We’ve all heard that line about the 10 year “overnight” successes.

A friend* recently told me a key metric of his company was growing 4% week-over-week. Actually, he related with some dismay that it was only growing at 4%, and he was looking to build another product to make their company more attractive for raising the next round of funding.

I was shocked.

The base number that this 4% growth is accumulating on top of is in the billions, without much marketing or distribution yet. They found a problem many people had, solved it elegantly, and then forgot to tell those people about it.

Instead of doubling down on something that was working, going big and blowing it out of the water, they went chasing after another adjacent product without real market validation, significant platform risk, and delusions of grandeur. All to raise a Series A.

I’ve seen this story play out before, and it doesn’t end well.

Double Digit Growth Addiction

Paul Graham’s essay on Growth is extremely important reading for early stage startup founders, and this guideline in particular is quite useful:

A good growth rate during YC is 5-7% a week. If you can hit 10% a week you’re doing exceptionally well. If you can only manage 1%, it’s a sign you haven’t yet figured out what you’re doing.

Important context for this advice, which I believe is often missed, is that the majority of companies in YC launch during the tail end of the program.

If your startup has some success in the years following graduation from the incubator, you’ll discover the painful truth: it’s incredibly difficult to grow 10% week-over-week once your TechCrunch spike is gone, you’re 3 months out from demo day, and you’re still not doing marketing because [enter excuse here].

Gone are the days of the lovely hockey stick graph you proudly showed investors from the Demo Day stage. It’s been six months now and their money is in the bank, but the rush of winning those signatures has long passed. You feel like every update you send them is a bit anti-climatic. “Grew 14% this month,” you write, and paste in a graph with bars as blue as you feel.

The 6 Month Crisis

For startups who are funded, it’s easy for founders to tell themselves that fundraising isn’t the most important thing but a lot harder to feel it, know it, and truly believe it. Often raising a round is the first external-facing “win” you’ve experienced in months. It becomes a new emotional local maximum, and six months after raising you might find yourself looking for the next burst of excitement and validation to match it.

Long gone are the double digit numbers, because the base you’re growing from is much bigger now. You can’t hand crank this machine you’ve built anymore. You need people to help you feed it. There aren’t enough hours in the day. You’re a generalist but now you need specialists.

Things have changed, and that’s okay.

Building a company is quite different from starting one. The shine of being a “startup” wears off, and it’s time to be a business. As soon as you’ve found some product market fit your job shifts from finding the market to capturing it. If you don’t make this mental switch, and keep fighting for the new hotness, you’ll be like so many companies with too many ideas and too little execution. You’ll die.

Incrementality

Most wins you’ll have are incremental, so subtle that you might not even realize you’re winning. When seasoned CEOs say the harder road lies ahead as you toast champagne to a milestone like a financing round closed, big contract signed, crucial hire started, key acquisition completed etc… they know the truth.

All that vision, all that ambition, all those grand dreams of the future… they felt so close as you pitched your big vision but as you wallow in the weeds and details of really nailing each sales call, each deployment, each planning session, each new hire… all that feels so far away. In some ways, you might feel held back.

It’s so tempting to dabble. Now that you have money in the bank, a team around you, and some traction you feel you could build anything. You can see your market more clearly than anyone else on Earth, and you’re intimately aware of the problems your customers face. You want to solve all of them. You want to be their hero.

Just stop.

Your ego is going to hate you for this, and it will fight you.

Stop.

The Longest Road

Building a startup is about fighting all the temptation that lies out there for a maker. You can prototype anything, maybe you also have some visibility and platform to speak from, it’s easy to think you can dabble in anything that could be a big market opportunity. The “Crossing the Chasm” strategy of tackling and winning a beach-head, which sounded so right and so daunting 6 months ago, is now happening. You haven’t won yet but like a soldier who yearns for home you’re looking to the future and, if you allow it, that distraction can become so acute you’ll die in a daze on the battlefield. You might not even know you’re dead.

Investors, advisors and other people will also start seeing the future more clearly – because you did a great job painting the picture for them. They’ll try to get you to talk about what’s next, they’ll add more temptation to focus on the next battle when you haven’t yet won this one.

Don’t let them.

Win.

*details have been changed to protect the anonymous

I get a lot of feedback asking why the monthly startup momentum index doesn’t include revenue as a signal. There are two reasons, and the first is that most startups don’t want to provide that data to outsiders. The second is a bit counterintuitive, but stick with me and I’ll explain: revenue doesn’t actually matter for finding hot early stage startups.

While revenue is a useful signal to founders, indicating they are creating something people want, it is also a lagging indicator of success. Startups who are willing to reveal revenue data publicly do so because it reflects well on them. They’re in control of their destiny and decide when and how to raise money. Investors and employees have already missed the window of massive upside that comes with getting in before the company reaches this milestone.

