Mark Geller

    Mark, Great post–as someone who will probably need to address a situation like this at some point in the future, this is very helpful. The message you sent to your employees itself was inspiring. Also, I agree successfully working through an experience like this gives a team a bond and a level of confidence that is tough to achieve any other way.

  • Mark Suster

    thanks, Mark. I number of former employees have written since the post – we certainly built a bond having gone through it all together. thanks for the comments.

  • Mark Suster

    Hey, Alex. I know you were certainly there during the crazy times, too. You had to be there to believe it, hey?

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  • jasoncrawford

    Good post, thanks; a lot of good points here. I would like to hear more about the balance between being open with your team and candid about bad news, vs. not being *too* open and, as you say, taking them along for the roller-coaster ride.

  • jasoncrawford

    Good post, thanks; a lot of good points here. I would like to hear more about the balance between being open with your team and candid about bad news, vs. not being *too* open and, as you say, taking them along for the roller-coaster ride.

  • jasoncrawford

    Good post, thanks; a lot of good points here. I would like to hear more about the balance between being open with your team and candid about bad news, vs. not being *too* open and, as you say, taking them along for the roller-coaster ride.

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