My most recent start-up, a mobile planning application known as Nextt, is shutting down.
“Starting a company is like throwing yourself off a cliff and assembling an airplane on the way down.” Reid Hoffman, LinkedIN co-founder
I’ve jumped off 4 cliffs in my career. On two occasions, I helped build teams that put together airplanes and took flight. On two occasions, we crashed into the ground. Flying is more fun. Failure sucks. It’s incredibly depressing to disappoint investors hoping for a return, empty your office, fire employees who believed in you, and slink home to count your losses. Yuck.
But you know what? I can’t say that I did a bad (or even different) job in the start ups that didn’t take off. In all four we made stupid mistakes, did some really smart things and made a good run. That’s what entrepreneurs should focus on in my opinion: Did you take a good run at the opportunity?
Practicing When I was in law school, I always thought it was silly the way doctors and lawyers talked about the “practice” of law or medicine. But I now think it makes a lot of sense. You don’t cure every sick person or win every case. You take the hand you are dealt and do the absolute best you can. And you might actually do the best job of your career for a patient that dies or a client that loses. The ultimate result is not completely in your control. You work hard, do your best, and refine your skills along the way. The same goes for startup founders. We are practicing, and if you practice long enough you are going to lose some trials or have a patient that doesn’t get better. We shouldn’t stop being entrepreneurs because this happens, so long as we’ve done a good job and don’t make the same mistakes again.
The medical profession does a great job sharing what worked and what didn’t so everyone in their trade can benefit. For a long time, entrepreneurs didn’t, but that is thankfully changing . In that spirit, the following are some of my takeaways from Nextt. I hope they help other entrepreneurs in their own practice.
Summer, 2012. I co-founded Nextt with Emmanuel Buah in June of 2012. The company started from a problem Emmanuel was having scheduling pick-up soccer games. Planning stuff with friends—social planning—seemed like a really interesting opportunity in the social space. Facebook was for sharing what you’ve already done, Twitter and Snapchat what you are doing right now; but what about your future? The stuff that you wanted to do with your face-to-face friends? Email, chat, text messaging, calendar invites. Nothing seemed to work very well for social planning and discovery.
We saw an opportunity to create a big brand that managed your social future and helped you tostay connected with your face-to-face friends. And by helping people do more together in the real world, we hoped to be an antidote to the fluffy social media friendships we maintain but that don’t really make us very happy.
Into the market with a mission we would go.
Fall, 2012. We secured our first office space and hired our first employee, and were actively pitching our first seed investment in which we hoped to raise $200k at a $1M pre-money valuation. My focus was on talking to potential users, studying competitors, pitching investors and recruiting our team.
May, 2013. We had raised a couple of rounds of seed money, hired a fantastic 7 person team that believed in our mission and were working really hard to get version 1 of Nextt launched. We decided to focus on Gen-Y and Gen-Xers. Over and over in our user groups, we heard frustration from this target market around getting “real life” friends together. These older target segments were busy working, raising families, etc., and experiences with their friends were getting left behind.
From the outset, the social planning problem proved extremely complex and multi-dimensional, defying a simple Minimum Viable Product. Social planning involves a very broad continuum. Some plans are spur of the moment, open and flexible (e.g., happy hour tonight anyone?), some involve long lead times and privacy of membership. Some have all the details worked out and just need an RSVP; others are simply rough ideas (e.g., let’s do a road trip sometime), that require lots of work to finalize the who, when, what and where. The social dynamics of invitations also added complexity: no one wants to send an invite that flops, so we often socialize a plan loosely to test it before putting it in a more formal format. Could we focus on just one type of future intent with razor blade focus or would we need more of a Swiss army knife approach to provide enough utility for users? Working through this complex problem took many months.
In the end, we tried to focus v1 of our product on helping people transform rough ideas that they talk about with friends into actual completed plans. Our use case: Don’t just talk to friends about doing something together; grab your phone and share that idea on Nextt right then and there to make sure it actually happens. We heard this problem use case over and over again in our research and we hoped Nextt could be the catalyst to make these tentative plans actually happen.
