When start-ups took off on a really big scale, everyone dreamed of one day becoming a CEO of a fancy company based on their own idea, which will make the world a better place. And now let’s see how it all developed.
Twitter – founded in 2006. The first profit declared in 2017/2018 was an exception because ever since the company keeps declaring losses. With the CEO change, there are plans to become a Super-App, where you can do more than just express your opinion. The idea, based on the Chinese concept (WeChat), is to allow users to buy and pay. It seems like the plan is to create a tuned-up version of Instagram.
Uber – founded in 2009. Never declared any profit (data for 2022: 516m USD of revenue, 1.2b USD of costs). Between 2011 and 2020 they received 32 funding rounds, with a total capital of 25b USD. In 2024, after 15 years, they plan to finally break even.
Airbnb – founded in 2008, declared its first profit in 2016. They had only 3 rounds of funding, starting with 0.5m USD. The idea was to help people travel cheaply during the economic crisis and enable others to earn extra money by hosting travelers.
Spanx – founded in 1998 by Sarah Blakely. Her capital was 5k USD taken out of her own pocket. Revenue in 1999 reached 4m USD. In 2000 revenue grew to 10m USD. She didn’t receive any external funding and didn’t use social media to help with marketing. The secret of her success was an excellent product designed for the users’ needs: footless body-shaping pantyhose.
What’s going on now?
Recent market changes are mercilessly revealing something that was surprising about start-ups from the very beginning: they all operate as if it was okay to declare loss from year to year.
An additional problem is the assumption of endless growth. The unfortunate effect of this way of setting goals for the future is the current wave of layoffs. Companies like Klarna, Netflix, or Shopify grew remarkably during the COVID-19 pandemic and are predicted to do so in the future – now have to let thousands of people go. Seems like the main reason for it is overly optimistic predictions and forgetting that people actually enjoy spending time outside if they are allowed to.
What are the reasons behind those mistakes?
Have start-ups forgotten about Lean as soon as they got the first round of funding accepted?
I have worked in two financial start-ups (also as a consultant for them) and the idea of declaring a loss and not making any profit, from my perspective, was always questionable. It seemed so strange, that in one of the companies I asked for a special presentation that explains this issue to my whole team, as it was strange for other people too.
So, this is how it works: you set up a company based on a great idea. You have a 4% chance that you will hit 1m USD of revenue and become a unicorn. This threshold, if ever reached, already is a huge success, even if your costs were 3 times higher than your revenue. Why? Because this debt you are taking will be paid, the moment the company enters the stock exchange market. So maybe you are taking a big loan, but you create a business value that will monetize in the future. But until then, the investors’ pockets will be drained with every funding round. And they will pay – because they are waiting for a magical stock hit.
Are you convinced? No? Yeah, I feel you.
What is the real problem? 6 deadly sins of every start-up
1. No structure
You won’t see it in the company description when applying for the job, but the clause about “we don’t work in bureaucratic mode” might give you a hint. As soon as you enter the place, you can see chaos everywhere: no clear team responsibilities, no proper structure of the organization (almost every person is a C-level because they can). Effectively, the majority of people are doing what they think is best. There is no clear definition of how you can get a pay raise because no requirements are defined – this is what we call a “flat structure”.
Add to it no well-defined incident management, no metrics, no proper CI/CD process, and enormous software kit, because everyone has the right to do as they please and add something new. And constant knowledge lost – because domain experts are leaving all the time, and the reasons you just read.
Remedy plan: create a structure where you can and share it with the organization. Insist on getting C-level approvals to deploy it in different teams.
2. CEO or CTO as an ultimate problem solver
There are two main types of those people:
- Visionary – they will always say that you were hired to solve problems, but then they will change priorities every 10 minutes and claim that it needs to be added to the current iteration.
- Control Freak – randomly checking JIRA tasks asking in comments why they are still not done. Make decisions about technical stack based on data that only they know (because they used to be engineers themselves).
This needs to be said out loud: it’s not their job. All C-level people are responsible for setting a strategic goal (99% of which is to become profitable) for the company and making sure it will be met. Yes – a goal, not multiple goals.
Remedy plan: be open about what employees can expect from the CEO and don’t forget to have it in the written form.
3. Eat the cake, have the cake, and not gain the weight
As stated before, there should be one strategic goal, not many of them. Why? Because not everything is equally important! You need to set up clear priorities so all the teams can work towards one specific goal. “If everything has the highest priority, nothing really has it” – it’s a cliche, but it’s true.
The thing is that goal is one, but milestones to achieve on the way are many (I recommend reading Impact Mapping from Gojko Adzic – it’s amazing how straightforward that is).
Remedy plan: be open to how it should work and insist on defining the strategic goal and the milestones to achieve it.
4. Board of Directors and how to pressure while being invincible
“It was promised to the Board” – and nothing else is important anymore. I have seen many people who were great at what they were hired to do, burning out while preparing another presentation for the Board. If you add all kinds of policy games that come with it, you will understand how hard it is to actually solve any given problem, even when the company is so small that the bureaucracy should not exist at all.
Remedy plan: show how their decision impacts the solution, end-users, and teams. Risk Register is a tool that will always help you.
Definitely my favourite one – I actually started working in a start-up because I thought that this is the only case when you can find legacy in a way that the fight will be won. Let’s go back to the debt that was created – it wasn’t only on the financial side, but also technical – because we are so focused on delivering the MVP version, we accept all the rushed decisions and shortcuts.
When the team is already in PROD there’s no time (again!) to work on the problems – because they need to deliver, deliver, deliver – and they are obliged to the Board, to the Investors, to the End-Users. It’s a vicious cycle.
Legacy is not only the development teams’ problem – it’s the responsibility of the entire company, which has shot itself in the foot before the whole marathon began.
Remedy plan: this is actually the problem that depends on you as a Project Manager / Scrum Master / Product Owner / Solution Architect – you have tools to solve it. It is your job to make it happen: by working with the team, understanding what low-hanging fruits you can pick, and what risks are related to not fixing some legacy problems. Make everyone aware of it, as eventually, these issues will impact the business flow.
6. You don’t deliver? That’s OKAY!
This is what struck me the most – some people were allowed to constantly not deliver, and it was okay: to be always late, to deliver without tests, to not define metrics before implementation, and later try to cover them. All okay. Waiting all day because the Scrum Master did not assign me a task? Also, fine.
Remedy plan: gather information and escalate how much time (that can be easily calculated into money wasted) it costs you. It’s always easier to talk about money than story points.
I still believe that awesome products can be delivered in an awesome way, but without a strict approach to some subjects, you will not succeed. And strict does not mean overwhelming or very time-consuming – you just need to stick to it and canvas it within your organization to make others hear you. And what’s most important – you need to follow the standards you set for yourself and show others how it can be done. This is something that can’t be taken from you and you will use it – if not in your current workplace, then definitely in the next one.
Senior Project Manager at SoftServe. Has been involved in project management for 10 years, and for the past 6 – only in the IT industry. She firmly believes in the principle “merge the people, split the software” and that good analysis can save several months of unnecessary development. At work, she focuses on asking questions and bringing to light problems swept under the rug. Certified Agile Coach and Product Owner – because it’s good to know more than one perspective. A philologist by education, she inherited her love of technology and production management from her Dad.