I believed that my debut startup — an online fashion retail store — was slated for astounding success. In four years, we had raised $4 million in Pre Series-A funding, built an expansive customer base and seen robust growth. But we soon hit a wall and decided to shut down the business.
I still don’t see this as a failure because of what came out of it — years of lessons, missed opportunities, retrospective moments and a second venture that is one of America’s fastest-growing companies today. So, if you are willing to learn from your mistakes, success is definitely possible as a second-time entrepreneur.
Here are my most crucial lessons:
Delay raising funds to avoid a sense of comfort.
If you raise money too soon, you may not be able to step out of your comfort zone. Entrepreneurs can get excited about VC funding and investments, but raising funds early on can give you a false sense of security and make you complacent. For example, with my previous startup, since we had substantial funding early on, we lost our focus. We became obsessed with acquiring customers at any cost to justify the funding and didn’t spend enough time creating a highly differentiated experience for our buyers.
Instead, we should have taken the time to iterate and improve the product/market fit even though it would have initially meant relatively slower growth. So, start by building a lean and bootstrapped company, focus on doing more with less, prioritize the areas that matter and only raise funds when you really must.
Keep your fixed costs relatively low.
This one ties in closely with delayed fundraising. When you have lower fixed costs, which the pandemic has made possible, you can allocate more of your budget towards discretionary costs and adjust them as needed.
At Squadhelp, my current venture, our largest cost category is marketing spends, which can be modified if the situation demands. Build a small internal core team of high-performance individuals and leverage crowdsourcing and other on-demand models for specialized tasks not core to your business. This way, you can stay nimble and adapt as the market conditions change.
Be obsessive about customer feedback.
Entrepreneurs are highly motivated toward customer acquisition and satisfaction when the business is just launching. However, when the customer pool starts to expand, each customer may not get individual attention. That’s where you can differentiate yourself.
Consider every single customer as special, and ensure that each of them is inspired to give a highly positive feedback and rating about their experience with your business. At my second startup, we have daily meetings to go over feedback from our pool of more than 35,000 customers. We then prioritize and implement changes weekly based on this feedback.
Don’t wait for perfection, keep moving.
At my first venture, we always aimed for perfection. We tried getting everything right from hiring one of New York’s best creative agencies to building a state-of-the-art fashion studio, an in-house product delivery team and so on. Spending time and resources on these elements did lead to results but also delayed our progress.
Instead, at my current startup, we focus on speed more than perfection. For example, we try to offer more features and get customer feedback on them before we go all in. This way we know whether to keep perfecting it or simply let go. In a business, doing something every day is often better than doing something only when it is perfect.
Don’t be afraid to pivot.
We saw a clear sign that something was amiss with the original fashion business model — acquiring new customers kept getting costlier and older customers weren’t always coming back without an incentive. Yet, we did not make amends in time and focused on scaling the business. If you come across such a warning sign, don’t look past it. These can be early indicators of a pivot, i.e. the old business model needs major rethinking.
Pivoting is a chance to redeem a failing business and should be seen as an opportunity. Most notable businesses that you know today be it Instagram, Netflix, Twitter or Starbucks are the result of a timely and opportune pivot. So, watch out for warning signs through analytics, customer feedback, profits, etc. and make the decision to pivot to save a dying business.
Pay more attention to customer value creation than customer acquisition.
Initially, you may be able to buy your way to new customers through aggressive marketing. But what matters more is them returning the second or the third time, on their own. At my previous business, we focused disproportionately on acquiring new customers through elaborate marketing spends. But the real priority should have been value creation so they return.
This also means that you should closely examine data and metrics related to recurring customers than first-time ones. Assuming you have created something of value, acquiring a customer for the first time is not difficult. However, the true barometer of value creation is repeat customers — i.e. are they coming back on their own to transact with you after the first time? If they are only coming back for a financial incentive (such as a coupon or discount), your business model is probably flawed and needs amends.
Ensure your teams learn from each other and improvise.
Teams can contribute more when they are given an opportunity to intersect. For instance, merging tech and marketing, when possible, can produce phenomenal results such as building effective customer acquisition tech, speeding up market research, producing web analytics and so on. At my current company, we were able to create targeted AI-led customer acquisition campaigns as a result of our marketing and tech teams collaborating.
Everyone deserves a second chance, including startup founders. Even if you feel your first business isn’t redeemable, you still have the lessons from it. So, if you are planning to launch a business again after your first attempt, focus on applying some of these key learnings: keep operations lean and self-funded till possible, give your customers disproportionate attention and value their loyalty, get ample actionable feedback, choose consistency over perfection and be open to adapting.