November, 2013. We launched Nextt v1 as an iPhone app and on the desktop and mobile Web. We gathered some fantastic earned media at launch and our brand promise and positioning seemed to hit a chord with people that were suffering a social media hangover. The attention and brand promise were there, but would the product deliver the viral user growth we needed to raise more money?
Short answer? It didn’t. For the longer answer of why, and some lessons I’ve drawn from Nextt, feel free to keep reading.
I return now to Reid Hoffman’s quote about jumping off that cliff. As an entrepreneur trying to build a company, you’d better be constantly aware that the bottom of the cliff is approaching, the speed of which is a factor of how much cash you have left. And there are three basic ways to avoid crashing: 1) turn your business into a cash flow positive, sustainable business; 2) make enough progress and hit enough milestones to justify another round of investment; or 3) extend the runway you have by earning more and/or spending less. Nothing else really matters.
In the case of Nextt—a free consumer application that needed big scale to monetize—we focused our seed money on hitting milestones that justified another round of funding. Focus and simplicity are keys to managing the start-up process and the rabbit holes that surround you. There are generally one or two metrics that will define your success or failure, and you need to focus maniacally on those key metrics. Our big metric at Nextt was weekly user growth. Because our product was inherently viral, the weekly growth rate had engagement baked into it, so we didn’t separately measure engagement. If people were using the product it would spread and grow new users. If they didn’t use it, the growth rate would stagnate. With seed money in hand, we set out to get a group of people using Nextt, and show substantial progress on our weekly growth rate that justified more funding before we ran out of cash.
We expected to make v1 of the product publicly available by August, which would have given us 6 to 8 months in the market before running out of cash. Unfortunately, Nextt didn’t make its first product launch until late November. Delayed product releases are very common, and it’s easy to Monday morning quarterback, but this delay was tough for us to overcome. It didn’t come from lack of hard work or talent. We had a smart team that worked startup hours. As CEO, I take the responsibility for our launch timing. Looking back, I see several factors that led to our later than projected release:
- Over-Design. Emmanuel and I spent far too much time debating, white-boarding and designing future elements of Nextt in early 2013 that went beyond our first use case. Although it is important to have a longer-range vision of where you want the product to go after your first release, you have to be very disciplined not to dwell too long here. As Steve Blank says “no business plan survives its first contact with customers.” We discussed and debated product features and elements of future Nextt that we never ended up building, burning critical time and cash that would have been better spent getting a rough version of the core product into users’ hands. Takeaway: Don’t spend time putting together product puzzle pieces that may never exist.
- Technology Consultants. Before hiring a fantastic iOS dev to our team, we relied on two mobile development firms to build out versions of Nextt on the iPhone. I have always resisted using consultants to build out core elements of a company and Nextt is a great example of why I hold this view. We ended up wasting time and money. Good software engineers are extremely resistant to work from other engineers’ code. They always start over. Takeaway: Consultants can do great work, but if you are building a software company, get your dev team in house from day one or you will take one step forward and two steps back.
- Multi-platform. Mobile has opened up tons of opportunity, but the multi-screen consumer world is really challenging. If you are building a consumer product where do you start? iOS, Android apps, desktop web, mobile web, tablets? Nextt needed to work with all of your close friends to be effective (you don’t plan stuff with just your iOS friends), so we decided to launch on multiple platforms from day one. This proved overly optimistic. Takeaway: Work hard to decide what you need to test with your first product and work even harder to see if you can make that test work on just one platform.
