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Fixing Potholes in Late Stage “Startups”

Fixing Potholes is not just about government reform anymore. I have worked in the private sector for some time now, and I am happy to report that the private sector is just as screwed up as the public sector. They hide behind different excuses, but nonetheless, they have potholes in need of fixing.

Trappings do not make a startup

Late stage startups

The phrase itself is misleading. Maybe “Missed the Window” or “Diminished Returns” would be better titles. Either startups that were once unique or innovative but now find their technology on an archaic platform, or worse, ideas that were solid enough to burn cash slowly and maybe hit break even but never solid enough to make profit to reinvest. The potholes are many. Management will claim to be a startup and aggressive when they don’t want to do the hard and boring work of setting up a business to scale. Or develop business processes. Or advanced views of the markets and their segmentation. These potholes will be thrown under the bus of “innovation” every time and ultimately the potholes will degrade to sinkholes and kill the firm. Or even worse, the founders who still hold maybe seven percent of the equity will sell at fire sale prices demeaning the years of hard work and sleepless nights performed by their trusted circle, the option holders. And those option holders will see what they once thought their nest egg go up in flames.

Or they will lever into a PE firm who has a single job to do. And they will take the innovation, strip it bare and sell it for parts. That is their reason to live. And it crushes the dreams of an entrepreneur and the economic promise of a great and successful firm. Don't get me wrong, PE and VC folks have a job to do, they do it well and they have incredible focus. But their job is not to make your dream real, or to create a vibrant economy. It is to maximize their returns.

Grow up and stop burning money

the drive to acquire share or users is an understandable first set of goals. It almost always should give ground to the desire for profitability. At the start. It should not be the excuse in year 9 and 10. And if it were my capital it shouldn’t be an excuse in year five. It is laziness or an inability to admit you have lost.

If if you have lost, cool. Wind it up. Shut it down. Let your capital book its loss. Do not pretend that your old technology can be masked to look good. Don’t market over the product gaps. Don’t keep it going to keep people employed. You are doing nobody a favor to be holding on to a dream. To those on the front lines that just feels like quarter after quarter of losses. Of missed goals. Of decreasing market share. Of competitive embarrassment. You are holding on due to your own pride or hubris.

If if it is laziness then give up your leadership post to someone who knows what they are doing. You are a drag on the firm and a drag on the cost of capital in the greater market. You give innovation a bad name and make true leaders embarrassed. Take the helm and make the hard decisions. Hard pivot your business model. Invest in real research. Build business processes that will take your meager growth and accelerate them elegantly. Get professionals to help understand the true go to market needs, work on the right segmentation. Figure out the penetration in your territories. Identify the white space. Invest in profitable growth and kill leakage. Be brave. Not an apologist.

And burn the damn beanbag chairs. You can buy them back at your exit five years from now.

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