By the time a startup has a predictable and steadily growing revenue stream that means it has built a product and brought it to market successfully, so the risk of investing in it has gone down tremendously and so has the reward. This is why Y Combinator stands to be massively successful – they invest early enough to capture the upside of startups that haven’t figured these things out yet, and then they help them improve and de-risk the company before involving future investors. The YC model tolerates much greater uncertainty than other angel investors and in return they receive outsized gains from big wins, plus minimal losses from companies that fail.

Revenue First

Early revenue can be dangerously distracting for founders. Once you have some of it you want more, and without strict discipline it’s easy to optimize for immediate gratification rather than the big vision. For founders who have never made $10k a month this feels like a lot of money, especially for the young software engineers straight out of college who never even had salaries that high.

Now in order to make your graph go up and to the right you need to make $12k next month, and $14.5k the next, and $17k the month after that. And that’s just 20% growth month-over-month, which is not actually that sexy of a growth rate – after a year you should have a $87k month in revenue, giving you an annual run rate of just over $1 million. That’s a tiny business, and remember this is revenue not profit. If you run a tight ship this might be break even, but if you’re doing B2B software you probably need to hire support, sales, and lot’s of engineers. You need to raise more money.

What if this same startup, who is seeing steady but not spectacular linear revenue growth, is also fast becoming the most well known new company in its emerging space? They’re discussed on Hacker News all the time, friends have started using them, they’re clever and engaging on Twitter and I see them retweeted all the time, their company blog shows up on Techmeme once in awhile and when their CEO comes to speak at a conference he is the highlight of the event. I’m seeing them everywhere. A couple friends have gone to work there.

Be everywhere, be awesome.

Capturing Value

How much does this public awareness increase the value of the company? A lot.

When you see unexpected, small, or otherwise questionable companies in my latest top 20 list swallow your cynicism and dig deeper. For investors this is a list of pre-qualified leads worth reaching out to. For knowledge workers these are companies with upside opportunity if you join the team right now. For founders, this is acknowledgement of the hard work you’re putting in pre-revenue to build a massively valuable company.

Don’t let revenue be your vanity metric.

My old startup died.
I have been working on my new startup.
It’s kind of named after this band I love, but not entirely.
New name, and we’ve got a long way to go.

Art Is Hard

Cut it out – your self-inflicted pain
is getting too routine
the crowds are catching on – to the self-inflicted song
Well, here we go again – the art of acting weak
Fall in love to fail – to boost your CD sales
And that CD sells – yeah, what a hit
You’ve got to repeat it
you gotta’ sink to swim

If at first you don’t succeed
you gotta recreate your misery
’cause we all know art is hard
young artists have gotta starve
Try, and fail, and try again
the comforts of repetition
Keep churning out those hits
’til it’s all the same old shit

Oh, a second verse!
Well, color me fatigued
I’m hiding in the leaves
in the CD jacket sleeves
tired of entertaining
some double-dipped meaning
a soft serve analogy
This drunken angry slur
in thirty-one flavors
You gotta’ sink to swim
immerse yourself in rejection
regurgitate some sorry tale
about a boy who sells his love affairs
You gotta’ fake the pain
you better make it sting
you’re gonna’ break a leg
when you get on stage
and they scream your name
“Oh, Cursive is so cool!”

You gotta sink to swim
impersonate greater persons
’cause we all know art is hard
when we don’t know who we are

Last night I logged into Referly for the first time in a few weeks. I’ve been trying not to do that, because there are still so many things I want to fix and when I see them I just… and I was so in love with it and it’s just… and knowing that we aren’t continuing in this direction it just… hurts. It hurts.

I logged into the admin panel. I don’t know what I expected to see. If you’ve ever wondering what would happen if you stopped working on your startup I can tell you now so you don’t have to satisfy your morbid curiosity.

If you stop working on your startup, it dies.

None of this four hour workweek perpetual motion machine bullshit. It dies, or in our case it lingers on the brink of death. I’m still amazed that we have so many pageviews a day with nothing, no tweets, no Facebook posts, no blogging, no efforts to drive traffic or create new content at all (I had to let go of all our lovely writers). We turned off all our automated emails to customers, it’s been a month since we’ve sent them anything new, there are no new features (we let our engineers go too). It’s just me, Kevin and Andy now. The team went from 8 people to 3 in 24 hours. I couldn’t even go to our office for a week, it was too sad sitting there with those empty desks.

(But don’t you dare feel sorry for me, I did all this myself.)

It would be so easy to rationalize a case for “it’s working on its own, maybe you really have something here”. 8 new collections were made today, and 12 yesterday, and 5 the day before that… and I’m just wondering, who *are* these people? And 5 people signed up today. And 20 people logged in. Oh god, I’m actually tearing up because 175 new items were added to profiles today and these graphs look like… Actually, it kind of looks like the site is just doing its thing without us. It’s not growing, but it’s not dead.

This is why zombies are the worst, they suck you in and prey on your worst fear.

Did I make a huge mistake shutting this down?

I was so good until last night! I didn’t do this for 40 days… but on the 41st I gave in. I opened my editor tools to review all the new collections being created lately, the ones making the graph look like a weak little heartbeat.

It’s all spam.

Sigh. Now I remember why we shut this down. Back to work.