- A Complicated Problem. We needed single user utility with Nextt to avoid the chicken and egg problems that plague many networks. Specifically, we needed the first person in a friend group to be able to sign up for Nextt and plan things with non-Nextt users immediately, rather than having to wait until their friends also signed up for the service. This required a ton of work to make the viral loop of Nextt user invite to non-user uptake connect across multiple devices, multiple communication methods (sms messaging and email) and multiple data sources (phone contacts, email contacts). The team did a fantastic job of hooking up this loop, but it took a lot of development time. Takeaway: Entrepreneurs are overly optimistic by nature; make sure you are not overly optimistic in the time to solve complex engineering problems and plan accordingly.
When these delays in our product release came, so came a key mistake for me: I didn’t recalibrate fast enough. Again, everything looks easy with hindsight, but I wish now that as our release delays came that I would have taken more drastic measures earlier to cut expenses, simplify our product goals or both. And although the team was aware of our general timing and goals, I also wish I would have made our fume date and what we needed to accomplish prior to hitting that date even more transparent, which would have empowered our talented team even more. Takeaway: Watch your cash runway closely and constantly recalibrate what you can and should accomplish within that runway. Judge everything you do through this lens.
The Big Middle
Launch fast and learn fast. You hear this Lean Start-Up mantra all the time. I don’t completely buy into the Eric Ries Lean Start-Up playbook. It seems to me to be an oversimplified version of Steve Blank’s customer development methods. A start-up can’t be so easily reduced to a simple scientific experiment. Funding, pitching, hiring, storytelling, and anticipating the future. As a start-up founder, you need the timing and intuition of a salesman as much as you need the methods of a scientist. (I’ll dive into this more in a future blog post).
But I will say this about the lean-start up concept. Its focus on speed to market is right on. Why? Because your target market will lie to you. Not intentional lies, mind you, but falsehood nonetheless. Let me explain.
“That sounds really cool.” “I would use that.” “What a great idea!” This is the praise that many startup founders hear when they socialize their products pre-launch. But be aware of what people tell you they think they want. If you are engaging and persuasive, people will tell you what you want to hear. But they may do something completely different when the time actually comes to use the product. It’s what they do when the product is in their hands; not what they say to you beforehand that counts. And therein lies the genius insight of the lean-start up. Releasing early minimum viable products allow you to truly test the assumptions you have about customer behavior, and iterate accordingly.
This isn’t to say that you shouldn’t talk to potential users pre-launch. Of course you should. You should talk and listen and collect as much data as you possibly can about your target user. But if you are in the consumer space, you should take their predictions on what they actually want at a huge discount value and try to validate it as quickly as possible. Let the pre-product data inform your gut intuition, but let the MVP confirm what they actually do.
Unfortunately at Nextt, we got stuck in what Ash Maurya calls “The Big Middle.” We talked and listened and applied pre-product customer feedback and insights when building the requirements for v1 of the product, then we disappeared into the big middle, heads down coding and building and testing and q/a’ing from May to November with nary a consumer insight in sight. Our heads down product development disrupted our efforts to actually validate consumer behavior for too long. And as a result, we spent precious months building features that people said they were hungry to use, but ended up not actually using. Takeaway: It’s what people do that counts; test their actions as quickly as you can.
Image Source: Ash Maurya
I should have done a better job recognizing we were trapped in the Big Middle early on, and recalibrated accordingly. But I didn’t, and although we tried to incorporate the key insights we started learning from customers using the product in November, we didn’t have enough runway left to move the needle on our weekly growth rate. Or in the language of Steve Blank, we had engaged in “premature scaling,” burning up too much cash, too quickly and without enough to show for it.
So what did we learn when Nextt was released to the market and we got out of the Big Middle and started studying and listening to what our customers had to say again?
People are Lazy and Changing Behavior is Hard
In the world of consumer services, people now expect great things to be free. We can debate whether trading your personal data for free services like Google or Facebook or countless other mobile apps is a good trade, but the reality is that free doesn’t get your product any attention now. It has to be free of course, but it also has to have something pretty amazing to get attention and change behavior.
