Zombie Startups – Elle Morrill

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This post is a more in-depth commentary following our announcement yesterday that Referly will discontinue paying users cash rewards for generating purchases at the end of this month. Referly has pivoted and you can read more about our new direction here.

My greatest fear as a startup founder isn’t to fail, it is to become a zombie startup. Kind of like in the 6th Sense when Bruce Willis doesn’t realize he is dead and tries to have a nice dinner with his wife, there are startups out there who are still “operating” but might as well not be.

It can take a long time to die. I’m not going to name any names, but you could simply cross reference yclist.com with alexa.com, and any company that shows little to no growth in web traffic in the past year that claims to still be operating is probably a zombie. Yes, even companies that focus on mobile or enterprise sales should see healthy growth in web traffic at the early stage.

With just the $150,000 each of my Y Combinator batchmates received last summer, many can continue to work on their company or change direction several times. It has been 6 months since Demo Day and I don’t think anyone has officially died. So I’ll say it. Referly died. It’s not the kind of dead where the website goes dark and everyone gets jobs somewhere else. But the idea that we started with turned out to be the wrong one, so we killed it and yesterday I acknowledged publicly to ourselves and everyone else that we have to change our course.

Helpful Things Investors Say

Over the summer when the seed market was hot and we were raising money pre Demo Day like gangbusters I seriously considered raising our Series A, or some kind of Series Seed style equity round. To feel out the situation, I spoke to some investors who had already put money into Referly and asked them what they needed to see from us in order to raise the equity round we were contemplating. I’ll never forget this feedback, which I will paraphrase since I didn’t write it down:

“The biggest problem we see with early stage companies coming out of YC, or really any program, is that they’ll approach a year or two after they’ve graduated to raise a seed round. It’s exciting to see they’re still alive and pursuing their vision, but then we ask about the growth of the team and the ways they’ve been capturing the opportunity of the business in the time they’ve had… and discover everything is the same. The same 2 or 3 people, the exact same idea, very little growth around key metrics like engagement or revenue. So why should try raise a series A? What have they proved?”

Ride or Die

Sometimes I feel caught between two mindsets, one that encourages me to be a cockroach and survive no matter what and another that inspires me to overcome my fear of flying and take it to the next level circumstances be damned.

The biggest reason to charge ahead is that I don’t want to waste a single moment of my life in denial, in deadlock, in zombie mode waiting for something I can’t control change or expecting magic to happen. It goes beyond not wanting to. I simply can’t, won’t, would never give up precious days, weeks, months, years. And it’s not that I don’t have endurance for the schlep, but I can only summon that super-human power to fight for the right thing.

Referly Monthly Active Users

I bet if you showed this graph to investors many would tell you your startup is doing GRRRRRRREAT! For a blogging platform (where we’red headed next) this is awesome – for an affiliate referrals site this doesn’t matter. It’s all about revenue, and it wasn’t climbing at a commensurate pace.

Is Your Startup a Zombie

How do you know if you startup is falling into this trap? Here are some hints:

You don’t want to get out of bed in the morning
You don’t want to go out in public for fear you’ll have to explain what you do
You haven’t hit 10% week-over-week growth on any meaningful metric (revenue, active users, etc)
You’re working on the same idea after 12+ months and still haven’t launched
You’ve launched a consumer service and have less than 2% week-over-week growth in signups
You’ve launched an enterprise service and have less than 2% week-over-week growth in revenue pipeline
You are the CEO and hole yourself up in the offices so you don’t have to talk to employees and can read TechCrunch
You’ve hired consultants to figure out revenue, culture, or product in a company of less than 10 people
You’re at SXSW right now reading this post and trying not to cry

Update: I’m not saying you need to hit 10% growth every week, but you should have hit it at some point like launch or some other PR event.

Turning Things Around

Does any of this sound familiar? If so, don’t panic – you can fix this. The first thing you need to do is acknowledge the reality of your situation. From there, figuring out what to do next is a lot harder and a very personal and contextual decision, but you should embrace it with vigor. Don’t waste single moment of your life, or the time of those on your team, to begin plotting the next step. Paralyzed? Yeah, I know that feeling. Just plow through it, there really is no other solution. Along the way you may consume dozen of beers/shots with good friends over long circular discussions they tolerate because they love you. Do that, and then get back to work.

I’m not an expert at figuring out what to do next, I mean I just changed course on an idea that took me 3 years to start and another year to prove didn’t work. But whatever… the point is that no one is going to tell you that your company is a zombie. Except me. Don’t waste your 20s, or 30s, or 40s being a zombie.