What Well Funded Startups that can't find Product Market Fit Should Do

It's hard for a founder that raised 10M+ during the last 3 years that doesn't have product market fit today. Let's talk about it.

Today, there are thousands of startups that are in trouble. They have millions in the bank, but no product-market fit and are struggling to pivot into one.

We’ve got a post coming soon about the startup insanity from late 2020 through early 2022. Huge funding rounds, little due diligence, over-hiring, and so on. It wasn't good. Everyone lost their minds.

Here is what I would say to the founders struggling to find product-market fit that still have cash in the bank:

• Forget who you are “beholden” to, that doesn’t mean anything. You are accountable to your shareholders, full stop. Your board makes you accountable. Be honest and transparent with them.

• Yes, you raised too much without product-market fit. You learned how to build a great narrative and that fundraising is about momentum. You didn’t need to build something real with actual metrics. Now you do.

• Get rid of your entire product management team and most of your marketing team. Without product-market fit, the founders must own this!

• Cut the team in half. Yes, at least in half. If you raised 10M+ and don’t have product-market fit, you don’t need 50-100 people. You need 10-20.

• Step back and take a complete inventory of your assets and liabilities: cash, revenue, talent, commitments, etc. Write it all down.

• Create a weekly cadence of experimentation. Double down on what works, toss out what fails. This is where most of you fail. You don’t function with a weekly cadence and don’t hold your team accountable with metrics. If your team can’t do it, replace them. Talent is available. This is the time to fight so make sure you have a team of fighters.

• Cut non-productive activities. Trivia Thursdays, Bowling Wednesdays, etc. These are “peace-time” activities. Your company is at risk of death! They signal two things to your employees: everything is fine, and the work itself at the company isn’t rewarding enough.

• Get the team together in person. Rapid experimentation happens best in person - you need whiteboards, shoulder-to-shoulder collaboration, and the energy that comes with it all.

• Remember how progression and momentum drove your fundraising process? You’ve hustled hard in the past with discipline, so apply that mindset to experimenting your way toward product-market fit.

• Finally, instead of worrying that you have burned $20M out of the $50M investment, change your mindset to "I’ve just raised $30M, what is my plan?”. Round sizes pre-covid were less than half, so you have more capital left than a total raise in 2019.

If the founder just doesn’t have their heart in it, they should certainly consider returning the cash. Or they could sell their shares for $1 to someone who wants to take it over with board approval. Or find an acqui-hire. Private Equity.

There are ways out, and as Gokul says, founders shouldn’t be ashamed. The investor will absolutely appreciate their candor/honesty and will work with them. Or maybe they’ll step up and help the founder fight, re-igniting their fire!

Of course, there are some investors that will respond incredibly negatively. To be completely honest, that startup was probably fucked anyways because the investor didn’t fundamentally understand the risk that comes with early-stage investing.

Founder Secondaries

There is a dirty little secret - founders were incentivized to drive the largest, fastest rounds possible because they were driven by secondaries.

(Reader: a secondary is when existing shareholders sell existing shares to investors in the current round. From 2020-2022, many founders sold some of their own shares during these large funding rounds - even at Series A!)

Those secondaries are now gone, so the founder's motivation now needs to re-focus on longer-term objectives, which is a rather large head-space shift.

Startups aren’t a get-rich-quick scheme anymore. Sanity has been restored, and founders need to build.

Have feedback or thoughts? Let us know!