I think about the challenge that many founders of consumer products face as follows: people are solving the problem you are focusing on in some way now, before your product exists. And people are busy and lazy and the market is crowded with things that are free. So your product better be some combination of: 1) amazingly better at solving the problem (like 10X better); and, 2) really easy to incorporate into their existing behavior. And in the case of a network effect business model like Nextt, in which new users create the value of the service, these two elements—utility and ease of use—work together to create either a positive or a negative feedback loop. To put another way:
Perceived utility + pain of existing problem > Initial learning curve for usage
What we learned from our consumer usage and feedback was that we had a negative loop.
It’s the Content, Stupid
Nextt was a social network—a place for you to connect with your smaller social graph of face-to-face friends in order to create more experiences in the real world. And the fuel of any social network—its utility—is content. Without fresh and interesting content for users to create and consume on a very frequent basis, the network will die. Most dominant social networks have used the tried and true playbook of appealing to base human desire—sex, money, status, ego—as the stimulus for user generated content. This is the magic script for utility in social. But our social network was more functional and a few levels up from base instinct. Would people produce content on a frequent basis with Nextt that was designed to build stronger, closer face-to-face friendships? This was a key assumption that we needed to test with an actual product.
And the answer we found was different than what we heard in our user groups and market research. People loved the concept of Nextt and tens of thousands signed up for the service, but when it came to actually creating plans and other content, they didn’t follow through. And as we drilled in here, we found that the primary reason they didn’t create the content was because our multiple features made the learning curve too high relative to the pain of their current planning methods.
If I had more time, I would have written a shorter letter
This Mark Twain quote brilliantly sums up the challenge we have as founders. Simplicity is hard work. Really hard. At Nextt, our first product tried to capture too many forms of future plans that required us to layer on multiple product features. And as a result, our key use case got diluted, our product’s initial learning curve was too high and the “Why” for our product got lost in the noise.
On his Exponent podcast, Ben Thompson gave a great example recently of how Pharma companies use noise to their advantage. We’ve all laughed at the huge laundry list of health warnings that these companies provide during their commercials, but in reality, there are only a few of the warnings that are actually legally required; the rest are there as a smoke screen. And it works. We simply tune it out and the truly important warning message gets lost in the noise. Too many product features can unfortunately work like this too. Takeaway: Work hard at simple and don’t bury the “why” of your product in complicated features. Ask constantly whether the feature you are adding is critical for your first use case.
In the case of Nextt, users simply reverted to sending emails or text messages or calendar invites for the use cases we thought they would use Nextt to plan. The pain of using their current methods simply wasn’t great enough to justify the work of learning and remembering to use our somewhat complicated application that tried to capture multiple forms of future intent (simple ideas to complex plans).
And just as importantly, it wasn’t worth foisting our system onto their friends who would also have to learn it. This last point is really important for anyone relying upon a viral loop for growth. The fact that your users are required to spread your product magnifies the learning curve challenge. Your user not only has to understand how the product works for themselves, they also have to be confident that their friends are going to understand and like using it as well. The virality of the product, although an amazing advantage, raised our customer adoption bar even higher.
So the product was too complicated which led people not to create content, which created less utility and engagement than was required for our social network to take off. Perceived utility + pain of existing problem < initial learning curve. Our network effect was not working.
With our short cash runway, we had time to digest this market feedback and make one quick attempt at a pivot. There wasn’t runway to start a new, simplified product from scratch, and stripping out features “Jenga style” seemed too risky. So we focused on the utility side of the model and the problem of content creation. What else could we do to accelerate content generation? Our answer: get in the content creation business ourselves. We spun up a test. In the model of Sosh, we started curating and pushing curated “what to do” content to users in certain zip codes. Users could then browse interesting stuff to do in their community, share it with friends to gauge interest, and ultimately, schedule it using the planning tools we had built. Our initial “why” use case shifted to using Nextt to discover fun and interesting things to do. A much easier use case to understand and start to engage in that required little work. And our planning features simply rode along with this “what to do” content, making it easy to actually connect with friends and plan the things that caught your attention.
Although I think this combination of what to do content and user-planning utility could be a winning recipe in the social planning space, we simply weren’t able to move the needle on our weekly growth rate in the short window of time we had to run this experiment at Nextt.
Know When to Hold Em’ and When to Fold Em’
“A start up is a temporary organization designed to find a viable, sustainable business model” Steve Blank
Nextt started our test with “what to do” content several weeks before facing the decision whether to raise more cash or shut down. This hold em’ or fold em’ decision is one that entrepreneurs struggle with because we are by nature optimistic. We always see opportunity in the set backs and near-death experiences that our companies inevitably face. Never say die. Refuse to lose. We live by this mantra. So it is VERY difficult to face the hard facts and make the decision to shut down. As a founder of a company, I would give the following advice:
Recognize that you are biggest investor and invest wisely. Just because you can raise more money for your startup doesn’t mean that you should. It’s so hard to decide whether your company is in a death spiral or is just one missing piece away from taking flight. One way to suss this out and to counteract the bias towards always charging forward is to recognize that as a founder, you are the biggest investor in the company. In addition to $’s you put into the company, you are also investing your time, your energy, your very life in the venture. Make sure you consider this investment during your near death decision points. Is the opportunity still worth my large, ongoing investment? What is my opportunity cost? Think in this way and you will likely align your interests with the other pure-play investors in the company creating trust, transparency and ultimately, the best decision for everyone.
Did you pivot or just create baggage you have to carry along? Every startup iterates and changes, but there is a real difference between a company that pivots with purpose and one that is simply flailing around. Know the difference. The key litmus test for me is whether the work that you’ve already done, the company and the features that you’ve already built feel like an asset that gives you a competitive advantage or like baggage that weighs you down. To put another way, ask yourself whether you’d have a better chance of success with your pivot if you started a new venture from scratch?
Face your key metrics with discipline and perspective. When you raise money, make sure you are completely transparent with investors about what you are going to accomplish with their money. Tell them what you plan to do, communicate with them along the way, and show them at the end what you actually did. Pretty simple to say, sometimes hard to do when you are in the heat of the battle. Work hard to make this happen and have the discipline to measure and face the results. Don’t reinvent history.
Applying this advice at Nextt led us to shut down the service rather than raise more investment capital or take on a venture loan from the State of Wisconsin that was available to us. We set up Nextt as a temporary organization to take a big swing in the social media market. We always knew that our opportunity was a bit of a “get big fast” moon shot and we worked really hard to be completely transparent about this with our investors. If we could launch and achieve a solid weekly growth rate we had the opportunity for a company with a “B” in its market valuation. If we didn’t, we weren’t going to continue to plow more of our money or time into a free service that had to get huge in order to generate any revenue. Although I believe our move into content creation held promise, we weren’t able to validate it via an improving weekly growth rate. And our core planning utility features felt like an added complication in this new use case rather than a key strategic asset that would allow us to out compete others in the space.
In the end, I feel like we took a very solid run at this opportunity and worked really hard to find that grow big fast recipe in the social planning space. My critique and mistakes are highlighted above, but I think overall we did what we said we would do with our seed investment, including building a strong team, creating a great brand promise and testing and iterating a first generation product. And we also decided, as investors around the same table, that the results of that work and the weekly growth rate we were able to achieve did not warrant further investment.
So that’s the final take away lesson: say what you plan to do, make a good run at doing what you said you would do, and face the results with discipline, transparency and the perspective of an investor. And keep practicing.
I remain convinced that we need a brand and service that optimizes our social future and that gets us back into the real world more often to experience life together with our face to face friends. I hope that someone takes the lessons from Nextt and the other failed start-ups in this space to create a winning model.
Thanks to everyone I worked with at Nextt. My hope is that you all look back on the experience as a valuable one that advanced your career. And thanks to the investors that made our efforts possible. I am deeply grateful to each of you.